Article originally published October 14th, 2013. Updated October 29th, 2018.
Consumers’ credit scores can determine their ability to get auto loans, mortgages, personal loans, and all kinds of other financing. But student loans are different. It can be challenging enough to get into a certain academic program — but do students have to make a certain credit grade to be able to pay for it, too?
If you’re applying for federal loans, the answer is “No,” for the most part.
A loan applicant’s credit score does not affect access to Stafford or Perkins loans. For a Federal PLUS loan — taken out by parents of dependent undergraduate students and graduate or professional students — an applicant’s credit score isn’t taken into account, but he or she cannot have an adverse credit history, like 90-day delinquency or bankruptcy.
Federal Direct Loans are supposed to be low-interest loans, easily accessible by those who need them. They’re also nearly impossible to discharge through bankruptcy, though payments can be restructured. Basically, a borrower is bound to student loans for life, which is why they’re easy to get.
On top of that, many college hopefuls aren’t going to have much of a credit history, if any, so factoring that into loan accessibility would severely limit students’ ability to afford higher education.
“The lack of a credit score shouldn’t stop you from applying for student loans,” said Gerri Detweiler, Credit.com’s director of consumer education. “As long as you’re not in default on another federal student loan, your credit is not a factor in getting approved for federal student loans.”
Private lenders are different, even though students are just as shackled to private loans as they are to federal ones. While some private loans do not look at credit scores in the application process, most do, and borrowers could have a tough time getting one with a FICO score below 650, according to finaid.org.
Many college financing experts recommend federal loans over private ones, as federal loan repayment can be more flexible. But if private loans are part of your plan for financing education, you’ll want to check your credit scores.
Additionally, there are tools that allow you to do that for free (Credit.com’s Credit Report Card, for example, gives you your credit scores, as well as a breakdown of your credit profile so you can see which scoring factors you need to work on).
Even if you’re not looking at private student loans, there’s still that bit of credit history the Department of Education looks at for PLUS loans. Any negative marks will be easy to spot on a credit report, and consumers are entitled to a free annual copy of their report from each of the three major credit bureaus.
Federal or Private Student Loans
Different loan types come with different terms and conditions. However, a student loan will come in the form of either a federal student loan or a private student loan. Federal student loans, as the name implies, are funded by the government and private student loans are given by banks and other financial institutions.
With federal student loans, you will most likely find fixed interest rates, and you will have the ability to restructure the payments in the future. But with private student loans, you may not have some of those benefits.
Deferment and Forbearance
Sometimes you may find that it can be challenging to continue to pay your student loan payments month after month. In cases such as these, forbearance and deferment can help the borrower.
Forbearance will allow you to take a break from making the loan payments or can reduce the monthly payment for a specified amount of time to give the borrower a break. A deferment allows you to stop paying the interest on the account. You will need to check with the lender to see if these are options you can take advantage of in the future.
Boost Your Credit Score
When you get student loans and pay them on time as you are supposed to, you will find that it will begin to help improve your credit and boost your credit score. It also provides you with a pretty lengthy credit history. However, as soon as you default on your loans, it could mean disaster for your credit history.
Student loans are often treated as installment loan plans by the three major credit bureaus so maintaining a positive payment history is essential.
Student Loans for Bad Credit
Most student loans don’t actually take your financial health into account. Therefore, you will find that it is much easier to qualify for federal student loans than it is to qualify for other types of loans.
Federal student loans should always be your first option when finding student loans.
If you choose private student loans, however, your credit history and activity will be taken into account, and most lenders will require a higher credit score for you to qualify for the additional funds. You may also find that if you have less-than-perfect credit, you will end up paying much higher interest rates on private student loans.
Types of Student Loans for Bad Credit
The following are two student loan options for students with bad credit and those who do not have access to a cosigner to help them secure a loan.
Federal Direct Student Loan: any U.S. citizen is eligible as long as they fill out a FAFSA. Subsidized loans are available for students that have financial needs. The loan term is between ten and twenty-five years, and you have the choice of several different repayment plans and a grace period of six months.
Ascent Independent Student Loan: This loan is available for juniors, seniors, and graduate students who do not have a credit history, good credit standing, or a cosigner. You have to be a citizen and meet all the financial requirements, and you can’t have previously defaulted on a private or government-funded student loan. The loan term is between ten and fifteen years with a deferred repayment option and a grace period of six months.
The bottom line is no. You don’t necessarily have to have a good credit score in order to get student loans. However, you will want to do your research and weigh each option carefully before committing to a loan that you may not be able to repay.