Student loans are a necessity for many college students, but borrowing student loans with bad credit can be a challenge if you're applying to private lenders. Federal student loans offered through the Department of Education do not require specific credit scores, but there are pros and cons for private and public student loans. These tips can help you address credit issues that may keep you from qualifying for student loans.
Know What's in Your Credit Reports Before Applying for Student Loans
If you plan to borrow student loans from a private lender, such as a bank or credit union, your application will likely include a review of your credit history and scores. Knowing what's on your reports before applying allows you to correct any errors and take steps to improve your credit history and scores.
Identify and correct any errors on your credit reports
Errors in the public records section of your credit reports can indicate identity fraud. For example, if your name is spelled incorrectly, shows the wrong middle name or initial, or shows residential addresses where you never lived, such errors could indicate identity theft.
Check credit accounts shown on your credit reports.
Pay any past due amounts shown on your accounts before applying for student loans. Bring past-due accounts current first, then contact lenders to dispute any errors. Verify with your creditors that your accounts are current before applying for your student loans.
Be prepared to explain and document to prospective lenders any circumstances that caused credit problems
For example, if you lost your job or couldn't pay your bills due to an injury or accident, supply copies of medical bills and dates you were out of work.
Verify that you are not delinquent on any federal income taxes or previous federal student loans.
Delinquency or liens associated with federal debt or debt backed by the U.S. government can interfere with your eligibility for federal student loans.
Student Loans for Bad Credit: Available Options
Federal Direct, Stafford and Perkins loan programs
These loan programs provide eligible students with non-credit based financial aid. These programs are primarily need-based. Perkins loans are subject to income limits.
Federal student financial aid
Federal student financial aid is available through the PLUS program for parents of undergraduate students with good credit. Your parents can borrow these loans on your behalf, but they will need to have good credit.
Get a cosigner
Most private lenders require a cosigner with strong credit if you have no credit or bad credit. Borrowing student loans with a cosigner can provide an opportunity to rebuild bad credit, but it also has risks. If you don't repay a cosigned loan, your cosigner can be held responsible for the entire debt. You can ruin family relationships and friendships if you fail to repay a cosigned loan.
Discuss your financial needs with a financial aid counselor at your school. Financial aid counselors know which student loan programs are available in your state and if it's possible that you may qualify for low cost loans or grants that can eliminate how much you'll need for school. Before deciding on which student loans work best for you, it's important to request loan quotes and compare interest rates and lender fees. This process can help you find your best education loans at the lowest cost.