Are There School Loans for Bad Credit?
College can be expensive, and student loans are often necessary. But what are your options if you need school loans for bad credit?
Contributing Writer at Tally
July 15, 2022
The average cost to attend college ranges into tens of thousands of dollars per year depending on what type of school you attend. Many college students don’t have this sort of cash flow readily available, meaning student loans often become part of the equation.
For people with bad credit, the word “loan” is generally synonymous with “denied.” Fortunately, there are school loans for bad credit that give you the funds you need for higher education. Read on to learn a bit about these bad credit student loans and how to secure them below.
Federal Student Loans
The federal government should be your first stop when seeking student loans for bad credit, as many of these loans require no credit check or minimum credit score. Plus, the loans that do require a credit check have less stringent credit report requirements for approval.
You can gain access to these loans by first completing the Free Application for Federal Student Aid (FAFSA), which determines your financial need for federal student aid. After completing the FAFSA, you’ll find out which of the three federal student loans you’re eligible for and how much you can borrow.
The three federal school loans for bad credit are as follows.
Direct Unsubsidized Loans
Direct unsubsidized loans are available to all graduate and undergraduate students eligible for federal student loans. Your school ultimately determines how much you can borrow using the Direct Unsubsidized Loan program, but the Department of Education also has borrowing caps for students. The caps are as follows:
First-year undergraduate: $5,500 per year for dependent students and $9,500 per year for independent students
Second-year undergraduate: $6,500 per year for dependent students and $10,500 per year for independent students
Third-year undergraduate and beyond: $7,500 per year for dependent students and $12,500 per year for independent students
Graduate or professional student: $20,500 per year
In total, undergraduate students can receive up to $57,500 in direct unsubsidized loans, while professional and graduate students can take out up to $138,500. The amount you can borrow per year and throughout your school career is determined by the cost of attendance at your school.
To be eligible for a direct unsubsidized loan, you must enroll at least halftime in a school participating in the loan program. No credit check is required so your credit score and credit history don’t matter, but you must complete the FAFSA.
As of June 2021, the interest rate on direct unsubsidized loans is 4.99% for undergraduate students and 6.54% for graduate students.
Direct Subsidized Loans
Direct subsidized loans are also available to undergraduate and graduate students, but they require a financial need determined by your FAFSA. The less financial aid your FAFSA determines you need, the fewer direct subsidized loans you’re permitted to take out.
The key benefit of direct subsidized loans is that the U.S. Department of Education pays the interest during certain times, including:
When you’re enrolled in school at least halftime
The first six months after you leave school
When the loans enter deferment
Like direct unsubsidized loans, direct subsidized loans also have loan limits, which are:
First-year undergraduate: $3,500 per year
Second-year undergraduate: $4,500 per year
Third-year and beyond undergraduate: $5,500 per year
Graduate or professional student: Ineligible
The total amount of direct subsidized loans that an undergraduate can borrow throughout their time in school is $23,000, while a professional or grad student can take out up to $65,500.
Direct subsidized loans have the same eligibility requirements and 4.99% interest rate for undergrad students as direct unsubsidized loans.
Direct PLUS Loans
Direct PLUS loans are federal student loans given to parents of undergraduates to pay for schooling. Professional graduate students can also receive these loans firsthand. When given to a parent, these are commonly referred to as Parent PLUS Loans or a Grad Plus Loan when issued to a graduate or professional student.
These loans require a credit check, but the U.S. Department of Education isn’t concerned with your creditworthiness. Instead, it’s only checking for “adverse credit history,” which it defines as:
Having an account with a balance greater than $2,085 that is more than 90 days delinquent or is in collections
Default determination in the past five years
Bankruptcy in the last five years
Repossession in the previous five years
Foreclosure in the previous five years
Federal student aid write-off/charge-off in the previous five years
Wage garnishment in the previous five years
Tax lien in the previous five years
Generally, you’ll apply for a Direct PLUS loan online but make sure to check with your school’s financial aid office for its application process.
Direct PLUS loans carry a 7.54% interest rate as of June 2021.
Private Student Loans
While private student loans will have stricter FICO credit score requirements than federal loans, some private lenders offer bad credit student loan options. With these loans, you can expect a higher interest rate and other not-so-favorable loan terms that sometimes come along with poor credit.
You can also go another route and get a cosigner with good credit to qualify for lower-interest-rate private student loans or get approved for a higher loan amount on your behalf.
The downside of private loans is that they don’t have the flexible repayment terms that a federal loan does, such as in-school deferments, six-month grace period, income-based repayment plans, hardship forbearance and loan forgiveness. Also, because these are essentially personal loans, there may be significant origination fees and other loan costs.
Private student loans are available from various lenders, including banks, credit unions and online lenders.
If you already have a credit card, you can also use it to pay for school tuition without filling out any loan applications. Simply head to the financial aid office and tell them you intend to pay by credit card. They will either take your payment immediately or direct you to an online payment portal.
The downside is that you’ll pay double-digit interest unless you have a credit card with a low-interest promotion, like 0% APR for 12 months. Plus, like private student loans, you’ll have monthly payments while in school and credit cards usually have a variable interest rate, so your payments can change.
Credit cards may have some hardship options, but they’re generally not as forgiving as federal student loans for bad credit.
Yes, There Are School Loans for Bad Credit
While bad credit can stand in the way of financing many things, your education isn’t one of them. Thanks to no-credit-check federal student loans, college students can secure school loans for bad credit to pay for their higher education. Plus, if the federal loans aren’t enough to cover the cost of attendance, there are other options, including private lenders that work with people with bad credit, getting a cosigner or even using a credit card.
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