Best student loans for bad credit in May 2024

What are bad credit student loans?

FICO scores, which measure how well you’ve managed credit accounts, range from 300 to 850. Many lenders use credit scores to drive their lending decisions. A FICO score of 580 or below is typically considered a bad credit score.

Bad credit student loans are a type of installment loan for those with bad or insufficient credit. Lenders offering these loans consider factors beyond credit scores, like academic performance, enrollment or projected career outcomes, to approve borrowers.

However, interest rates may be higher, as lenders consider these borrowers a higher risk of failing to pay. The only exceptions are federal loans. For these, interest rates are fixed and aren’t based on credit.

How do bad credit student loans work?

Those with poor credit can choose between federal and private student loans. Bankrate recommends that borrowers turn to federal loans first. The Department of Education sets one fixed rate for all federal borrowers, regardless of financial history and credit score.

Plus, they come with payment protections and forgiveness benefits that private lenders don't offer. For example, graduates who work in a public service position for 10 years may be eligible for Public Service Loan Forgiveness.

After applying for federal aid, borrowers can explore other financing options to fill any funding gaps.

Federal student loans

To apply for federal student loans, you just need to fill out the FAFSA. Once that’s processed, your school will send you a financial aid award letter, disclosing your loan eligibility and limit for that specific academic year. The only exception is the PLUS loan. It requires a credit check, though there is no minimum credit score.

If you accept the loan, the funds will be sent directly to your school. Your financial aid office will then deposit it and issue you a check for any leftover amount.

Federal student loans don’t require students to make payments until six months after they graduate or drop below half-time enrollment. For Direct Unsubsidized and PLUS loans, interest will accrue while you’re in school.

Private student loans

Offered by banks, credit unions and online lenders, private student loans often don't come with borrowing caps. They offer a wider range of interest rates based on your credit score. Eligibility requirements vary by lender. To apply for a bad credit student loan, you’ll need to provide the following:

• Your full name.
• Date of birth.
• Social security number.
• Financial information (income, assets, etc.).
• Contact information.

If you have a co-signer, they will also have to share these details when you apply. Additionally, you’ll have to enter the program and institution you’re attending.

Lenders often conduct a soft credit pull to see if you qualify for the loan. If you do, you’ll get a loan offer. It will include the amount you’re approved for, repayment term and interest rate.

As with federal loans, the funds will be sent to your school. Any leftover funds will be sent to you.

Some private lenders require full in-school payments or interest-only payments. Others don’t require students to make any payments until after they graduate. However, interest will accrue if you don’t make any payments. Understand your options before you apply. 

Federal vs. private student loans

Here are some of the key differences between federal and private student loans:

What if you don’t qualify for a bad credit student loan?

If you don’t qualify for a bad credit student loan, there are several options you can explore. Income share agreements and applying with the help of a co-signer are some of the most common ones.

Applying with a co-signer

A co-signer is a creditworthy friend or family member who takes on the responsibility of the loan with the borrower. Their creditworthiness can make it easier for the primary borrower to get approved for the loan and qualify for lower interest rates. 

The downside is that the co-signer is responsible for paying the loan if the primary borrower misses payments. Therefore, delinquent payments will negatively affect the co-signer's credit score. Many lenders have the option for co-signer release, which allows the borrower to release the co-signer from their obligation after a certain number of on-time payments.

How to improve your credit score for a student loan

If you don’t have a co-signer or you have some time before you need to apply for a student loan, it’s worth figuring out some ways to increase your credit score:

• Pay all of your bills early or on time: Your payment history is the most important factor in determining your FICO score. Late payments hurt your credit health, but making on-time or early payments on all of your bills can boost your credit score over time.
• Pay down other types of debt: The more debt you pay off, the lower your credit utilization, which makes up 30 percent of your FICO score. If you have several types of debt, focus on high-interest debt and unsecured debt like credit cards first.
• Get a new credit account: If you don’t have any credit history, sign up for a starter credit card. If you use your credit card to make small purchases and pay it off each month, you’ll build positive credit habits and history at the same time.
• Pay off accounts in default or collections: Consider paying off any late accounts prior to applying for a student loan. Debts in collections stay on your credit report for seven years, which could drastically reduce your chances of being approved for financing.
• Dispute credit report errors: Creditors can make mistakes, so it's smart to regularly check your credit reports. Dispute any errors that could be negatively affecting your credit score. You can check your credit reports for free weekly at AnnualCreditReport.com.

But bear in mind that interest rates on federal and private student loans are rising, mainly due to the Federal Reserve’s rate hikes over the past year. Federal student loan rates for the 2023-24 school year are half a percentage point higher than they were in 2022-23. 

Though the Fed is holding rates steady now, the previous rate hikes make it likely that interest rates will be higher next academic year. If you are considering refinancing or taking out a new private loan and don't expect rapid improvement to your credit score, it may be wise to act before rates rise further.

Student loan options for parents with bad credit

Parents with poor credit still have options to help finance their child's undergraduate or graduate degree. Parents should start with a federal parent PLUS loan, which comes with some federal benefits and can cover up to the total cost of a child's education. 

Eligibility requirements for a parent PLUS loan are less stringent than those of private student loans, so parents with bad credit can still get approved. However, adverse credit history like defaults, foreclosure or bankruptcy will make it harder to qualify. Parents with adverse credit history may add an endorser to the loan, who essentially serves as a co-signer.

Parents can also look into private student loans. Many lenders have student loans designed for parents. These loans may cover up to the full cost of a child's education and feature flexible repayment options. 

However, most private lenders have a minimum credit score requirement. If you go this route, look for lenders that accept borrowers with poor credit or take other factors into account. Parents can also apply for a loan with a creditworthy co-signer if they have bad credit or if their initial application is denied.

How we chose the best student loan providers for bad credit

The best student loans for bad credit or no credit are accessible to many borrowers and feature reasonable interest rates. To select lenders, we first sought out lenders that are available across the United States and which feature a range of loan amounts and repayment options.

To narrow down the field, we then examined lender fees, APR ranges and eligibility requirements to see which lenders kept costs as low as possible for bad-credit borrowers. Lenders were then ranked based on unique features that appeal to a specific group of borrowers — for instance, borrowers applying for a loan without a co-signer or those seeking flexible repayment terms.

We also looked into income share agreements, which can be a better option than student loans for borrowers who have no credit and no co-signer. The income share agreements featured on this page have flexible eligibility requirements and low rates.