What are Bad Credit Student Loans?

A common question I receive from both student and parent borrowers is in regard to the existence of so-called bad credit student loans, and how to apply for student loans with bad credit.

The truth is that there is no specialized type of bad credit student loan, and rather the best answer I can give to such a question always consists of an explanation of what type of education loans are available today, and how to acquire such funding.

Here is quick review of what type of education loans are available:

• Federal Student Loans
• Private Student Loans
• Consolidation Loans
• Miscellaneous Loans for Educational Expenses

Federal Student Loans

Federal student loans aren’t based on credit, and can therefore be obtained without the need of having a good credit score, or established credit history.

The exceptions of course are the two categories of PLUS Loans, which are heavily based on either the parents’ or student borrower’s credit profile.

I recommend to students and parents to complete their FAFSA as soon as possible, as that will give them a better idea of what they will need in additional aid besides what they can get via federal aid.

The bottom-line is that besides PLUS Loans, most federal aid is based on need and other factors, not credit, and therefore should be applied for regardless of having good credit.

Private Student Loans

Getting a private student loan with bad credit is almost impossible unless you have a credit-worthy cosigner.

Most lenders require their student borrowers to apply with a cosigner, and if not, have at least fair to good credit, a solid income, and an established employment history in order to get an approval.

Most students of course don’t have these credentials in place, and therefore need a cosigner to get approved.

Applying with a credit-worthy cosigner will typically yield a fast approval, although this will depend on the lender, and the cosigner’s credentials as well.

Existence of so-called bad credit private student loans

About five years ago before the credit markets tanked there were some private student loan lenders that were willing to make exceptions with regard to credit.

Most of these lenders have gone the way of the dinosaur however, and now virtually all private student loan lenders want to see that their borrowers have at the very least a fair credit score, and a 2-3 year credit history.

I recommend to students to not even attempt locating a private lender if their credit is bad and they don’t have a cosigner, as private student loans for bad credit borrowers are simply not available anymore.

Consolidation and Other Types of Loans

Consolidation loans aren’t typically the type of loans that people are referring to when they ask me this question, although I figure they are worth mentioning due to the fact that they are based on credit, and cannot be obtained with poor credit.

The consolidation loan I recommend that students look into is the Direct Consolidation Loan, as this type of consolidation loan can consolidate federal student loan debt with ease, and is made at a competitive interest rate.

Other Types of Loans

The idea of the existence of so-called bad credit student loans in my opinion is mostly due to the prevalence, and rapid growth of the personal and payday loan markets.

These loans can be made to you if you have bad credit, and of course can be used for just about anything you want.

Lenders that provide such loans come up with all sorts of exotic marketing campaigns to get potential applicants in the door, and I’ve seen many through the years advertise their loan products as education loans.

Well, the bottom-line is that they are not real education loans, nor authentic private student loans, and I recommend to students that they be avoided unless some very serious circumstances warrant the applying for such loans.

Student and parent borrowers should be able to make a clear distinction between these kinds of loans, and true federal and private student loans, as while personal and payday loans are bad credit loans, most student loans shouldn’t really be referred to in this way.