The impact of your credit score on obtaining a student loan depends on the type of student loan being sought. Some student loans do not require a credit check, but for some other student loans, applications may be denied or high interest rates will be charged if you have bad credit.
Stafford and Perkins Loans
The federal Stafford and Perkins student loans do not require a credit check. Therefore, applicants with a bad credit or no credit history can obtain Stafford and Perkins loans. These loans are guaranteed by the federal government and are designed to make college education more accessible. However, repayment standards are stricter, with rules that prohibit discharging the loans in bankruptcy and that allow the lender to garnish wages if the loan is in default.
Graduate PLUS Loans
Graduate students can take out PLUS loans, which are another type of federal loan. These loans do not require a full credit check, but an adverse credit history may disqualify an applicant for a PLUS loan. An "adverse credit history" is defined as having a credit account of any type in which payment currently is at least 90 days past due or having an account in default on a loan.
Federal Loan Exceptions
The federal government can deny a Stafford or Perkins loans for two credit-related reasons. One is if you currently are in default on a federal student loan, which occurs when you fail to make a payment on your loan for 270 days after it is due. The other is if you owe the federal government money for a grant. This might occur if you withdraw from school before completing 60 percent of the classes and do not return the required grant money to the federal government.
Private Student Loans
Private student loans offered through banks and credit unions do require a full credit check. Each lender has its own standards for how high your credit score must be for loan approval. In addition, the lender typically offers lower interest rates to people with excellent credit. If your credit is not good enough to get a private student loan, you can apply with a co-signer who has a better credit score. Because the co-signer agrees to be held responsible for repayment of the loan, the bank bases the loan offer on the co-signer's credit score instead of yours.
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