Credit and Student Loans

Credit plays an important role in determining eligibility for private student loans, Direct PLUS loans or Direct Grad PLUS Loans. Direct Subsidized and Unsubsidized loans and Perkins loans are not based on credit, but cannot be obtained if the borrower is in default on another federal student loan or owes a refund on a Title IV grant such as the Pell grant.

Can I Get Student Loans with Bad Credit?

Yes. Direct Student Loans are not based on the student’s credit history or credit-worthiness. A student wishing to borrow a a Grad PLUS loan or a parent wishing to borrow a PLUS loan with adverse credit can borrow as long as they are able to obtain a credit worthy co-signer. In the PLUS program, a co-signer is referred to as an endorser.

Students who need to utilize private student loans will almost always need a co-signer. Private student loans, like other unsecured loans take other factors into consideration like income and debt when determing eligibility. Most students will not meet the minimum income requirements. However, some students who have established careers and good credit may qualify. If the student wishing to borrow is new to credit, has no or little income or a lot of debt relative to income, it is highly likely the student will need a co-signer to borrow a private student loan.

Who Can Co-sign for a Loan?

Often, a student or parent will ask a family member with good credit to co-sign or endorse their loan. However, any creditworthy individual can co-sign another’s loan. As long as the co-signer meets the citizenship and credit requirements established for the loan being sought, that person can co-sign.

What are the Responsibilities of a Co-signer?

By co-signing a student loan, the co-signer is assuming the responsibility to repay the loan in the event the primary borrower fails to do so. As such, a co-signer is assuming all of the same obligations of the primary borrower. As a co-signer, it’s important to consider your ability to assume the financial responsibility of repaying the borrower’s loan in the event they cannot do so.

Co-signers can be released in some circumstances if the loan program provides such a release. Release from the co-signer obligation usually involves the student making a number of regular on-time payment and meeting other credit criteria such as minimum income requirements and a satisfactory ratio of debt to income.

What is ‘Good Credit’?

There’s no hard and fast answer to this question. Private student loan lenders establish their own underwriting criteria for the loans they offer. Underwriting refers to the requirements a lender sets for a borrower to qualify for a particular loan program. These criteria can include the borrower’s credit score based on reporting from one (or more) of the three major credit bureaus. The borrower's credit report and score give the lender the ability to review such items as collections, judgments, payment history, indebtedness and other factors in determining whether or not to make an offer of credit. These credit criteria apply to co-signers as well. Each lender sets their own criteria.

Borrowers of Grad PLUS and Parent PLUS will likely be approved provided they have no adverse credit history. The borrower is deemed to have an adverse credit history if there has been a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a Title IV debt within the last five years or a current delinquency of 90 or more days on any debt.