What is a bad credit student loan?
A bad credit student loan is a private or federal student loan that's tailored to individuals with a poor credit score — 580 or lower — or thin credit history. Like other student loans, they can only be used for approved academic related expenses, like tuition, books or room and board.
Most private student loan lenders require that borrowers be in excellent financial shape or have a creditworthy co-signer to get approved. However, lenders that cater to students with bad credit consider factors beyond their score, like academic performance, enrollment or projected career outcomes.
How bad credit student loans work
Bad credit student loans are distributed by the Education Department or by a private loan servicer. Funds are often sent directly to your school and are reflected in your student account, rather than your bank account.
It's common for bad credit lenders to tack on higher interest rates and offer smaller loan amounts than you'd get with a traditional student loan. This is because the lender assumes less risk with creditworthy borrowers. So, it's important to maximize your federal student loans before turning to private regardless of your credit standing. If you do need to take out a private loan, having a creditworthy co-signer can help improve your rate and loan terms.
Bad credit student loans come with usage restrictions that are set by each lender. However, some private lenders are more lenient than others. For example, one lender may approve necessary technology expenses, like a laptop or tablet, while another could prohibit technology purchases.
Types of bad credit student loans
Federal and private student loans are the two primary types of bad credit student loans. Aside from using a co-signer with good credit on a student loan, there aren't many other options for borrowers.
Some schools offer private loans or need-based aid through the financial aid office. However, these may come with higher rates or could come with strict application timelines, so do your research and consult the aid office before applying.