Can I Get a Federal Student Loan With Bad Credit?

Federal student loans offer a path to financing higher education, even for individuals with limited or challenging credit history. Most federal student loan programs do not consider an applicant’s credit score or history for eligibility.

General Eligibility for Federal Student Aid

To qualify for most federal student aid, including grants and loans, applicants must meet several requirements. An individual must be a U.S. citizen or an eligible non-citizen and possess a valid Social Security number. Enrollment in an eligible degree or certificate program at an accredited institution is also necessary. Students must maintain satisfactory academic progress as defined by their educational institution to continue receiving aid.

How Credit Affects Federal Student Loans

Most federal student loans, such as Direct Subsidized Loans and Direct Unsubsidized Loans, do not require a credit check. Students can typically qualify for these loans regardless of their credit standing.

Direct PLUS Loans, including Parent PLUS Loans for parents of undergraduates and Grad PLUS Loans for graduate or professional students, do require a credit check. The Department of Education evaluates an applicant’s credit for an “adverse credit history.” An adverse credit history is defined by specific negative financial events.

This includes having one or more debts with a combined outstanding balance greater than $2,085 that are 90 or more days delinquent as of the credit report date. It also applies if debts have been placed in collection or charged off during the two years preceding the credit report. Additionally, an adverse credit history includes events such as a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or a federal student aid write-off within the last five years. If an applicant has an adverse credit history, their PLUS loan application will typically be denied.

Applying for Federal Student Aid

The first step for accessing federal student aid is completing the Free Application for Federal Student Aid (FAFSA). This form collects financial and demographic information to determine eligibility for various aid types. To complete the FAFSA, applicants need:

Social Security number
Federal income tax returns
W-2 forms
Records of any untaxed income like child support
Current balances of cash, savings, and checking accounts
Net worth of investments
Net worth of businesses and farms

Students and, if dependent, their parents, must create an FSA ID to electronically sign and submit the FAFSA. After submission, the applicant receives a Student Aid Report (SAR), which summarizes the FAFSA data and provides an estimated Student Aid Index (SAI). Schools then use this information to create award letters detailing the financial aid package offered.

Addressing Adverse Credit for PLUS Loans

If a Direct PLUS Loan application is denied due to an adverse credit history, there are two main avenues for reconsideration: obtaining an endorser or documenting extenuating circumstances. An endorser agrees to repay the loan if the borrower fails to do so. The endorser must not have an adverse credit history and cannot be the student for whom the parent is borrowing.

Alternatively, applicants can appeal the credit decision by providing documentation of extenuating circumstances. This might include proof that information on a credit report is incorrect and has been corrected. It could also involve demonstrating that an account previously in default now has a satisfactory repayment arrangement with at least six months of on-time payments, or providing a divorce decree that releases the applicant from responsibility for certain debts. If approved, the borrower must also complete PLUS Credit Counseling before the loan can be disbursed.