Do Federal Student Loans Check Credit?
Clarify federal student loan eligibility. Understand when credit history is considered and what actual criteria determine your access to aid.
Many individuals wonder about the role of credit history in obtaining federal student loans. Understanding how credit checks apply provides a clear picture of the requirements for federal student aid.
Understanding Federal Student Loans and Credit Checks
For the majority of federal student loan programs, an applicant’s credit history is not a factor in determining eligibility. This includes common loan types such as Direct Subsidized Loans and Direct Unsubsidized Loans. These loans are designed to be broadly accessible, supporting students regardless of their past credit behavior.
Direct Subsidized Loans are awarded based on demonstrated financial need, with the government paying interest during certain periods. Direct Unsubsidized Loans are available to both undergraduate and graduate students without a financial need requirement, though interest accrues from disbursement. The federal government guarantees these loans, meaning a credit check or co-signer is not necessary for approval.
In contrast, private student loans, offered by banks or other financial institutions, almost always require a credit check. Private lenders assess credit scores and income to determine eligibility and interest rates, often requiring a co-signer if the student has limited or poor credit history.
Federal Student Loans That Do Consider Credit
While most federal student loans do not involve a credit check, Direct PLUS Loans do. This category includes Parent PLUS Loans for parents of dependent undergraduate students, and Grad PLUS Loans for graduate and professional students. For these loans, the U.S. Department of Education conducts a credit check to ensure the applicant does not have an “adverse credit history.”
An adverse credit history is a check for specific negative financial markers. These include being 90 or more days delinquent on debts exceeding $2,085, or having debts placed in collection or charged off within the past two years. It also encompasses major financial events within the last five years such as bankruptcy discharge, foreclosure, repossession, tax liens, wage garnishments, or a write-off of a federal student aid debt.
If an applicant has an adverse credit history, pathways exist to qualify for a PLUS Loan. One option is to obtain an endorser, similar to a co-signer, who does not have an adverse credit history. Another possibility is to document extenuating circumstances related to the adverse credit history. In either case, the applicant must complete PLUS Credit Counseling.
Other Eligibility Requirements for Federal Student Loans
Since credit history is generally not a barrier for most federal student loans, eligibility hinges on other important criteria. A primary requirement is completing the Free Application for Federal Student Aid (FAFSA) each year, which collects financial and personal information to determine aid eligibility. For Direct Subsidized Loans, demonstrating financial need is also a requirement, assessed through the FAFSA process.
Applicants must meet several criteria:
Be U.S. citizens or eligible non-citizens with a valid Social Security number.
Be enrolled or accepted for enrollment in an eligible degree or certificate program at an eligible educational institution.
Maintain satisfactory academic progress (SAP), meaning students must meet certain grade point average standards and progress toward completing their degree within a specified timeframe.
Additionally, students must not be in default on any existing federal student loans or owe a refund on a federal grant. They also need a high school diploma or its recognized equivalent. These non-credit related factors determine eligibility for most federal student aid programs.