How To Get a Student Loan With a Bad-Credit Cosigner

You'll typically need good to excellent credit to qualify for a student loan. If you Student borrowers with bad or nonexistent credit histories often turn to cosigners to help them fund their education. In fact, about 90% of all undergraduate student loans taken out in the 2023-24 school year included a cosigner, according to Enterval Analytics.

But what if your cosigner also has bad credit? In some cases, you may still be able to secure a student loan with a bad-credit cosigner, but it may not be the best path forward. Here's what you need to know.

Current private student loan rates

Can I get a student loan if my cosigner has bad credit?

While it may be possible to get a student loan if your cosigner has bad credit, it could be challenging and far more costly. That's especially true for private student loans.

“The [private] lender is going to be looking at the cosigner almost as though they were the only one on the loan,” says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling.

He adds that the responsibility of repayment falls onto the cosigner if the primary borrower can't fulfill their obligation. As such, lenders generally seek cosigners who can independently qualify for the loan.

See Also: What To Know Before Cosigning a Student Loan

However, it's not impossible to get a student loan if your cosigner has poor credit.

“The feasibility of getting a loan depends on how poor the cosigner's credit score actually is,” says Megan Walter, senior policy analyst at the National Association of Student Financial Aid Administrators (NASFAA).

“If the cosigner's credit is only slightly below average but their income is stable and sufficient to cover the loan payments if needed, some lenders may still approve the application. If approved for a loan, the interest rate or terms may be less favorable than others,” Walter adds.

Bad credit isn't typically an issue for federal student borrowers, even in the few circumstances when a borrower may need an endorser, the federal equivalent of a cosigner.

Federal student loans issued by the Department of Education generally don't require credit checks, with the exception of Direct PLUS Loans, which include loans for parents and graduate students.

“The credit-check process for a parent PLUS loan is less intense than one for a private loan, as it is only looking for adverse credit history,” says Walter.

Federal student loans for bad credit

Students applying for federal Direct Subsidized and Unsubsidized Loans aren't subject to a credit check. To be eligible, you must show at least half-time enrollment in a degree or certificate program at an eligible school. Undergraduate students applying for Direct Subsidized Loans must also demonstrate financial need based on the data in their FAFSA submission.

If you need more funding beyond federal subsidized and unsubsidized loans, you can turn to Direct PLUS Loans. PLUS loans are for parents who want to help their child pay for college and graduate or professional students who need additional aid.

While Direct PLUS Loans don't require a strong credit score, you can't qualify if you have an adverse credit history. According to StudentAid.gov, adverse credit includes any of the following:

• Debts totaling more than $2,085 that are 90 or more days delinquent or have been placed in collections or charged off within the past 2 years.
• A default, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or federal student aid debt write-off within the past 5 years.

If you have adverse credit, you can still qualify for a PLUS loan by applying with an endorser (similar to a cosigner) or documenting extenuating circumstances to the satisfaction of the loan servicer.

See Also: No-Credit Check Student Loans

Private student loans for bad credit

If you have bad credit and need a cosigner, their financial history will definitely come into play, and their credit score is often a significant piece of the puzzle when applying for private student loans.

McClary adds that credit score is the number one consideration for lenders when reviewing cosigners, but it's not the only factor. “Do they have an income? Are they steadily employed? Are they able to keep up with their own expenses and keep their own financial house in order?”

Lenders also consider the cosigner's debt-to-income ratio (DTI), or how their total debts relate to their income. The lower the DTI, the better.

Some lenders will work with bad-credit cosigners, but it may not always be ideal. Lenders who work with bad-credit applicants are taking on more risk. As such, loans issued through these lenders have higher interest rates and potentially more or higher fees.

Be sure to fully understand the loan terms and conditions and the actual cost of borrowing, which includes fees, monthly payments, and the total interest you'll pay over the life of the loan.

How to improve your chances of approval

If you or your cosigner have bad credit, here are a few things you can do to improve your approval chances:

• Only borrow what you need: Try to minimize the amount you borrow to reduce your cosigner's financial risk. This can give you (or your cosigner) more time to improve your financial situation, improve future approval odds, and secure more favorable loan terms should you need additional financing in a future academic period.
• Look for lenders that offer cosigner release forms: Walter recommends that borrowers and their cosigners “prioritize lenders that offer cosigner release options, allowing the cosigner to be removed from the loan after a series of on-time payments.” This can limit the duration of their risk.
• Work toward improving the cosigner's credit score: If time is on your side, any efforts by your cosigner to improve their credit can increase the odds of approval and more favorable loan terms. Strategies to improve credit scores include paying bills on time, reducing debts, and avoiding applying for credit cards or opening new lines of credit.
• Secure additional income: Lenders want to know that you and your cosigner can successfully meet repayment obligations, and income is a significant factor in determining how likely that is. An additional income stream, such as from a part-time job, can help improve the odds.
• Consider an alternative cosigner: It's not always easy to find a cosigner. After all, they must take on a tremendous financial responsibility. But if your current cosigner doesn't meet the lender's requirements, it may be time to pursue an alternative cosigner.

More ways to pay for college with bad credit

If taking out a student loan isn't possible because of your credit or a bad-credit cosigner, you still have options to help manage college costs.

1. Submit the FAFSA

Completing the Free Application for Federal Student Aid (FAFSA) opens access to federal loans, grants, work-study opportunities, and scholarships, which can significantly reduce the need for borrowing.

“If cosigners aren't an option for borrowers with poor credit, federal student loans should be the first option, as they don't require a credit check or cosigner for most loan types,” says Walter.

2. Consider employer tuition assistance

Some employers offer programs that help eligible employees pursue higher education or training opportunities. These programs generally work by reimbursing employees for eligible academic expenses, such as tuition, fees, and supplies, or by paying the institution directly.

If you're currently employed, check your employee handbook or contact the human resources department to find out if your company offers this type of program and, if so, what eligibility requirements apply.

If your current employer doesn't offer a tuition assistance program, or you're unemployed, you may want to consider applying for a position at a company that does offer this benefit.

3. Make a plan to improve your credit score

For student borrowers and cosigners who are struggling to achieve loan approval, “The steps that you're taking to resolve those [credit] issues in the moment can also help your chances of getting approved or qualifying for financing,” says McClary.

McClary also recommends “reaching out to a nonprofit credit counseling agency, or visiting NFCC.org [National Foundation for Credit Counseling] to get help and to talk to somebody about how to deal with the debt management challenges you have in front of you.”