Is it Hard to Get Financial Aid for College If You Have Bad Credit?

Federal Aid Eligibility

The federal government offers many types of loans and grants to applicants who have bad credit. The only credit-related mistakes that disqualify you from federal aid eligibility are being in default on a federal student loan or owing federal grant money. You might owe grant money if you received a federal grant for schooling, did not complete your classes that semester and received a refund from your school. If you are in default on a federal student loan, catch up on payments to get your loan back into a status of paid as agreed to qualify for more federal aid.

For many students, federal financial aid is enough to make college affordable. Apply for aid by filling out the Free Application for Federal Student Aid (FAFSA), which determines your financial need. The federal government issues Pell Grants and other types of grants to students with financial need. You also might qualify for subsidized Stafford or Perkins loans on which the government pays interest while you are in school. Even if you do not have any financial need, you can still get unsubsidized Stafford loans, which have a 6.8 percent fixed interest rate as of 2011. The government does not use your credit score to affect any of these financial aid decisions.

Many schools, especially private colleges, offer scholarships and grants to students. Schools often use performance in academics and sports to identify scholarship recipients. Grants are often need-based and use the financial information you provide on the FAFSA to determine eligibility. Like federal aid, schools do not consider your creditworthiness when issuing scholarships and grants.

The major area in which your credit score comes into play is if you are looking to get private student loans. Because the loans are funded by private companies, they have the right to screen borrowers and deny aid to people who pose too much of a risk. Private lenders use your credit score to determine eligibility. In addition, your credit score affects the maximum amount you can borrow, the fees you pay and your interest rate. Most private lenders require college students to apply with a cosigner because students do not have enough credit history to qualify on their own. If you know someone who has good credit and is willing to sign on the loan, you can obtain a loan even if you have bad credit. However, your cosigner must agree to be held responsible for repaying the debt if you fail to.