Am I eligible to refinance my student loans?

Can I Consolidate Student Loans With Bad Credit?

Can I Consolidate Student Loans With Bad Credit?

Student loan refinancing and consolidation are great options for restructuring your debt in an effort to make your monthly payments more manageable. Some people do this right after college to eliminate the need for multiple monthly payments or to get a better interest rate. Others consolidate when they’re unable to meet their monthly obligations, in an effort to extend their repayment term, opting for lower monthly payments over a longer period of time.

But how are your options for consolidation or refinancing affected when your credit isn’t the best? If you are looking to consolidate or refinance because you’ve been unable to make ends meet, there’s a possibility you’re in a situation where your credit score may have already been dinged. But don’t worry, you still have options.

Direct Consolidation Loan With Bad Credit

First, let’s look at your federal student loan options. There is no fee to consolidate your federal student loans through the Direct Consolidation Loan program. Even if your loans are in default, you may be eligible for consolidation provided you:

a. Agree to repay your new Direct Consolidation Loan with an income-driven repayment plan; or
b. Voluntarily make three consecutive payments on-time and in full on the defaulted loans(s) prior to consolidation.

Your credit score will have no impact on your eligibility for this program, or on the interest rate of your Direct Consolidation Loan. The interest rate you receive for this type of loan is a weighted average interest rate, and it’s based on the balances and interest rates of the loans you are consolidating.

Direct Consolidation is a great option for those with bad credit who want to get a handle on their student loan payments. But remember, this option is only available for federal student loans. Private student loans cannot be consolidated with this program.

Note: You can choose to consolidate some or all of your federal student loans. You do not have to include every loan in the consolidation. For more information regarding consolidating defaulted loans, please refer to the U.S. Department of Education's Federal Student Aid Website.

Private Student Loan Consolidation With Bad Credit

What if you have bad credit, but you want to consolidate private student loans? Or, what if you are interested in potentially lowering the interest rate on both your federal and private student loans? In this case, you’re looking at pursuing private student loan consolidation via private student loan refinancing. This is where you apply for one new loan that pays off your existing student loans and leaves you with only one monthly payment. It’s interchangeably referred to as student loan consolidation or refinancing because you are essentially doing both.

Private student loan consolidation can be more difficult if you have bad credit. Because you will be taking out a new private loan from a private lender, your credit score does matter. However, most lenders allow for—and even encourage—a cosigner with a strong credit history to be included on your loan. Not only does this make the private loan possible, but your cosigner’s positive credit history can help secure you a competitive interest rate. Do keep in mind that there are degrees of ‘bad’ when it comes to credit history. It is possible to secure a cosigner and still end up getting denied a private student loan consolidation. Each lender has its own set of approval criteria.

Note: You can choose which loans you want to consolidate (i.e., you are not required to include all of your loans), and with private student loan consolidation, you can consolidate federal student loans, private student loans, or both. It’s important to note that if you consolidate federal student loans with a private loan, you will lose the benefits of the federal student loan program.

Yes! You Can Consolidate Your Student Loans if You Have Bad Credit.

It’s never too late to take control of your financial situation. Even with bad credit, you have options for both federal and private student loan consolidation. For more information on private student loan consolidation, check out our article Private Consolidation and our Private Student Loan Consolidation FAQs, and compare lender options here.

For more information on the Direct Consolidation Loan program check out our Federal Student Loan Consolidation FAQs and visit the U.S. Dept. of Education’s Federal Student Aid website.

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Am I eligible to refinance my student loans?