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4 Options to Consolidate Student Loans if You Have Bad Credit

If you have bad credit, consolidating or refinancing your student loans can be a way to take control. (And heads up--consolidating and refinancing are two different things; we'll be talking about both). Some of your options include:

  • Signing up for a Direct Consolidation loan
  • Getting someone with good credit to co-sign
  • Looking for a lender with more tolerant requirements
  • Considering refinancing with a credit union

Read on for more details on all of these options.

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What is consolidation, really?

Many people use the terms “consolidation” and “refinancing” interchangeably, but they actually mean different things.

Consolidation only applies to federal loans, which you can bundle through a Direct Consolidation Loan with the U.S. Department of Education.

When you bundle together private loans—or a mix of private and federal—you’re actually refinancing rather than consolidating. When you refinance, a private lender pays off all your individual loans and issues you a single new loan—ideally with a lower interest rate and better terms.

Learn more about the difference between refinancing and consolidating.

In this article, we’ll talk about how you can do both—even if you have bad credit.

1. Consider a Direct Consolidation Loan

If you have federal loans, you can consolidate those with a Direct Consolidation Loan through the government—even if you’re in default. There are a few key benefits to doing this.

Consolidated loans have a fixed interest rate based on the weighted average of the interest rates on all your loans, rounded up to the closest one-eighth of a percent. If your original loans have variable interest rates, getting a fixed rate is usually a good move.

Consolidating your federal loans gives you the option of paying them through an income-driven repayment plan such as the Income-Based, Pay-As-You-Earn, or Income-Contingent plan. Any of these plans can dramatically lower your monthly payment.

2. Get someone with good credit to cosign

This advice applies to refinancing, not consolidating, your student loans. If you have both private and federal loans, you can refinance both with a private lender.

Refinancing your federal loans with a private lender will cut you off from federal benefits such as income-driven repayment plans. It will also disqualify you from student loan forgiveness programs through the government. However, refinancing with a private lender may result in a lower interest rate—so there are trade-offs.

But if your credit score isn’t great, a lower interest rate can be tough to find. And if your credit is really bad, you may have a hard time finding lenders to refinance with you at all.

Private lenders want to see a good credit history before you can refinance your student loans. If your credit is tarnished, a cosigner with great credit is the fastest way to get around that problem.

Some lenders include terms that release your cosigner after you’ve proven yourself by making regular payments for a certain length of time.

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3. Look for a lender with tolerant minimum credit requirements

Student loans are a better bet for lenders than other types of debt, because they can’t be discharged in bankruptcy. That means some lenders are a little more lenient in the credit scores they accept for student loan consolidation.

It’s important to do your due diligence, however, and make sure the lender is legitimate. People with low credit scores are prime targets for disreputable lenders.

See our picks for the best banks for student loan refinancing.

4. Take a look at credit unions

Credit unions are nonprofit banks that often serve a specific community. Because they are not for profit, they can offer better terms and lower interest rates than traditional banks do. Some will refinance your loans even if your credit score is less than ideal.

If you’re interested in exploring your options with credit unions, check out LendKey. LendKey acts as an online portal that helps you search for refinancing options through community lenders and credit unions across the country. It's a highly effective way to view loan offers that might not normally be on your radar.

If you have bad credit, you might have to look outside the box to refinance your loans—but it’s still possible. Check out this Student Loan Refinancing Calculator to see how your monthly payments might be affected. 

Additional Nitro Recommended Student Loan Lenders

Lender Rates (APR) Loan Types Terms Eligible Degrees Eligible Loans  

Sallie Mae

3.37% - 13.72%1 Variable & Fixed
10 - 15 years

Undergrad Students Learn More

View Disclosure

Ascent

3.04% - 14.75%1 Variable & Fixed
5 - 15 years

4

Undergrad & Graduate Students Learn More

View Disclosure

Earnest

2.70% - 12.78%1 Variable & Fixed
5 - 15 years

3

Undergrad & Graduate Student & Parent Learn More

View Disclosure

SoFi

2.99% - 13.60%1 Variable & Fixed
5 - 15 years

Undergrad & Graduate Student & Parent Learn More

View Disclosure

FundingU

6.99% - 12.99%1 Variable & Fixed
10 years

Undergraduate No-Cosigner Student Loan Learn More

View Disclosure

MPowerFinancing

7.52% - 14.98%1 Fixed
10 year only

Undergrad & Graduate Student Learn More

View Disclosure

Rates (APR) 3.37% - 13.72%1
Loan Types Variable & Fixed
Terms 10 - 15 years

Eligible Degrees Undergrad
Eligible Degrees Students
Rates (APR) 3.04% - 14.75%1
Loan Types Variable & Fixed
Terms 5 - 15 years

4

Eligible Degrees Undergrad & Graduate
Eligible Degrees Students
Rates (APR) 2.70% - 12.78%1
Loan Types Variable & Fixed
Terms 5 - 15 years

3

Eligible Degrees Undergrad & Graduate
Eligible Degrees Student & Parent
Rates (APR) 2.99% - 13.60%1
Loan Types Variable & Fixed
Terms 5 - 15 years

Eligible Degrees Undergrad & Graduate
Eligible Degrees Student & Parent
Rates (APR) 6.99% - 12.99%1
Loan Types Variable & Fixed
Terms 10 years

Eligible Degrees Undergraduate
Eligible Degrees No-Cosigner Student Loan
Rates (APR) 7.52% - 14.98%1
Loan Types Fixed
Terms 10 year only

Eligible Degrees Undergrad & Graduate
Eligible Degrees Student

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