Can you get a student loan with bad credit? Will bad credit affect my student loan at all?
At Bamboo, we get asked a lot of questions about loans, borrowing and bad credit, so we thought that – as part of a series of blog posts – we’d take some of the most common questions asked about borrowing and answer them in a bit of depth.
Today’s question: can you get a student loan with bad credit?
That’s a very good question that has a very simple answer: yes, you certainly can.
The reason it is so simple to answer is because student loans are quite different to your usual, everyday personal loans.
How to get a student loan with bad credit?
Student loans are handled by one agency that pays most of the amount you’re borrowing (the tuition fees) directly to the university. The remaining balance – the maintenance loan (and grant) are paid to you in three instalments. And – best of all – you have no obligation to repay it if you fail to earn over the threshold (£21,000) after you’ve left university.
In fact, while they are technically loans, they don’t function like loans at all.
On top of the fact that you aren’t legally obligated to repay the balance if you’re unable to, student loans are means tested based on your parents’ income (or your own, if you’re a mature student). That is an unusual lending mechanism that you certainly wouldn’t see outside of student loans.
Some facts about getting a student loan with bad credit
There’s also the fact that the amount you borrow – anywhere upwards of £50,000 for most students – is not considered a debt in the general sense of the word.
What you repay solely depends on what you earn after university. In effect this is, financially at least, a ‘no win, no fee’ education. Those who earn a lot after graduating or leaving university will repay a lot. Those who don’t gain too much financially from going to university will repay little or nothing.– Martin Lewis, Money Saving Expert..
You may hear students say: ‘I’m £60,000 in debt because of university’ but it’s not the same kind of debt as £60,000 of personal loan or mortgage debt.
Not only is it not a traditional debt because you have no obligation to pay it back and no fixed repayments, but because the debt is wiped out after 30 years whether you’ve repaid it or not. (The repayment plan takes 9% of every £1000 you earn over the threshold. For instance, if you earn £22,000 after you leave university, you will pay £90 every year, which is less than £8 a month.)
That also means that – as a rule – credit companies don’t count your student loan when considering borrowing applications.
Will bad credit affect my student loan at all?
As we’ve just pointed out, Student Loans (at least, the student loans offered by the Student Loans Company) don’t function like regular loans. They’re means tested rather than based on a credit check. So, if you’ve got a poor credit score, it shouldn’t make a bit of difference to your student loan application.
However, a bad credit score can still make things a little tricky when you’re at university. Some banks won’t allow you to have an overdraft with a poor credit score – and, as any student will tell you, overdrafts can be a lifesaver while you’re at university, especially if you don’t qualify for maintenance grants.