Student loans are one area of lending where bad credit does not necessarily preclude you from consolidation your accounts to take advantage of lower rates. Whether bad credit hinders your application depends largely on what type of student loans you own. Federal student loans usually offer guaranteed consolidation, while private loans are much harder to consolidate.
Identification
If you have a federal student loan, you automatically qualify for federal student loan consolidation as long as you are not in school. In 2010, the Department of Education allowed students to consolidate federal student loans while attending school if the borrower put in an application on or after July 1, 2010, and before July 1, 2011. Federal student loans are not dependent on a credit check.
Private Student Loans
Private lenders of student loans have more leeway to reject an application for consolidation for bad credit. The 2008 credit crisis forced many lenders to give up their student loan consolidation programs. Some lenders even suspended consolidating federal student loan. If you have bad credit, you might still find a private student consolidation loan in 2011, but you might not receive one with a lower interest rate.
Considerations
Compare the interest rate offered by the lender offering consolidation versus the original loan. Loan originators usually offer better rates than loan consolidation companies. However, if consolidating loans means you won't default, this will be better for your credit score in the long run. School loans are essentially protected from a bankruptcy discharge, so falling behind on payments can continue the cycle of bad credit for years.
Tip
A consolidation loan from a new lender will probably drop your score a few points because the creditor will perform a hard inquiry into your credit history. If you consolidate with an existing lender, your score will likely stay the same, according to MyFICO.com. Usually when you consolidate with an existing lender, the company will make adjustments to your accounts rather than opening a new one.
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