Student Loans Denied: Now What?

Most students are eligible to receive some type of financial assistance to help pay for college or a trade or vocational school. But the criteria for student loan borrowers varies, and you can be denied a student loan if you don’t meet certain requirements.

Read on to find out some of the student loan denial reasons and what you can do if your application is turned down.

Student Loans Explained

As the average cost of college tuition continues to rise, many students need to take out student loans to pay for it, along with room and board and other education expenses.

There are two main categories of student loans borrowers can choose from to help cover their costs:

•   Federal loans offered by the Education Department

•   Private loans provided by banks, credit unions, and online lenders.

Federal Student Loans

Most borrowers (approximately 92%) take out federal loans. Federal student loans are generally easier to qualify for, and they come with more benefits and protections than private loans do. The interest on federal loans is fixed and may be lower than that of some private loans. And if you demonstrate financial need, the government will pay the interest on some federal loans while you’re in school.

The types of federal student loans include Direct subsidized and unsubsidized loans, and Direct PLUS loans for parents taking out money for a child’s education (known as Parent PLUS loans) and graduate or professional students (referred to as Grad PLUS loans).

Private Student Loans

There are limits on how much students can borrow each year using federal loans, which is why they may turn to private student loans to fill the gap in their college funding. Students can use private loans to pay for tuition, fees, housing, books, and education-related supplies.

The interest rate on private student loans may be fixed or variable, and unlike federal loans, a credit check is required for a borrower to qualify. If a college student doesn’t have a strong enough credit history, they may need a cosigner on the loan for approval and to get a competitive interest rate.

Keep in mind, though, if the rate you get is high, you can consider the option to refinance student loans in the future when you may be able to qualify for a lower rate and more favorable terms. Just be aware that if you refinance federal loans, you’ll no longer have access to federal benefits and protections.

See what refinancing might save you with a student loan refinancing calculator.

Can You Get Denied for Student Loans?

You can be denied a student loan if you don’t meet certain eligibility criteria.

With federal student loans, there are some standard qualifications that all applicants must satisfy, including being accepted to or enrolled in an eligible degree program and maintaining your grades.

The requirements for private student loans are determined by each lender. Private lenders tend to focus on an applicant’s creditworthiness and ability to repay the loan. If your credit history is not strong enough, you could be denied a student loan.

Do I Qualify for Student Loans?

Eligibility for getting a student loan depends on whether you’re applying for a federal or private loan. Here are some of the basic qualifications that need to be met.

Standard Federal Loan Qualifications

In order to be considered for a federal student loan, you must first fill out the FAFSA®, which is the Free Application for Federal Student Aid. Federal student loan applicants need to meet a number of basic eligibility requirements, including:

•   Having a high school diploma or equivalent certificate to show you’re qualified to obtain a college or career school education

•   Being a U.S. citizen, a U.S. national, or an eligible noncitizen with a green card

•   Arrival-Departure Record (I-94), battered immigrant status, or T-visa

•   Having a valid Social Security number (with the exception of students from the Republic of the Marshall Islands, Federated States of Micronesia, and the Republic of Palau)

•   Being accepted for enrollment or enrolled as a regular student in an eligible degree or certificate program

•   Maintaining satisfactory academic progress based on the standards of your school

•   Providing consent and approval to have your federal tax information transferred directly into your FAFSA form.

•   Signing the certification statement on the FAFSA form stating that you are not in default on a federal student loan, don’t owe money on a federal student grant, and will only use federal student aid for educational costs

•   Demonstrating financial need to get some types of federal loans such as Direct Subsidized Loans.

Private Student Loan Qualifications

Private lenders typically require borrowers to have a strong credit history or a qualifying cosigner, and they may ask for proof of income. Here are some of the requirements you can expect when you apply for a private student loan:

•   Applicants must typically be at least 18 and U.S. citizens or permanent residents. Some lenders may consider international students if they have a willing cosigner who is a U.S. citizen.

•   A specific minimum credit score. While each lender has different requirements for a borrower’s or cosigner’s minimum credit score, an acceptable score is typically around 650. The higher the score, the more likely it is that you’ll be offered a lower interest rate and better loan terms.

•   Students must generally be enrolled full- or half-time at an accredited institution.

What to Do After Being Denied Student Loans

If your application for a federal or private student loan is denied, don’t give up. There are steps you can take to help get the necessary funds for your education.

1. Understand Why You Were Denied

If you were denied a federal student loan, reviewing your FAFSA Submission Summary, formerly known as the Student Aid Report (SAR), can help you determine the reason. Use it to check your application for errors and then make any necessary corrections. You can find your Submission Summary on the dashboard of your StudentAid.gov account after your FAFSA has been processed.

If a private lender denied your student loan application, you should receive a notice explaining why you were not approved. The Equal Opportunity Credit Act (ECOA) requires that when a creditor takes “adverse action” against an applicant, it must provide a notice with specific and accurate reasons why.

For both federal and private loans, if the denial was based on incorrect or missing information, you may be able to file an appeal. Consult the financial aid office at your college for information about the appeals process for federal student loans, and talk to your lender about how to appeal a private loan denial.

2. Wait and Apply Again

If you were denied a private student loan based on your credit history, you could apply again after you’ve had a chance to build your credit. Or you may want to add a cosigner and reapply — see more about these options below.

If you applied for a federal loan and were denied, identify the reason for the denial and try to fix it. For example, if your GPA is low, work on improving it.

3. Apply to Multiple Lenders

Private lenders often have different criteria for student loans, so shop around for the best terms. You can check the loan requirements, interest rates, and other loan terms and conditions from various lenders.

You can also prequalify online with multiple lenders to see what rates and terms you can get. Then you can pick the lender that offers the terms most suitable to your situation.

4. Consider a Creditworthy Cosigner

Many college students don’t yet have a robust credit history. If your credit (or lack thereof) is the reason you were denied a student loan, consider adding a creditworthy cosigner such as a parent, relative, or another person you have a close relationship with, to your loan application.

A cosigner is someone who agrees to repay the loan if you cannot repay your debt. Having a cosigner could help you get a loan; they might even help you secure a lower interest rate, depending on their cosigner’s financial and credit history.

It’s important to understand that a cosigner takes on equal responsibility to repay the loan. If you make late payments or default on your student loan, it could harm the cosigner’s credit. You may want to have an honest conversation with your prospective cosigner ahead of time to discuss the possible risks and a plan for how you would eventually repay them if you can’t make your loan payments.

5. Improve Your Credit Before Reapplying

Another option is to improve your own credit before reapplying for a student loan. If you don’t have a credit card, for example, apply for one — if you have trouble qualifying, there are credit cards designed specifically for students. Once you get credit, pay your bills on time consistently every month. Payment history accounts for the largest (35%) of the factors that are used to determine credit scores.

And don’t use too much of your available credit. Your credit utilization rate (or “amounts owed”) also impacts your credit score. Try not to incur too much debt.

6. Explore Alternative Funding Sources

As you work to address the reason for your denial for federal or private student loans, you can seek out other forms of financial aid, such as scholarships and grants.

Scholarships, which don’t have to be paid back, may be available through community and business organizations, your parents’ employers, and organizations affiliated with any interests and/or talents you have, such as sports or music. You can look for scholarships at the federal, state, and local level.

Grants are considered “gift aid” and also typically don’t have to be repaid. There are state and institutional grants you can look into. Students with significant financial need may be eligible for a federal Pell Grant. Be sure to fill out the FAFSA to see what federal (and possibly state) grants you might be eligible for.

Comparing Student Loan Lenders and Offers

If you’re denied a student loan, you can shop around for a private loan with multiple lenders to find the best option. You can even create a spreadsheet to easily compare them.

Key Features to Look For

When comparing loans from different lenders, look at:

•   The APR (annual percentage rate): This is the interest rate of the loan plus any fees the lender may charge. APR is generally considered the true cost of the loan.

•   Whether the interest rate is fixed or variable. Fixed rates stay the same; variable rates can change, which could increase or lower your payment amount.

•   Fees. Check to see if the loan has an origination or processing fee (if so, it should be included in the APR), and any late payment fees.

•   Loan terms: This is how long you have to pay off the loan.

•   Borrower protections: For example, does the lender offer deferment or forbearance if you need it?

•   The lender’s reputation. Read reviews of the lender. See how their customer service rates and whether other borrowers have had positive or negative experiences.

Interest Rates, Terms, and Repayment Options

When you’re shopping around with different lenders, you can see who offers you the lowest interest rate, as well as a fixed or variable rate, depending on what you prefer. Be sure to also look at the APR, which includes the interest rate and any upfront fees on the loan. The APR gives you the most accurate picture of what a loan will cost you, so compare different loans’ APRs, rather than just comparing interest rates.

Next, look at the term of the loans, which is the time you have to repay it in full. A longer term may mean lower monthly payments, but a higher total cost overall because you’ll pay more interest over the life of the loan. A shorter term typically means higher payments, but you’ll pay less in interest and total costs overall.

Finally, check out the loan repayment options. Can you defer loan payments while you’re in school? Is there the option to make interest-only payments on the loan during that time? Can you make partial loan payments? Find out what different lenders offer when it comes to flexibility in repaying your loan.

How to Strengthen a Future Student Loan Application

To boost your chances of being approved for a student loan, it’s helpful to present yourself as a responsible borrower with strong credit and a sound financial profile.

Building Credit Responsibly

To build credit over time, open a credit card if you don’t already have one (as mentioned above, there are student credit cards for those without a strong credit history), and consistently make on-time payments. Additionally, make all payments on any other bills you have to demonstrate that you use credit responsibly.

Reducing Debt-to-Income Ratio

Creditors look at your debt-to-income (DTI) ratio, which is the amount of monthly debt you owe compared to your gross monthly income, to see what kind of risk you may be as a borrower. Many lenders prefer a DTI below 36%, with about 43% as the maximum.

If your DTI is higher than that, work at repaying the debt you owe (for instance, you could prioritize small debts first to eliminate them, or focus on your highest-interest debt to help pay it down faster). You could also get a job or take on a side hustle to help increase your income.

The Takeaway

If you were denied a student loan, there are strategies you can use to get the money you need to pay for college. You can explore alternative funding sources, such as scholarships and grants; apply to multiple lenders; or add a cosigner with strong credit to your loan application.

And once you have a student loan, if you’d like to find out if you can qualify for better rates and terms in the future, or remove a cosigner if you have one, you could consider student loan refinancing.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What can I do if my student loan is denied?

If your student loan is denied, find out the reason you weren’t approved. If the denial was due to incorrect information, you may be able to appeal the decision to your college’s financial aid office for a federal loan or to the lender for a private loan. If the denial was issued because you didn‘t meet specific lending requirements, fix the problem then reapply. And if the loan was denied because of your credit, you could add a cosigner with strong credit and then apply again.

Can a refinance be denied?

Yes, a student loan refinance can be denied if you don’t meet a private lender’s specific refinancing eligibility criteria for your credit score, income, or debt-to-income ratio, among other factors.

Can you be denied student loan consolidation?

If you’re in the process of repaying your loans or in the grace period after graduation, most federal student loans are eligible for Federal Direct Consolidation. If you want to consolidate a defaulted loan, however, you must make satisfactory repayment arrangements, which means three consecutive monthly payments, or agree to repay your new Direct Consolidation Loan under an income-driven repayment plan.

Will applying to multiple lenders hurt my credit score?

Applying to multiple lenders typically won’t hurt your credit score if you opt to prequalify for loans first in order to compare loan rates and terms. Prequalifying involves a soft credit check, which doesn’t affect your credit score.

After comparing offers, if you choose to submit several formal applications to different lenders, applying within a short time frame — typically 14 to 45 days — may minimize the impact to your credit score. In this case, most credit scoring models will count your multiple applications as one hard credit inquiry, rather than several.

Do all student loan lenders have the same requirements?

No. Federal student loans have different eligibility requirements than private student loans. And private lenders tend to have different requirements from each other. Although they consider many of the same factors when considering loan applicants, specific eligibility criteria like credit score and debt-to-income ratio tend to vary from lender to lender. Review the eligibility criteria for each loan you apply for to make sure you meet the requirements.

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SoFi Student Loan Refinance
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