If you’re struggling with student loan payments or looking for a way to manage your debt, refinancing your student loans could be an option worth considering. Unfortunately, not everyone who applies for student loan refinancing is successful.
If you’ve had your application for refinance denied, you may feel confused and disappointed. But getting a no isn’t the end of the road.
There are some common reasons why your loan may have been denied. By understanding those factors, you can take steps to correct any gaps or weak spots in your application and possibly improve your chances of refinancing in the future. Here’s what you need to know.
Table of Contents
Key Points
• Common reasons for rejection include low credit score, missed payments, insufficient income, high debt-to-income ratio, unstable job history, or financial black marks such as bankruptcy.
• Ways to improve chances include applying with different lenders, building credit by making on-time payments, increasing income, or waiting to establish a stronger financial history.
• Adding a creditworthy cosigner can improve approval odds but comes with shared financial responsibility.
• Refinancing may secure lower interest rates but forfeits federal loan benefits like income-driven repayment plans and forgiveness programs.
• Strengthening your financial profile before reapplying or considering alternative repayment strategies can help if refinancing is not an immediate option.
Common Reasons that Refinance Applications Are Rejected
If you’ve had your application for student loan refinance denied, the decision can feel like a mystery. The lender might not necessarily explain the reasons behind its actions, and you may be left feeling puzzled and stuck. As with a car loan rejection or mortgage modification rejection, a common thread is that the institution feels lending you money is too much of a risk. Read on to see if one of the scenarios below applies to you.
1. You Have a Low Credit Score
Lenders want to feel confident that borrowers will pay back the debt. One of the primary ways that they measure how risky you are as a borrower is by looking at your credit score. Many factors affect your credit score, including whether you’ve missed payments on credit cards or other bills, your credit history, and how much debt you’re carrying relative to your credit limits.
You can find out your current credit score through one of the three major credit bureaus: Experian, Equifax, and TransUnion. If your score isn’t up to par, that could be enough to have your loan denied.
2. You’ve Missed Payments in the Past
For some, it’s easy to let a student loan payment slip now and then. Perhaps you ran into financial difficulties and couldn’t afford to pay, or maybe you simply forgot amid the chaos of life.
Even though it’s understandable, lenders don’t look at a history of missed payments lightly. If you’ve failed to pay in the past, they may see this as a sign that you’ll skip payments with them as well. If your loan is delinquent or in default because you’ve missed too many payments, a potential lender may be even more concerned.
3. You Don’t Make Enough Money
When deciding whether they trust you as a borrower, financial institutions considering you for student loan refinancing want to feel confident that you can afford to repay the loan. If your salary is low compared to the monthly payment you would owe, lenders might make the call that you’re at risk of not being able to pay.
💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to financial advisors, networking events, and more — at no extra cost.
4. Your Debt-to-Income Ratio Is Too High
Even if you earn a decent salary, a private lender could deny your application if they think your debt-to-income ratio is too high. Your debt-to-income ratio is the ratio of your outstanding debt to how much you currently make. Debt in this case includes anything you owe, including a mortgage, a car loan, student loans, credit card balances, or medical bills.
If those liabilities are high compared to your salary, the lender can decide that giving you a loan is too risky because you may not be able to afford it with your existing financial obligations.
5. You Don’t Have a Solid Job History
Lenders aren’t just looking at your salary. Many also want to get a sense of how solid your job is by considering things like how long you’ve been in your current role, past gaps in employment, and how often you change jobs.
If you haven’t held onto a job long or had much work experience, a lender could fear that you are at risk of losing your current gig — and your income along with it.
6. You Have Other Financial Black Marks on Your Record
A lender is looking out for any sign that you may not be a trustworthy borrower. A significant negative financial event in your history such as a lien, judgment, foreclosure, or bankruptcy can be a red flag for the institution. There may have been a good reason for it, but the lender could decide that lending to you is too precarious.
How to Improve Your Chances
Just because you’ve been denied once doesn’t mean you can’t qualify for refinancing in the future. One or more of these strategies may help.
1. Try Other Lenders
If you’ve been denied by just one or two lenders, it may be worth shopping around more widely. Although they follow similar principles, lenders each have their own protocols for reviewing applications.
While one might give more weight to income, another may consider education history just as important. If one lender rejected your application to refinance your student loans due to low credit scores, you may find another lender that will approve your application but at a higher interest rate, which may mean paying more in the long run.
You never know whether a lender will see you as a trustworthy borrower until you try. If you’ve been denied by multiple institutions, however, you may need to take some other action to improve your prospects.
2. Build Your Credit
Because your credit score is so important to lenders, including with student loan refinancing, you can work on building it if it’s on the low side. There are many ways to potentially strengthen your credit. For example, if you have missed bills in the past, you can focus on consistently making your minimum payments on every loan, bill, and credit card you have (setting up auto-pay can help you stay on top of this).
3. Raise Your Income
If your income is relatively low, earning more money may help you qualify for refinancing. This is easier said than done, but you may have more options than you think.
Can you ask for a raise or request more hours at your current job? Can you look for a higher paying role with your employer or elsewhere? Does switching fields make sense? Can you take on another job or start up a side hustle? It’s not always possible, but increasing your earnings could make you a more appealing candidate for refinancing.
4. Give it Time
Sometimes, it can be good to wait. If you have a bankruptcy or missed payments in your past, it’ll take time for these to disappear from your credit history. (It takes seven to 10 years for a bankruptcy to be removed from your credit history.) Even if you’re making all your payments now, a lender usually wants to see that this good behavior is consistent.
Waiting until you’ve been in a new job for a couple of years can help convince lenders that your employment is solid. If these are some of the challenges you’re dealing with, time may be the best medicine. And for those struggling to make consistent payments on their student loans, it could be worth looking into income-driven repayment plans.
These are repayment plans for federal student loans that calculate monthly payments based on your discretionary income and family size. While an income-driven repayment plan might mean you’ll pay more interest over the life of the loan, it could also lower your monthly payments, thus making your student loan debt more manageable.
5. Get a Cosigner
If none of the above tactics are working, or if you don’t want to wait to refinance, you can try reapplying with a cosigner. If this person — perhaps a parent or family friend — has solid credit and employment history, that may help you get approved for a loan or qualify for better terms.
That’s because the cosigner, by essentially guaranteeing the loan, makes you much less of a risk for the lender. But keep in mind that the cosigner’s credit score could be affected by missed payments on the loan, and they may have to make payments on the loan if you’re unable to.
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Refinancing May Still Be Possible
You have lots of options for strengthening your refinancing application and reducing your riskiness as a borrower, from earning more to building your credit to getting a cosigner. If refinancing is a student loan debt solution you feel strongly about, consider implementing these action items before reapplying.
And remember that you’ll lose access to federal loan benefits when refinancing with a private lender. So refinancing may lower your interest rate or get you a more favorable loan term, but it will also disqualify you from taking advantage of federal programs like income-driven repayment plans and student loan forgiveness. If you think you might need these programs, refinancing likely isn’t right for you.
The Takeaway
Even if you’ve been denied in the past, that doesn’t mean you’ll never be able to refinance your student loans. Understanding the reasons that refinancing applications frequently get rejected can help you figure out where you have room to improve so you make the necessary changes.
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.
FAQ
Is it hard to get student loans refinanced?
Getting student loans refinanced depends on a borrower’s credit score, income, debt-to-income ratio, employment stability, and payment history, among other factors. Basically, the lender needs to feel that the borrower is creditworthy and that they will repay the debt.
Why does my refinance keep getting denied?
Reasons why a student loan refinance may keep getting denied include having a low credit score, a high debt-to-income ratio, insufficient income, or a history of missed payments. Whatever the reason, you can work on fixing it. For example, you could build your credit by consistently making on-time payments or improve your income by taking on a side hustle. You could also apply for a refinance with a creditworthy cosigner who could help you get approved.
Can I refinance student loans if my credit score is low?
It may be more difficult to refinance your student loans with a low credit score, but it is possible. You could look for a lender that considers other factors in addition to your credit score, such as your income and stable employment, for instance. You could also apply for a student loan refinance with a creditworthy cosigner who could help you get approved and even potentially help you secure a lower interest rate.
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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