What to Do If You’re Denied a Student Loan With a Cosigner

Private student loan lenders have strict requirements most students can’t meet on their own, meaning many borrowers need a cosigner to get approved. 

But what if even your cosigner is denied on your student loan application? That happens more often than not: In 2020, about 64% of cosigned private student loan applications were denied. It can be unnerving, but you have plenty of options to keep moving forward with your education.

The role of a cosigner

Private student loan lenders aren’t as concerned with ensuring people can attend college as with ensuring they’re repaid, unlike federal student loans. It’s hard to judge whether you’ll be able to repay your private student loans on your own because you haven’t yet earned what you hope will help you repay it: your degree. 

So lenders set requirements you must meet to get approved, such as a solid credit score and income—both of which are often in short supply for students. To get around that barrier, most lenders allow you to apply for student loans with a cosigner. 

A cosigner agrees to serve as a backup payer for your student loan. If you default on your loan, they agree to accept legal liability to repay your loan for you. With that guarantee in place, most lenders are willing to give your application the thumbs-up as long as your cosigner is approved. 

Cosigners are mostly limited to the private student loan world, but they may be required for Federal Direct PLUS loans if you have certain “adverse credit events” listed on your report. In this case, they’re called an “endorser” rather than a cosigner, but their job is essentially the same.

Why were you denied a student loan with a cosigner?

If your student loan application is denied despite having a cosigner, it means both of you fail to meet your lender’s requirements. Each lender has unique approval criteria, so the specific reason you were denied could be different for each private student loan you apply for. 

If you and your cosigner are denied, at least your lender is required to notify you of the reason. Common reasons for denial include:

• Income too low
• Credit score too low
• Debt payments too high
• Citizenship requirements not met
• Specific marks on credit report, such as bankruptcies or foreclosures

How can a loan denial affect your and your cosigner’s credit scores?

Crystal Rau

CFP®

The actual denial does not hurt your credit score. However, it is marked on your credit report as a hard inquiry. The effect on your credit score is low, but it can harm you if you have several hard inquiries. Lenders can take that to mean you’re always looking for credit. If you’re applying with several lenders to compare offers, it’s best to do this all at the same time so potential lenders can see you’re shopping for a specific loan, not just going out and trying to get credit.

Immediate steps after denial

If you and your cosigner are denied for private student loans, the first step is not to panic. Many people find themselves in this situation every year, and it doesn’t mean they need to quit school. 

The next step is to find out why your application wasn’t approved. If your lender doesn’t provide a reason immediately, contact it to ask why. It might be a simple fix, such as including all of your sources of income on the application because you inadvertently left one off. 

If it’s a legitimate reason, it’s time to take action with the next steps. 

Crystal Rau, CFP®, doesn’t recommend you reapply right away with the same lender: “It is OK to reapply immediately through a different lender who may have less strict guidelines. If you choose to reapply with the same lender, it’s best to wait and work on the items that need improvement. That could mean increasing income or lowering overall debt.”

What to do if you’re denied a student loan with a cosigner

You have more options than you might realize to pay for your college education, even if you were denied at the last minute for a private student loan. Here are 10 options to consider:

Have your cosigner check their credit

If your cosigner was denied on your student loan application because their credit score was too low, they should check their credit report. Credit report errors are more common than many borrowers realize and can unfairly penalize you with a lower, inaccurate credit score. 

You and your cosigner can check your credit report for free with each of the three credit bureaus on AnnualCreditReport.com, an official resource. Look over the information on the report, and if you find anything inaccurate, dispute those errors with the credit bureau or bureaus to have them removed. 

It can take several weeks to remove any inaccuracies, so it’s best to do this early if possible. Once those inaccuracies are removed, consider reapplying for the loan.  

Find a new cosigner

Finding even one cosigner is a significant challenge for many students. If you’re lucky enough to have other loved ones in your life who can serve as a cosigner, it may be time to consider asking them whether they’ll guarantee your private student loan instead of your first option. 

Improve your own credit

Many students don’t have a credit score if they haven’t taken out any debt, but you could still be a victim of identity theft or past-due bill collections. Check your own credit report just like your cosigner did to ensure it’s accurate. 

It’s also wise to sign up for a credit-score service such as Credit Karma or Discover’s FICO Credit Score Card, which can offer custom insights and tips to grow your credit, such as taking out a student credit card or a small secured personal loan. 

Revisit the FAFSA

Now’s a reasonable time to double-check that you’ve exhausted your options for federal financial aid. Federal Direct Subsidized and Unsubsidized loans don’t require a cosigner at all. If you realize they’re still options, that’s a terrific first choice. 

Look over your FAFSA again, and if needed, make an appointment to sit down with a counselor in your school’s financial aid office and comb over your application more thoroughly. Your school’s financial aid counselors may also have other ideas to help. 

Apply with a different lender

Just because you and your cosigner are denied with one private student loan lender doesn’t mean they’ll all do the same. Every lender is different, so you may still qualify, but with a different loan. 

If you have specific challenges in your situation, such as meeting credit requirements, look for a lender that’s more accepting of low credit scores. Applying with multiple lenders can be a smart way to find the most affordable loan option.

Increase your income

Growing your income is easier said than done for most people. If you could dial it up a notch without sacrificing somewhere else, you’d probably have done it by now. Besides, that can take a while, whether it’s as simple as asking for a raise or as complex as switching careers. 

Unless you apply for a work-study program or similar, it’s unlikely you’ll be able to increase your income in time to meet the requirements for this semester’s study. However, it can put you or your cosigner in a solid spot to get approved for a private student loan in upcoming semesters. 

Consider alternative funding

Student loans, savings, and financial aid aren’t the only ways to pay for college. Many new, creative ways exist to pay for higher education, and it might be wise to look into these programs. 

For example, income-share agreements (ISAs) require careful consideration, but they can offer you the funds you need to continue your education. Many schools offer payment plans that allow you to spread the cost out over a semester or a year for a nominal fee—a desirable option if you only need to borrow a smaller amount. 

Apply for financial aid

You’ve already checked and rechecked the FAFSA by now, but that doesn’t cover all your options for financial aid. Many more private scholarships, grants, and other forms of assistance exist that you may qualify for if you spend time scouring the internet. 

Save up more for college

Most people use private student loans to bridge any last funding gaps. This might mean you only need a smaller amount of funding. You may even be able to save up on your own in a shorter amount of time than saving up for the whole college bill, for example.

Saving your funds in an FDIC-insured high-yield savings account can also help you grow your money even faster. Look for an account that offers a high APY and as few fees as possible. These types of savings accounts are easy to find online.  

Contact your financial aid office

If all else fails and you haven’t already done so, consider reaching out to your school’s financial aid office. If any remaining options or programs are available to you, they’ll know how to help. 

CFP® Crystal Rau weighed in on when it might make sense to speak to a financial professional: “Some financial advisors specialize in planning for future college expenses. If you’re not sure how much you should take out in student loans or how to navigate the world of financial aid, it’s wise to reach out to a financial professional. Also, once you have student loans, it’s prudent to ensure you’re on the right repayment plan because the plans can come with a whole host of strategies you might be missing out on.”

How to choose a cosigner

Knowing what lenders look for in a cosigner can help you and your sidekick prepare. Most lenders look for cosigners with a low debt-to-income ratio, a high credit score, and a stable financial situation. They often need to be U.S. citizens or permanent residents as well.

Look for several qualities in a cosigner. Consider their financial situation. In a worst-case scenario where you default, would they be able to repay your loans without taking drastic measures—for instance, selling their beloved home? 

Keep in mind that some lenders will “accelerate” your student loan if you default, meaning your cosigner must repay that outstanding balance immediately and in full, without the option for monthly payments. It’s a crucial clause to check in your loan agreement. 

By cosigning for your student loan, your cosigner is limiting their own options for borrowing money in the future. Your student loan will show up on their credit report any time a lender checks it, potentially resulting in a credit denial. If they want to buy a house soon, for example, cosigning might be unwise. 

Can you get a student loan without a cosigner?

Yes, it’s possible to get a student loan without a cosigner. Federal Direct Subsidized and Unsubsidized loans don’t require a cosigner. And as long as you don’t have any adverse credit events on your credit report, you won’t need a cosigner for Federal Direct PLUS loans either. 

Your options for private student loans with no cosigner are a lot more limited. Of course, if you can qualify on your own, you won’t need a cosigner. But only about 9% of private student loan applications were approved without a cosigner in 2020. 

A few remaining private student loan options with no credit requirements exist. 

These loans are often limited to upperclassmen nearing graduation who’ve already demonstrated exceptional academic progress, a sort of de facto credit rating in its own right. They may also be limited to students working toward a degree with a high income potential, such as petroleum engineering or computer science.