What to Do If You Were Denied Student Loans

Being denied student loans can be frustrating—especially if you have no other way to pay for school. Unfortunately, it’s common for would-be borrowers to be denied loans, and there are a number of factors that could lead to loan denial.

Your credit history, current credit score, insufficient application information, or a whole host of other issues could cause you to be rejected for a loan.

If you were denied a student loan, you still have options. This guide will show you some of the steps you can take when your loan application is denied.

What to do if you’re denied a federal student loan

Federal student loans might be the first place you look for financial aid for school since they offer low fixed interest rates and flexible repayment options. Federal student loan approval isn’t always guaranteed, however.

If you’ve applied for federal student loans and have been denied, it’s important to understand the reason for denial. That can help you to determine what steps to take next and whether it may be possible to become eligible for federal aid.

Why you may have been denied a federal student loan

If you’ve been denied student loan funding through the Department of Education, it’s possible that you failed to meet eligibility requirements for federal loans. Some of those requirements include:

• Demonstrating financial need (for most loan programs)
• Being a U.S. citizen or eligible noncitizen
• Having a valid Social Security number (exceptions are made for students from the Republic of the Marshall Islands, Federated States of Micronesia, or the Republic of Palau)
• Being enrolled at least half-time or being accepted for enrollment in an eligible degree or certificate program

You must also maintain satisfactory academic progress, and you can’t be in default on a federal student loan or owe money on a federal student grant.

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Tip

Registration with the Selective Service and prior drug convictions no longer affect federal student loan eligibility. If you’re currently incarcerated, you won’t qualify for federal loans, but you may be eligible for federal grants or work-study.

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You may be denied Direct PLUS Loans if you have an adverse credit history. PLUS loans are made to eligible parents, graduate students, and professional students. An adverse credit history means that you have certain negative items on your credit reports, such as:

• Accounts that are delinquent, charged-off, or in collections
• Accounts in default
• Recent bankruptcy discharge
• Recent repossession or foreclosure
• Wage garnishments or tax liens

The good news is that while there are numerous reasons you might be denied student loans, there are ways to remedy the situation.

What are potential solutions?

The potential solutions available will depend on the reason you were denied student loans. For example, some of the options include:

Reason for denial	Possible solution
Federal loans in default	Apply for student loan consolidation or rehabilitation
Citizenship	Apply for permanent residency
Adverse credit history	Get an endorser or provide proof of extenuating circumstances
Failure to meet satisfactory academic progress	Get academic support to improve your GPA or take additional classes

These solutions can help you qualify for federal student loans, but they aren’t necessarily quick fixes.

Plan ahead if you can, and work with your school’s financial aid office to find out how you can stay on track with your studies while you sort out your loan eligibility and what other courses of action may be available.

What to do if you were denied a private student loan

Private student loans are offered by private lenders who can establish their own eligibility criteria. You can be denied a private student loan if you don’t meet those requirements.

As with federal student loans, it’s important to understand the reasons for the denial. Knowing why you’ve been denied can help you figure out what steps to take next.

Why you may be denied private student loans

Unlike most federal student loans, private student loans typically require a credit check.

Having no credit or bad credit is common for students who are entering college, but it can lead to private student loan denial. Aside from credit, private lenders can also deny your student loan application for other reasons, such as your:

• Income: Lenders want to know that borrowers can repay the loans they take out. You could be denied a student loan if you lack sufficient income.
• Employment history: Your employment history may also come under scrutiny. If you have a short work history or don’t have a job, that could jeopardize your private student loan approval.
• Debt-to-income (DTI) ratio: Your DTI represents how much of your income goes to debt repayment each month. If existing debt obligations eat up a substantial part of your income, private lenders may be reluctant to give you a loan.

Private student loan lenders may also base approval on your field of study, which school you’re attending, and your residency status. While some lenders offer private student loans for international students, DACA recipients, and immigrants, not all of them do.

Many private lenders recommend having a cosigner when applying for loans, but approval isn’t always a lock. You may be denied student loans with a cosigner if that cosigner doesn’t meet the lender’s eligibility requirements.

In that case, you may need to find another cosigner who is creditworthy or try to get approved based on the merits of your credit alone.

What are potential solutions?

There are two main ways to strengthen your private student loan application to avoid future denials:

1. Ask a friend or relative with a strong credit history to act as your cosigner. The better your cosigner’s credit history, the more likely you are to be approved.
2. Work on improving your own credit scores, which can make it easier to get approved for private student loans.

Keep in mind that cosigning splits the responsibility for the loans. If you default, the lender may come after the cosigner for repayment, and their credit scores may take a hit. Choose a cosigner who not only has a good credit history but who is also comfortable accepting this risk.

Cosigner or not, it’s still worth your effort to boost your credit score before reapplying. Here are some strategies you can try:

• Make payments on time, especially to debt accounts that report to the credit bureaus.
• Check your credit reports for errors. Dispute any mistakes or inaccuracies you find.
• Reduce existing debt levels if you owe balances on credit cards, loans, or other lines of credit.
• Get a secured credit card to build a credit history if you don’t yet have one.

Remember that every private lender is different when it comes to who they’re willing to approve. Shop around to compare eligibility requirements, as well as the loan rates and terms being offered.

That way, you’ll not only find lenders that work with borrowers with credit like yours, you’ll also know which lenders will give you the best loan overall.

What to do if you don’t qualify for a loan

If you’ve applied for federal and/or private student loans and been denied for both, you still have options. Some of the avenues you might explore include:

• Scholarships: Scholarships can provide free money for school. Some are merit-based; others are need-based. You can search for scholarships online or visit your school’s financial aid office to see if there are any school-specific options available.
• Grants: Like scholarships, grants give you free money to pay for school. In most cases, grants are need-based, rather than merit-based. You can apply for federal Pell Grants by completing the FAFSA, and search online or contact your school’s financial aid office for other grant opportunities.
• Work study: Work-study programs allow you to earn money to pay for school in exchange for working in an approved setting. You can apply for federal work-study by completing the FAFSA.

You’re not limited to just one of these funding sources. The more scholarships, grants, and work study opportunities you apply for, the more money you might be able to obtain for school. 

Best practices for applying for student loans

If you know that you’ll need student loans to pay for college, you can take steps now to better prepare for

1. Understand what type of loans you’re applying for. That can help you take any preemptive actions to raise your approval odds, such as improving your credit score or getting federal loans out of default.
2. Start with federal loans first. Federal loans offer benefits that private student loans don’t, including income-driven repayment options and the possibility for loan forgiveness.
3. Submit the FAFSA each year to get the maximum federal aid possible. If you don’t fill out the FAFSA, your school will assume you don’t federal financial aid for that school year.

Along those lines, your best resource for finding financial aid may be your school. Your financial aid office can give you more specific information about different funding options, how to apply for them, and what to do if federal student loans aren’t an option.

If you need extra time to address any issues that are keeping you from getting approved for student loans, you can still take part-time classes. You may need to pay for those classes out of pocket if you don’t qualify for aid yet. But that can be a good way to keep your education on track until you become eligible for loans.

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