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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.
In this guide:
- What to do if you’re denied a federal student loan
- What to do if you were denied a private student loan
- What to do if you don’t qualify for a loan
- Best practices for applying for student loans
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. If you’re wondering: can you be denied a federal student loan, the answer is yes. Even if you complete the Free Application for Federal Student Aid (FAFSA), approval is not always guaranteed.
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. To qualify for federal student loans, you must:
- Demonstrate financial need (for most loan programs)
- Be a U.S. citizen or eligible noncitizen
- Have 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)
- Be enrolled or accepted for enrollment as a regular student in an eligible degree or certificate program
- Enroll at least half-time (for Direct Loan eligibility)
- Maintain satisfactory academic progress
- Certify that you are not in default on a federal student loan, do not owe money on a federal student grant, and will use the loan only for educational purposes
- Show that you’re qualified to obtain a college or career school education because you’ve completed high school or a GED program
At one time, males were required to register with Selective Service to be eligible for federal aid. Your registration status no longer affects your ability to qualify for loans. Your criminal record can, however, result in being denied a student loan.
If you’re incarcerated in a federal or state institution you are not eligible for federal student loans or federal Pell grants. You may be eligible for federal student loans if you’re on probation or parole, or are living in a halfway house. Drug convictions no longer affect federal student loan eligibility.
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
Again, you can be denied any federal student loan if you’ve defaulted on a federal loan previously. 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?
Your Student Aid Report (SAR), which is issued after you complete the FAFSA, provides estimates of your aid eligibility. You can access this report online if you have a Federal Student Aid (FSA) ID. If you’ve been denied student loan funding at the federal level, the Department of Education should explain the reason to you.
The potential solutions available will depend on the reason you were denied student loans. For example, some of the options include:
- Apply for loan consolidation or rehabilitation to bring federal loans out of default
- Become a citizen or obtain eligible noncitizen status, if possible
- Obtain an endorser or provide documentation of extenuating circumstances pertaining to your adverse credit history if you’ve been denied PLUS loans
- Pay off any debts to remove judgment liens
- Improve your GPA or take additional courses to meet your school’s requirements for satisfactory academic progress
If you don’t see a solution that fits your situation, you can talk to your school’s financial aid office about other possible options. Your financial aid counselor can review your situation to see if any additional courses of action are available to help you regain your student loan eligibility.
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 requirements. It’s entirely possible to be denied a private student loan if you don’t meet those requirements. You could even be denied a student loan with a cosigner.
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. Specifically, private student loan lenders can look at both your credit reports and your credit scores to determine whether you qualify for a loan.
Having no credit or bad credit is common for students who are entering college, but it can lead you to be denied for private student loans. Aside from credit, private lenders can also deny you student loans for other reasons. For example, you may be denied based on:
- 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 work against you for private student loan approval.
- Debt-to-income (DTI) ratio. Your debt-to-income ratio represents how much of your income goes to debt repayment each month. If a substantial part of your income goes to other debts, private lenders may be reluctant to give you a loan.
Private student loan lenders may also base approval decisions on your field of study, which school you’re attending, and 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?
Getting denied for private student loans can be unpleasant but there are things you can do to strengthen your applications to avoid future denials.
First, you can look for someone with a strong credit history to act as your cosigner. You could ask a parent, relative, spouse, or even a friend to cosign for your loans. The better your cosigner’s credit history, the more likely you are to be approved and the lower your rates may be.
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. So it’s important to choose a cosigner who not only has a good credit history but is comfortable accepting this risk.
Next, you can work on improving your own credit scores, which can make it easier to get approved for private student loans. Some of the best ways to improve credit scores include:
- Make payments to monthly bills on time, especially to debt accounts that report to the credit bureaus
- Check your credit reports for errors and 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 have a thin credit file
Remember that every private lender is different when it comes to who they’re willing to approve for loans. So it’s important to shop around to compare eligibility requirements as well as the loan rates and terms being offered. There are lenders that may offer loans to students with poor credit, though you may pay a higher interest rate to borrow.
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 may have other options for paying for school. Some of the avenues you might explore for financial aid 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 can also 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. Depending on your field of study, you may be able to find work study programs offered by private employers. For example, some hospitals offer work study programs to help pay for nursing school.
You’re not limited to just one of these financial aid options. The more scholarships, grants, and work study opportunities you apply for, the more funding 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, it’s important to understand what type of loans you’re applying for and what you’ll need to qualify. That can help you take any preemptive actions to raise your approval odds, such as boosting your credit scores or getting federal loans out of default.
When applying for student loans, it’s helpful to start with federal loans first. Federal loans offer benefits that private student loans do not, including income-driven repayment options and the possibility for loan forgiveness. Remember that you’ll need to resubmit the FAFSA each year to get the maximum amount of federal aid possible.
Your best resource for finding financial aid may be your school. The financial aid office should be able to give you more specific information about different funding options, how to apply for them, and what to do if you’ve been denied for federal student loans.
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.
Learn more: How student loans work
Author: Rebecca Lake