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Student Loans

What to Do If You Were Denied Student Loans

Being denied student loans is common for would-be borrowers, and several factors could lead to loan denial. Your credit history, credit score, insufficient application information, or 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 steps to take when your loan application is denied.

What to do if denied federal student loans

Federal student loans should be your first option since they offer low fixed interest rates and flexible repayment options.

If you’ve been denied federal student loans, it’s essential to understand why you were declined. This can help you determine what steps to take next and whether becoming eligible for federal aid may be possible.

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 the eligibility requirements for federal loans. Some of those requirements include:

  • Demonstrating financial need (for most loan programs)
  • Being a U.S. citizen or eligible non-citizen
  • 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.

Tip

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

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 you might be denied student loans for numerous reasons, there are ways to remedy the situation.

Solutions for reapplying for federal student loans

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

Reason for denialPossible solution
Federal loans in defaultApply for student loan consolidation or rehabilitation
CitizenshipApply for permanent residency
Adverse credit historyGet an endorser or provide proof of extenuating circumstances
Unsatisfactory academic progressGet academic support to improve your GPA or take additional classes

These solutions can help you qualify for federal student loans but 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 determine your loan eligibility and explore other options.

What to do if denied private student loans

Private student loans are offered by private lenders with varying eligibility requirements.

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 be scrutinized. 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 your income goes to monthly debt repayment. If existing debt obligations consume 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 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 creditworthy cosigner.

What are potential solutions?

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

  1. Add a cosigner with a strong credit history. The better your cosigner’s credit history, the more likely you will be approved.
  2. Improve your credit score. Taking steps to improve your credit score before you submit your application could improve your approval odds.

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

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

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

Remember that every private lender is different regarding who they’re willing to approve. Shop around to compare eligibility requirements, loan rates, and terms.

The lenders in the table below are highly rated and let you check your eligibility without affecting your credit score. This could be your next step in a search for a private student loan.

Company
Best for…
Rating (0-5)
Best for Large Loans
4.7
Best Member Benefits
4.7
Best for Comparison Shopping
4.6
Best Student Loan Advisors
4.5

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

You still have options if you’ve applied for federal and private student loans and been denied both. 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 any school-specific options are 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, searching online, or contacting 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 can 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 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 have 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, and what to do if federal student loans aren’t available.

You can still take part-time classes if you need extra time to address any issues keeping you from getting approved for student loans. 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.