What to Do If You Were Denied Student Loans
You could be denied student loans if you’re trying to borrow too much, your income is low, or you otherwise appear as a high risk to lenders. If you’re denied for student loans, try for federal loans, apply with a cosigner, or look for a bad credit loan.
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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 make it impossible for you to qualify 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:
Reasons You Could Be Denied for Student Loans
Here are some of the key reasons you could be denied a loan.
1. You Don’t Have Good Enough Credit
While specific requirements vary, most private lenders need to see a minimum credit score of 650—but a credit score of 700 or higher is preferred. Keep in mind, most federal student loans don’t require any minimum credit score at all. Only Direct PLUS Loans for parent and grad-student borrowers are subject to credit approval.
You may have a low credit score because of financial missteps in the past, such as a missed payment. Or your credit could be lower than lenders prefer simply because you haven’t had time yet to earn a good credit score. Lenders like to see a long history and a mix of different kinds of credit in order for you to earn the best score and qualify for a loan with the best rates.
>> Read More: What Credit Score Is Needed for Student Loans?
2. You’re Asking for Too Much (Or Have Already Reached Your Borrowing Limit)
Trying to borrow more than your school-certified cost of attendance or more than the lender’s maximum loan balance could also result in a loan denial.
Each school specifies the amount of money that they believe it should cost a student to attend for the year—including tuition, room and board, and other expenses. You’re typically not allowed to borrow more than the school says it should cost you to attend. If you already have borrowed for school or have received scholarships or grants, these other sources of funding will reduce the amount you’re eligible to borrow.
>> Read More: Federal Student Loan Limits
3. Your Debt-to-Income Ratio is Too High
If you try to borrow a very substantial sum of money when your income is relatively low, lenders may also be afraid you’re getting in over your head in debt. To make sure your income is high enough to support debt payoff, lenders look at your debt-to-income ratio. This is calculated by comparing your monthly payments with the monthly income available to you.
4. You Don’t Have Enough Employment or Income History
Lenders not only want to make sure you aren’t borrowing too much debt relative to your income but also that your income is reliable so you’re likely to continue making on-time payments. If you have no employment or income history to speak of, private lenders may have no reason to believe you’ll be able to pay off the money they lend to you.
5. Your Field of Study Doesn’t Promise a Strong Career
Since you’re borrowing for school, lenders also want to get an idea of your future earning potential. If you’re going into a lucrative field, such as law or medicine, lenders feel more confident that you will be able to pay back the amount you borrow. But, if you’re going into a profession unlikely to pay very much, lenders may be wary of giving you a loan because they fear you won’t earn a high enough salary to repay what you owe.
6. Lenders Aren’t Confident You’ll Graduate
Repaying your loans becomes harder if you don’t graduate because you don’t get the resulting income bump that a university credential provides. As a result, if lenders aren’t sure you’ll graduate, you’re much less likely to be approved for a loan. Lenders may be uncertain of your future prospects if you’re only a freshman without proven academic experience at your university or college, or if you have had intermittent attendance in the past.
How to Get Approved for a Student Loan
Here’s what to do if you were denied for a student loan in the past and you still need funding to cover college expenses.
1. Start with Federal Aid
If you were denied a private student loan but haven’t exhausted all of your options from the U.S. Department of Education, you should always try to qualify for those loans first. Federal student aid is the easiest type of student loan to qualify for since, other than for Graduate or Parent PLUS Loans, your credit report doesn’t matter and you don’t need a specific credit score to qualify.
You should start by filling out your FAFSA, if you haven’t done so already. If you’ve already completed your FAFSA and maxed out your Stafford Loans, you or your parents could potentially be eligible for PLUS Loans.
You should ask your school’s financial aid office to help you explore all of the different types of federal aid you could still be eligible for.
2. Apply with a Cosigner
If you and your parents have exhausted all of your federal student loan options, you’ll need to revisit private student loans if you need additional funding. If you applied for private loans on your own the first time, see if you can find a cosigner who will apply with you.
>> Read More: How to Apply for Student Loans
A cosigner is someone who agrees to repay the lender if you don’t. Although the assumption is that the primary borrower will pay back the debt, the cosigner shares 100% of the legal responsibility for repayment, and his or her credit could be affected if loan payments aren’t made on time. Lenders could also collect from a cosigner if the primary borrower defaults.
Cosigners significantly reduce the risk to lenders because they agree to be responsible for the debt, too, so you can likely qualify if your cosigner has a higher income or better credit score than you.
If you cannot find a cosigner, you may still have options. Read more about student loans without a cosigner here.
3. Consider Student Loans for Bad Credit
If you don’t have a cosigner, there are private student loan lenders that do cater to borrowers with less-than-perfect credit. Our guide to student loan options for borrowers with bad credit can help you to find lenders that might be more willing to give you a loan despite your imperfect credit score.
Bad credit loans often have higher interest rates because you’re considered to be a risky borrower, so shopping around and comparing rates is important to find the best deal.
4. Work on Improving Your Credit Score
You can also increase your chances of qualifying for student aid in the future by trying to improve your credit score.
To do this, try to gain access to a line of credit. One way to do this is by taking out a secured credit card, which requires putting down a deposit equal to your credit line. If you use your card responsibly and make payments on time, you can build a positive payment history that will improve your score. If you already fair credit, try to pay down your debts and reduce your credit utilization ratio, which should boost your score.
It may take time to improve your credit, so you may need to work part-time and take classes part-time to cover the costs until you can qualify for loans to cover full-time tuition.
Bottom Line: Qualifying for Student Loans Is Possible
Don’t give up if you’re denied student loans. After you’ve exhausted your federal student loan options, try to find a cosigner with good credit to help you qualify for private loans. If you still can’t qualify, work on paying down debt and improving your credit score so you can qualify for funding in the future.
Author: Christy Rakoczy
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