Student Loan Underwriting Explained

Underwriting is the process of deciding what makes an applicant eligible for a loan, based on factors including credit history and other considerations, such as income, debt, and employment. Each lender has its own underwriting team that works to approve loan applications based off a pre-set foundation of lending criteria.

Have you recently applied for a student loan? Is your application in “underwriting”? How does underwriting fit into the student loan application process?

A lender's underwriting criteria, or credit standards, determine whether a borrower is eligible for a loan. While the bank may have other criteria used to determine eligibility, most underwriting criteria is common. The underwriting team decides what criteria to consider when determining whether to approve or deny a student loan application. Each lender will have similar, but different criteria.

Each lender's underwriting team will approve or deny a loan application based on documentation provided during the application process. For example, underwriters might specify that a borrower have a certain amount of annual income and ask the loan applicant to provide several official paystubs in order to verify that income. Usually, lender's accept this documentation online for easy submission.

Why do Lenders Care About Underwriting?

Strong underwriting standards are import for a few reasons, the most important of which is loan quality. It's in the best interest of the lender and the borrower to only approve applications for borrowers who can repay the loans. Underwriting criteria such as credit history, debt-to-income, and other factors that are unique to each lender.