Photo by javier trueba on Unsplash

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.

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.

  • How to Get Approved for a Student Loan

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.

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.

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.

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.

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.

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.

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.

With the help of LendEDU’s blog, tools, and resources, our goal is to assist you in making educated financial decisions. LendEDU: Educated Financial Decisions.