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What to Do If You're Denied a Student Loan

What to Do If You're Denied a Student Loan
Jennifer Calonia
Jennifer CaloniaUpdated December 14, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
For many students, getting a student loan is necessary to pay for a college education. Consider that the average student loan debt that undergraduate students took on in the 2021-22 academic year was $3,780 in federal loans, according to the College Board. And the total amount of non-federal student loans that undergraduate and graduate students borrowed was $12.7 billion.Those loans can be a vital source of funding for higher education. So if you’re denied for student loans, it can be a major blow to your plans to earn a degree. Fortunately, though, there may be ways for you to still get the help you need. Read on to learn more about this important topic, including:
  • Why you can be denied student loan aid
  • Whether you can re-apply for student loans
  • What you can do if you are denied a student loan
  • Other ways to finance higher education.

Can You Be Denied a Student Loan?

The short answer to whether you can be denied a student loan is: yes. Regardless of whether you’ve applied for private or federal student loans, each of these loan sources has their own eligibility criteria. The reason for which your student loan application is denied varies greatly depending on the type of loan you’ve applied for and your unique situation.Next, you’ll learn about the reasons why you might be turned down for a federal or a private student loan.Recommended: What Is the Average Student Loan Debt?

Reasons You Might Be Denied a Federal Student Loan

Many students depend on federal loans to help them work towards their college degree. But not every person who applies is approved. Here, three reasons why you might be rejected.

1. You Don’t Meet Basic Eligibility Requirements

You can be denied student loans from the Department of Education if you don’t meet its standard eligibility criteria. The eligibility requirements for a federal loan includes:
  • Having a high school diploma or equivalent certificate that lets you qualify for college enrollment
  • Being accepted as a regular student at an eligible higher education program
  • Having a Social Security number
  • Being a U.S. citizen or U.S. national, or have one of the below: 
    • Green card
    • Arrival-Departure Record
    • Battered Immigrant Status
    • T-visa.
  • Submitting a signed Free Application for Federal Student Aid (FAFSA) certifying that you’re not in federal student loan default nor do you owe a federal grant, and that you’ll use federal aid for educational expenses.

2. Your Satisfactory Academic Progress Dropped

Each school sets its own minimum criteria for Satisfactory Academic Progress (SAP). This threshold determines whether your path toward completing your academic program is on track and whether you qualify for financial aid, like student loans. For example, factors that could be assessed by your school might include maintaining a minimum GPA and enrolling in — and successfully completing — a minimum number of credits each year. There are many reasons students drop out of college or fall below their school’s minimum SAP requirements. For example, a life event (a health crisis, for example) could prevent you from performing well in school.

3. You’re Incarcerated

If you’re incarcerated in a federal, state, or other type of institution, you’re not eligible for federal student loans. However, depending on what you were convicted for, you might be able to access some federal aid upon being released.

3 Top Reasons You Might Be Denied a Private Student Loan 

Private student loans offer another avenue for financing an education. However, it’s not guaranteed that all who apply will be approved. Here are three key reasons that an individual might be turned down.

1. You Have No Credit or Adverse Credit

Private student loan lenders often have a minimum credit score requirement for underwriting purposes. If you don’t meet their credit criteria — whether that’s because you have a thin credit profile or you’ve struggled with managing credit in the past — your application might be denied. Without a credit history that proves you can reliably repay the debt, the lender views your application as having a higher default risk. This could lead to the loan not being approved.

2. Your Total Financial Aid Already Covers Your Cost of Attendance

Generally, private student loan lenders cap their borrowing limit at your school’s certified cost of attendance (COA), minus the existing total financial aid you’ve received. You can be denied a student loan if your awarded financial aid from other sources is at your COA or exceeds it. 

3. You Have a High Debt-to-Income Ratio

Another factor that private lenders look at when reviewing a private student loan application is your debt-to-income (DTI) ratio. Your DTI ratio is a commonly used calculation that takes your total debt-related payments each month and divides the sum by your gross monthly income. The number represents how much debt you are carrying versus the money you bring in. The lower your DTI ratio, the better.This ratio helps lenders determine whether you can reasonably manage a new student loan payment on top of your other financial obligations. If it finds that your ratio is high, your student loan application might be denied.

What Can You Do If You're Denied a Student Loan?

Can you be denied a student loan? Yes. Can you do anything about it? Possibly.When it comes to federal student loans, it’s your school — not the Department of Education — that determines whether you’re eligible for a federal student loan award.
  • If you believe you were denied for student loans in error, you can appeal the decision through a process called a professional judgment. However, this action is typically only applicable if you or your family have experienced an extenuating circumstance that affects your financial picture. 
Contact your college’s financial aid administrator to request a professional judgment and be prepared to show proof of your unusual circumstance. Be aware that professional judgments are determined on a case-by-case basis, and there’s no guarantee that your denied student loan will be reversed.
  • You might also address getting the right documentation (such as obtaining eligible non-citizen status, for instance) if that was the issue.
  • If the issue is your GPA, then accessing help via academic support services at your school may help you get back to better standing.
If it’s a private loan that was denied, there are other issues to address:
  • If your credit score is the issue, you can work on improving it. One of the key contributors to your credit score is paying bills on time. By automating bills payments, you may be able to make sure you pay them on time and possibly then possibly lift your score.
  • Perhaps what triggered the rejection was your debt-to-income ratio. In that case, you will likely want to find ways to lower your debt, increase your income, or both to resolve that issue. 
  • You might also see if you could have a cosigner on the loan to present a more credit-worthy package. Typically, a consigner is a relative.

Can You Reapply For Student Loans?

Yes, you can, which is why it’s important to know why you were denied a loan. You can then work to remedy the issue and apply again in the future. For federal loans, you might work with a financial aid counselor at your school to learn more.When it comes to private student loans, you might be able to reapply for student loans. Finding a student loan lender that accepts cosigned applications might help the second time around. If you haven’t already done so, ask the lender that denied your private student loan application if the lender accepts cosigners. If they do, it’s worth reapplying with the help of a creditworthy cosigner. Not only can a cosigner potentially help your application get approved, they might help you qualify for a lower interest rate.If the private lender doesn’t allow cosigners on its student loans, shop around for a lender that does. Compare a handful of private student loan lenders that accept cosigners and see which one offers the lowest rate, ideal loan features, and flexible repayment terms for your educational needs.

Alternative Ways to Pay for College

If you’ve exhausted all of your student loan options but still need additional funding to pay for college, you have avenues to pursue. The advantage of the alternatives below is that, in addition to contributing toward the cost of your degree, they help minimize how much student debt you leave school with.
  • Scholarships: As a type of gift aid, scholarships don’t need to be repaid. They are offered through federal, state, local, and educational institutions, as well as through private businesses and nonprofit organizations. Browse merit- and need-based financial aid on scholarship sites, like Fastweb and Scholly to discover programs. 
  • Grants: Grants are another type of gift aid that typically doesn’t need to be paid back. However, some grants, like the Federal TEACH Grant, must be repaid if you don’t fulfill its service obligation. Ask your financial aid administrator for more information about grants you might be eligible for.
  • Part-time work: Securing a part-time job is another way to pay your way through school. There might be on-campus jobs at your school which generally offer flexible schedules for its student-employees. Additionally, you can find a remote job or search for local, off-campus employment to fill financial gaps if you were denied student loan aid. 

The Takeaway

Although you can be denied a student loan, that doesn’t mean your education has to come to a complete halt. Speak to your school’s financial aid office to learn about your options moving forward, whether with regard to a federal or private student loan.Refinancing your existing student loans might be an indirect way to pay for school, too. If you can get a lower interest rate, you could save money on your monthly payment and total interest charges. These savings can go toward your current college expenses. Just remember that refinancing federal student loans means you’ll lose access to federal perks, like loan forgiveness and guaranteed deferment and forbearance programs.If you believe that refinancing a student loan makes sense for your situation, compare  student loan lenders through Lantern. You can easily compare loan amounts, terms, and interest rates across multiple lenders.Check your student loan refinance rates today, quickly and conveniently, with Lantern.

Frequently Asked Questions

How do you know if you are denied a student loan?
What happens when you are denied a student loan?
Can you reapply if you are denied a student loan?

About the Author

Jennifer Calonia

Jennifer Calonia

Jennifer Calonia is a Los Angeles-based finance writer who has covered the gamut, including student loans, credit card rewards, consumer loans, and debt. Her work has been featured in outlets like Bankrate, NerdWallet, Business Insider, Yahoo Finance, and U.S. News.
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