By: Bryan Lee, UHEAA
If you were recently denied on a private student loan application, don’t be discouraged! You still have options. Rejection is hard for anyone – and it happens to everyone. First we’ll discuss the common reasons for a private student loan app being denied and then we’ll get into what steps you should take moving forward in order to get approved next time.
Possible Reasons For Application Denial.
Lenders use various methods to determine whether an application gets approved or denied. Most private student loan lenders look at a similar set of measures…
1. Unable to Meet Credit Criteria
A credit score is not a simple finite number. There are different models for a “credit score”, which depend on each credit bureau. If you request a credit report from a particular credit bureau, it may not be the same as what the lender received from a different credit bureau. The three credit bureaus in United States do not always provide the same credit score for each individual. You should check your reports from at Experian, Equifax, and TransUnion every year, which you can do for free at AnnualCreditReport.com.
2. Inadequate Income
Even as a student, you have to make a certain income to prove you can afford necessary loan payments. Usually, lenders don’t want you to accrue debt unless they know you can afford it. There is an option for unemployed or low-income students to re-apply for a loan with a cosigner. Applying with a creditworthy cosigner shows the lender that there is a financially dependable party who has agreed to be held responsible for the loan back if you are unable to afford it yourself.
3. High Debt-to-Income Ratio
Lenders examine your debt-to-income ratio to compare your outstanding debts versus your income. Having a higher amount of debt, indicates to the lender you might have difficulty with monthly payments.
Did you know that lenders look at your credit report and rent payments when determining your debit-to-income ratio? They do not look at cell phone bills or utilities.
My Application Was Denied, What’s Next?
1. Re-apply With a Credit Worthy Cosigner
If you’re a young student you may need a cosigner —This is common for private loan applications. There is only so much a college student can possibly do to build credit while in school. Find a creditworthy cosigner to help you out. When it comes to finding a cosigner, it’s a matter of asking the right person. Asking relatives like parents, grandparents, or other close family members is a good place to start.
2. Contact Your Loan Provider
Most lenders will tell you the reason as to why you were denied. Give them a call and ask for more details if necessary. This will also give you an opportunity to ask about and learn what you’ll need to get approved.
Strive for Your Education.
Take time to evaluate your situation. Make a list of colleges that align with your financial situation and ability. It is very common for students to attend a community college for two to three years in order to pay lower tuition for general level courses and then transfer to a university to continue progress towards a bachelor’s and beyond.
Keep striving to complete your education and to obtain a brighter future for yourself. While you’re at it, be smart and stay within the boundaries of what you can afford. Your future self will appreciate your hard work, self-discipline, and financial wisdom!
Take Away Points:
Your loan application may have been denied because of…
- Insufficient credit score/history
- Insufficient income
- High debt-to-income ratio
- Reapply with a creditworthy cosigner
- Contact the lender to ask what is needed for approval
Out of options for private student loans?
- Try to find a more affordable college
- Complete your FAFSA and be sure to look for different financial aid options. Don’t hesitate to contact your school’s financial aid office.
- Don’t let go of your passion and desire for a higher education.
It’s okay if applying for a loan to pay for school doesn’t work out for you. All that means is that you aren’t putting yourself in a position where you are taking on debt that you may not be able to afford. Keep pushing to complete (and pay for) your education at a pace that you can afford while making sure you have what you need to provide for yourself (and your family). Working and going to school is normal. Being a working college student is commonplace.