Your private student loan was denied; it’s not the end of the world. But, you also don’t live in Utopia—where everything is perfect. This is Earth, the third planet from the sun, which also means life comes with an exclusive bundled package of obstacles and advantages. In fact, they come free, like it or not you have to embrace both.
Getting denied on a private student loan is not as bad as a zombie apocalypse, so be glad. If you were denied recently, take a deep breath. It’s okay. I’m not just saying that because the word “okay” sounds therapeutic. I’m saying okay because you have options out there and you need to know what do to next.
Possible Reasons For Application Denial
Different lenders use various methods to determine approvals and denials. However most private student loan lenders look at a set of measures that are usually similar. For example, if your application was denied, your application may have alerted the following signs.
Unable to meet credit criteria
A credit score is not a simple finite number. Of course nothing is simple when you think they are simple, right. There are different models for a “credit score”, which depends on each credit bureau. When you requested a credit report from a particular credit bureau, it may have not been the same as what the lender received from a different credit bureau. This means 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 least Experian, Equifax, and TransUnion every year, which you can do for free at AnnualCreditReport.com.
Duh, I’m a student—typical student’s reaction to income. Even as a student you have to have a certain income to take a loan because you have to prove the lender you can afford to make necessary payments. Now, don’t get discouraged. There is an option for unemployed or low-income students to re-apply for a loan with a cosigner. Don’t give up yet. At the end of the day, it’s for your own good. Usually certified lenders don’t want to put you in trouble because they want you to borrow money only if you can afford it. See, it is not as bitter.
High Debt-to-income ratio
Don’t be surprised if your lender takes a peak at your—and to your cosigner, if you apply with one— debt-to-income. It’s actually more than a peak. Lenders examine your debt-to-income to see how much you have to pay each month on your debts as a whole. If you tend to have a higher debt amount you pay each month that will tell the lender that you may have trouble making payments to them. Did you also know that when 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. Yes, numbers can speak louder than words sometimes.
Haven’t provided sufficient documents
This happens when you’re too lazy to double-check your documents. Make sure you have all required documents and those are all up to date. Take that extra 5 minutes or less to make sure you have everything the lender needs to help you get that loan.
My Application Was Denied, What’s Next?
Re-apply with a credit worthy cosigner
If you’re a young student you may need a cosigner —At least for the most part, that’s what we see with our loan applications. Common sense alert! There is only so much an 18 – 21 year-old can possibly have given the time you’ve been an adult to build your credit. It’s about time to throw the stiff-necked attitude out the window, if you want to pursue those educational dreams. Find a credit worthy cosigner to help you out. Most parents, grandparents, and other close family members would be willing to help you out. It’s just a matter of asking the right person.
Contact your loan provider
Most lenders would give you the reason as to why you were denied. Why not give them a call and ask. This would also give you an opportunity to learn what’s exactly missing for the approval.
Ran Out Of Options? Well, It’s Time To Step Outside The Box
Just Imagine…by now you may have tried different lenders with different cosigners but you still haven’t got approved for a private student loan. Well, it’s time to take a birds-eye view at your situation. In other words, the best thing to do now is to evaluate your situation. Make a list of colleges that would align with your financial affordability.
It is very common for American students to go to a community college for couple years, and transferring to a four-year degree. Don’t give up on education. That’s a foundation for a bright future. Always make sure to be smart, and do what you can afford. Don’t forget to look at different financial aid avenues as well. Try-try, and someday you will fly! Oh, but wait, make sure those safety gears are in place. It’s like how we would say don’t take out unnecessary debt.
Take Away Points:
- Your loan application may have denied because…
- Insufficient credit score/history
- Not enough income
- Higher Debit-to-income ratio
- Incomplete, faulty, or dated documents
- Possible Solutions:
- Re-apply with a cosigner
- Contact the lender
- Out of options for private student loans?
- Try to find an affordable college
- Not enough income
- Look for different financial aid options
- Don’t let go of your passion for education that easy!