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what to do if you're denied a student loan (with cosigner)

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This article first appeared on the Credible blog.

If you’re on your way to college or graduate school but have been turned down for a student loan (even with a cosigner), it doesn’t mean you’re out of options to pay for school.

You can use Credible to compare private student loan rates from various lenders, all in one place. And it won’t affect your credit score.

Here’s what to do if you were denied a student loan with a cosigner (or without):

What to do if you’ve been denied a student loan

Private student loan lenders might deny applications for a variety of reasons, including credit and other financial issues. If you’ve applied for a loan on your own and had your application denied, you still have several paths to move forward.

Here are possible next steps:

  1. Complete the FAFSA. The Free Application for Federal Student Aid (FAFSA) is used to apply for federal student aid, including federal student loans that, unlike private loans, don’t require a credit check. It’s worth filling out the FAFSA even if you don’t think you’ll qualify for student loans because you might qualify for other aid, like grants or scholarships.
  2. Improve your credit. Your credit is an important part of qualifying for private student loans. If you work to raise your credit score, you can improve your odds of getting approved on a future application. The most important factors that make up your credit score are making on-time payments and keeping your revolving account balances low (such as credit card balances).
  3. Find a cosigner. If you apply for a private student loan with a cosigner with good credit, it could help you get approved. Having a cosigner might also mean get you better loan terms than you’d get on your own, such as a lower interest rate. But keep in mind that this also means your cosigner is responsible for paying the loan back if you stop making payments.
  4. Look for scholarships and grants. Countless college scholarships and grants are available to both undergraduate and graduate students. These are essentially free money for school that you don’t have to pay back, so it’s worth taking the time to apply for as many as you might qualify for.

Tip: When in doubt, talk to your school’s financial aid office to learn more about your options. They might even have connections to land you a part-time job on campus or know about scholarships you might not have found elsewhere.

What to do if you’ve been denied a student loan (with a cosigner)

It might feel like a double whammy if you’re denied a student loan with a cosigner — but not all hope is lost. Here are some strategies that might help you get that loan:

  • Encourage your cosigner to check their credit. Sometimes credit reports contain errors, meaning your cosigner’s credit score might not be correct. If your cosigner finds any mistakes and files a dispute with the appropriate credit bureau, their credit score could go up.
  • Find a new cosigner. If your first cosigner doesn’t succeed, try again. Consider asking someone else with good credit — such as a parent, another relative, or a trusted friend — to cosign your loan. Just remember that cosigning can be a risk.
  • Build your own credit. It takes time to build or repair credit, so this isn’t a quick fix. But if you’ve run out of other financing options, working on your own credit might be your best bet. Some potential ways to improve your credit include paying all your bills on time and paying down credit balances (or better yet, paying them off each month) to establish a positive credit history and reduce your credit utilization.
  • Apply for federal or other need-based aid. If your options for getting a private student loan with a cosigner are limited, federal or other need-based student aid may be your best financial resource since your credit is usually not a deciding factor.

Keep in mind: Most federal student loans — including both Direct Subsidized and Unsubsidized Loans — don’t require a credit check. But Direct PLUS Loans do. These loans come in two categories: Grad PLUS Loans for students who want to pay for grad school and Parent PLUS Loans for parents who want to cover education costs for their child.

To qualify for a PLUS Loan, you can’t have an adverse credit history — which means your credit report must not contain negative information (such as defaults or bankruptcies) for the past five years. If you aren’t eligible for a PLUS Loan on your own, you could consider applying with an endorser who doesn’t have an adverse credit history, which is similar to a cosigner.

If you decide to reapply for a private student loan, be sure to shop around and compare your options from as many lenders as possible to find the right loan for you. Keep in mind that several private lenders offer loans to borrowers with less-than-perfect credit, which could help you get approved.

Credible makes this process easy — you can compare your prequalified private student loan rates in two minutes. Keep in mind that while some Credible lenders may have high required minimum credit scores, you might be able to qualify if you apply with a cosigner.

How to find a cosigner

Agreeing to cosign on a loan is a major responsibility and shouldn’t be taken lightly. If you miss your payments or default on the loan, your cosigner will be on the hook, and their credit will be damaged — all of this can also strain your relationship with your cosigner.

As you look for a cosigner, be prepared for someone to potentially say no or raise concerns before agreeing to do you this favor. If you’re ready to find a cosigner, here are four important steps to follow:

  1. Consider your options. A cosigner can be anyone with good credit — such as a parent, another relative, or a trusted friend — who is willing to share responsibility for the loan.
  2. Figure out your payment strategy. Before applying with a cosigner, make a plan for how you’ll handle repaying the loan if you’re approved — and what you’ll do if you can’t make a payment on time. Showing your cosigner that you’re ready to manage the loan could help ease concerns that they might have.
  3. Discuss the risks. Don’t shy away from talking about the risks of cosigning — instead, make sure both you and the cosigner are fully aware of the liabilities involved. Your cosigner should understand that they’ll be responsible for paying back your loan if you don’t keep up with payments.
  4. Use teamwork. After comparing loan options and choosing a lender, go through the application with your cosigner. This way, both of you will know exactly what you’re agreeing to. For example, you might want to consider applying for student loans that offer cosigner release, which will let you remove your cosigner from the loan in the future. To qualify for cosigner release, you’ll typically have to make on-time, consecutive payments for a certain amount of time as well as meet the underwriting criteria on your own.

What lenders look for in a student loan cosigner

While qualifying criteria for a student loan cosigner can vary by lender, here are some common requirements that you’ll likely come across:

  • Good credit: Cosigners typically need good to excellent credit to be a cosigner — this usually means having a credit score of 700 or higher, though some lenders might accept lower scores than this.
  • Stable income: Lenders want to see that your cosigner can afford to repay the loan if you can’t make your payments. Your cosigner should be prepared to provide documentation that illustrates their income — such as tax returns or pay stubs.
  • Low debt-to-income ratio: Your debt-to-income (DTI) ratio is the amount you owe in monthly debt payments compared to your income. Lenders will likely consider a cosigner’s DTI ratio to ensure that they can reasonably fit an additional payment into their budget — in this case, your student loan payment if you fail to make payments.

Most students use a cosigner to get a private student loan

Most private student loans have a cosigner — so if you need one, you’re not alone.

How does a lender decide who qualifies for a private student loan? When reviewing loan applications, lenders typically look at a range of factors to make a decision. The most important of these are typically your credit score, income, and other debt payments you’re responsible for. Having a cosigner might make it easier for you to qualify.

If you’re shopping for a private student loan, be sure to consider as many lenders as possible to find the right loan for you. Credible makes this easy — you can see your prequalified private student loan rates in two minutes after filling out just one form.

About the authors: Taylor Medine is a Credible authority on personal finance. Her work has been featured on Bankrate, Experian, The Balance, Business Insider, Credit Karma, and more. She’s also the author of The 60-Minute Money Plan, a self-published intro to budgeting guide for people who hate budgeting. Eric Rosenberg contributed to the reporting for this article.

About the author
Taylor Medine
Taylor Medine

Taylor Medine is a Credible authority on personal finance. Her work has been featured on Bankrate, Experian, The Balance, Business Insider, Credit Karma, and more. She’s also the author of The 60-Minute Money Plan, a self-published intro to budgeting guide for people who hate budgeting.

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