Step 1 After Being Rejected for Student Loan Consolidation

By | February 23, 2017
step 1 after being rejected for student loan consolidation

You just received notice from your student loan lender that your application was rejected. What to do next? There isn’t any reason to fret yet as there is one action to take to help improve your chances of getting approved for student loan consolidation after applying again.

Reasons You Might Have Been Rejected

There are several reasons your loan application might have been rejected. Perhaps you fall under several of the reasons listed below.

Lack of Sufficient Income or Employment History

Depending on your salary or how long you have been working with your current employer, you might not be approved because you do not make enough money. Student loan consolidation and refinancing are pursued by borrowers that are struggling to afford their current student loan payment. While a student loan refinancing lender is eager to help any borrower that wants to refinance, they are not going to unwillingly lend to somebody that cannot pay the loans back.

High Debt-to-Income Ratio

If you have a lot of other debts already, even with a steady paycheck, the lender might still perceive you as too risky. You might have to pay down your other loans and credit card balances first to get reapproved.

Insufficient Credit Score

If you have just started managing your credit or damaged your score due to missed monthly payments. A credit score signals to the lender how well you can handle credit and are likely to make the monthly payment. As lenders only remain in business by making sound investments, a low score might require a higher interest rate than they are able to issue for a refinanced student loan.

What to do After Being Rejected

The lender should provide a reason for why you were rejected and you can choose to focus on improving that shortcoming in your credit profile. But, that might take several years if you decide to go it alone. Depending on your finances, you might not have two or three additional years to keep your original student loans. Instead, you can ask for help.

Apply with a Co-signor

Instead of waiting several years to improve your credit score, salary, or debt-to-income ratio, the first step to take is reapplying with a co-signor. Of course, you shouldn’t just choose any person to co-sign your loan. It needs to be somebody with a better credit score than yours, a reliable income, and is willing to make the payments if you cannot as their credit score is affected if you miss any payments on the consolidated loan.

Benefits of Applying With a Co-Signor

Applying with a co-signor isn’t unique to student loan consolidation. It’s also common to use a co-signor when applying for private student loans, auto loans, and home mortgage loans. When applying with a co-signor, the bank will use the higher of the two credit scores to determine if you now qualify for approval. While you might only be focused on getting approved, especially of the initial rejection, there are two large benefits to having a highly-qualified co-signor.

Obtain Lowest Interest Rate

Possibly the best benefit of having a co-signor is to qualify for the lowest interest rate possible. One reason you might apply for refinancing is to get a lower interest rate than you currently have. Having a co-signor with a credit score slightly better than yours might mean no change to your current interest rate.

Qualify for Highest Borrowing Limit

Another potential benefit of having a co-signor is that you can qualify to consolidate all your current student loans together. Otherwise, you might only be able to consolidate a portion of your student loans depending on how long of a repayment term you are seeking.

Theseare the two primary reasons why it’s important to choose a co-signor with better creditworthiness than you. In addition to getting approved, the higher your co-signor’s credit score is, the greater your chances to qualify for the best interest rate. This means your monthly payment will be the lowest possible.

Co-Signor Release

One condition your co-signor might verbally require with you is that you release them from the loan as soon as possible. This is because your family member or friend is willing to lend you a helping hand to help you get approved, but, they do not want to be held liable for any missed payments for the life of the loan. Especially if you will be making payments on your new consolidated loan for the next 15 or 20 years.

Just like you needed a co-signor to qualify for refinancing because you couldn’t qualify for refinancing solely on your own credit, you still need to improve your creditworthiness so the lender will authorize your co-signor to be released. Each lender has different requirements, but, your co-signor can expect to be on your loan for at least one year.

Asking you lender is the best idea so you know when is the earliest they will consider the request to release your co-signor. Once they are released, they are no longer liable for any future missed payments, and more importantly, it means your credit history is high enough to qualify for refinancing on your own! But, you were able to negotiate a better repayment term in the meanwhile.

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