What to Do If Your Student Loan Request Is Denied

Written by: Kristyn Pilgrim
Updated: 7/17/20

It is important to know that if your student loan request is denied, you have options. First, it is necessary to understand eligibility. Occasionally, you can provide additional documentation to prove eligibility. If you’ve received federal student loans in the past, it’s important to check that you did not violate any of your institution’s eligibility requirements. If perhaps your grades slipped, you may no longer be considered eligible. Even so, you can try to appeal the decision and continue your education. 

Understanding Eligibility for Federal Student Loans

If you received federal student loans in the past but are no longer eligible, it’s likely because you no longer meet some of the basic criteria. If you, for instance, transferred programs, you may no longer be eligible for specific funding. It’s also important to look over and know the requirements, as even minor things can eliminate you from eligibility. 

Basic eligibility requirements include: 

  • Documentation that you need assistance 
  • U.S. citizenship or eligible noncitizenship 
  • Valid Social Security number 
  • Registered for Selective Service (only applies to men between the age of 18 and 25)  
  • Enrollment or acceptance as a regular student in an eligible degree/certificate program 
  • Academic progress in college/career school
  • High school diploma or equivalent
  • Free Application for Federal Student Aid (FAFSA) certification statement signature 
  • Enrollment at least half-time

Sometimes, you might find that even if you meet these requirements, your federal student loan request is denied. Occasionally, federal student aid programs have different eligibility requirements. We recommend that you check with your college’s financial aid office to discover your program’s requirements.

Fill Out the FAFSA Form Annually 

Remember that you need to fill out the Free Application for Federal Student Aid (FAFSA) form every year. If you forget or did not complete the FAFSA, you will be ineligible for federal student aid. 

Completing the FAFSA can be relatively quick, as the website takes you through the process step by step. The next time that you fill out the FAFSA, you will submit a renewal form. This form remembers certain information that you reported the previous year to expedite the process. Sometimes, funding runs low, so it’s crucial to complete the FAFSA form earlier than the deadline. Make sure to find out your state or school’s deadline.  

Reasons Federal Student Loan Requests Are Denied  

Even if you’re currently ineligible for federal student loans, it’s possible to regain your eligibility. We’ve presented a few reasons you might have your federal student loan request denied and how to regain eligibility.

How Do I Become Eligible After Defaulting on a Federal Student Loan? 

If you’ve defaulted on a federal student loan, you won’t be eligible for additional funding.

One way to get out of a default is to repay the defaulted loan in its entirety. This is often impractical for borrowers, so there are more options available: loan rehabilitation and loan consolidation. Loan rehabilitation can take several months to complete, while loan consolidation tends to be a quick process. Although loan consolidation tends to be a faster process, consider the benefits:  

Benefits Loan Rehabilitation Loan Consolidation 
Federal Student Aid Eligibility YesYes
Forbearance Eligibility YesYes
Deferment Eligibility YesYes
Repayment Plan OptionsYesYes (limitations)
Removal of the Default Record From Your Credit History Yes No
Loan Forgiveness Program Eligibility YesYes

Here’s a quick breakdown of how you can repay your defaulted student loan: 

Loan Rehabilitation 

Loan rehabilitation is a great way to get the default status removed from your loan. As a result, the defaulted status will be removed from your credit history. However, it will still show that there were late payments. You’ll also no longer have payments collected by the Treasury. 

Most notably, once you’ve acquired loan rehabilitation, you will be eligible for federal student aid again. However, it is important to understand that you only have one chance to use loan rehabilitation. If, for some reason, you default on your loan in the future, you will be unable to rehabilitate your loan/credit history again. 

Once you’ve decided to enter this program, your loan holder will determine a reasonable monthly amount, which will equal 15% of your annual discretionary income divided by 12. For this reason, you will need to provide documentation of your income to the loan holder. 

Alternatively, if you cannot afford the monthly payment amount, you can ask the loan holder to calculate a more reasonable monthly payment. To take this route, you will likely need to provide a list of your monthly income and all of your expenses. Making a monthly payment while in school can be difficult, which is why, depending on your income, you might be able to make payments as low as $5 a month. 

Loan Consolidation 

You can also get out of default by consolidation. Consolidate your federal student loans into a Direct Consolidation Loan. Loan consolidation empowers you to pay off one or more federal student loans with a new, consolidated loan. 

To consolidate your loan, you will need to repay the new Direct Consolidation Loan or make three consecutive, full monthly payments on the loan before you consolidate it. If you choose the latter, your loan holder will determine your payment amount for the three payments, but it will not exceed a reasonable amount. 

Full Repayment 

Full repayment of your defaulted loan is also an option. It’s typically more difficult to attain because you have to pay every last dime of your defaulted student loan at one time. If you’re unable to do this, consider the other two options, loan rehabilitation or loan consolidation. 

How Do I Regain Eligibility If I Do Not Have “Satisfactory Academic Progress”? 

To receive federal student aid, you will need to make satisfactory academic progress. This means that if your GPA drops too low, or you do not earn enough credits, you could lose federal student aid.

Every institution is different; however, common school policies include:

  • What is the grade-point average that you need to maintain? 
  • How quickly do you need to move toward graduation? How many credits should you complete each semester? 
  • What are the implications of an incomplete, withdrawn, repeated class, change of major, etc.? 
  • How often will your program assess your progress?
  • What if you fail to meet your institution’s satisfactory academic progress?
  • If you fail to meet satisfactory academic progress, can you appeal to your school? Typically, appeal reasons include illness, injury, or the death of a family member. 

If your financial aid office determines that you did not meet the expectations, you can appeal the decision. Additionally, you can contact your financial aid option to work out a plan to regain funding for federal student aid. 

How Do I Regain Eligibility If I’m No Longer an Eligible Noncitizen (Status Expired/Revoked) 

To be considered an eligible noncitizen, you need to fit one of these requirements:

  • You are a U.S. national or permanent U.S. resident. 
  • You have a T nonimmigrant status, or your parent holds a T-1 nonimmigrant status. If you are claiming either of these, your college or career school’s financial aid office will ask for certification. 
  • You have an Arrival-Departure Record (I-94) showing: Refugee, Asylum Granter, Conditional Entrant, Parolee, or Cuban-Haitian Entrant. 

If your status has changed (expired or revoked), you’ll need to reinstate the status that made you an eligible noncitizen. Alternatively, you could become a permanent resident or citizen to receive the funding. If your citizenship status has changed, your financial aid office will likely be able to do little to help you. Instead, you will need to contact U.S. Citizenship and Immigration Services

Reasons Private Student Loan Requests Are Denied  

Private student loans can be a good option for students in need of additional funding. If you’ve been denied a private student loan, though, it’s important that you first learn why you were denied.

Perhaps you do not have enough credit history, or your debt-to-income ratio could be improved. In this case, you may consider adding a co-signer to your application. A co-signer acts as a character witness that you will pay back your loan. Private lenders may be fearful that you don’t have a large credit history yet, and this co-signer can vouch that you will pay back the loan. Simply put, the co-signer promises to pick up the remaining balance if you’re unable to pay back the loan.  

Alternatively, if you do not want a co-signer, you could build your credit history on your own. However, it could take a bit of time to build your credit. First, determine your current credit score by accessing your credit report. You can view your credit report for free once a year by reaching out to one of the three national credit bureaus (Experian, Equifax, and TransUnion). Once you understand your credit score, you can begin building your score to become eligible for private student loans. Ensure that you make on-time payments and pay your balances in full so that you build strong credit. 

What Should I Do Next?

If you’ve found yourself in a situation in which you are denied a student loan, remember that you have options. Make sure to check the eligibility requirements to ensure that nothing slipped through the cracks.

We recommend that you make an appointment with your institution’s financial aid office to figure out what went wrong and what you can do to solve your specific issue. Colleges and career schools will most likely be able to help you in your pursuit of education. 

If you find yourself in need of more information, CollegeFinance.com has various resources to help you make an informed decision when financing your postsecondary education.  Get the most out of your college investment with resources to help you plan, borrow, and even repay your student loans.