What To Do if You’re Turned Down for Student Loan Refinancing

Refinancing your student loans could help you lower your interest rate, monthly payment, or both. Since half of undergraduates leave school with an average of $29,300 in student loan debt, according to the College Board, it's not hard to imagine how this change could positively impact your financial situation.

Although being turned down for student loan refinancing can be a disappointment, it doesn't mean you'll never get approved. This guide will break down common denial reasons, how to improve your approval odds, and alternative plans to consider.

Common reasons for being turned down for student loan refinancing

It's not uncommon for lenders to turn down student loan refinancing applications. But it's natural to ask yourself: Why was I denied for student loan refinancing?

Below are some common reasons why your application might have been rejected:

• Low credit score: Most lenders prefer working with borrowers with reasonably strong credit scores. A FICO credit score of 670 is considered good and an even higher score will improve your chances for approval.
• Insufficient income: Without adequate income to support loan payments, lenders are unlikely to approve your loan.
• High debt-to-income ratio: You can calculate your debt-to-income ratio by dividing your monthly debt payments by your gross (or pretax) monthly income. If too much of your income is consumed by debt payments, lenders are less likely to approve your loan.
• Incomplete application: If you leave information out of your application, like employment details, a lender might turn you down for a loan.

Current student loan refinance rates

Steps to take if you're denied for refinancing

If your refinancing application is denied, you're not out of options.

“Often, refinancing rejections happen because of things like credit scores or overall debt, but knowing this can really empower borrowers to take steps to improve their chances,” says Dr. JoNataye Prather, an education coach with a doctorate in social work.

If your student loan refinance application was denied, these steps can help you move forward:

• Review the denial letter: Many lenders provide a denial letter, which may include specific information on why your application was denied. Reading the fine print can help you better understand why you weren't approved.
• Improve your credit score: For many borrowers who seek out refinancing, a less-than-ideal credit score prevents lenders from approving them. Take action to improve your credit score over time, starting by committing to on-time payments for all credit-related bills.
• Assess your financial profile: An insufficient income or high debt-to-income ratio could be holding you back, so consider these numbers in comparison with lenders' requirements.
• Remove errors from your credit report: Mistakes on your credit report can negatively impact your credit score. Read through a free copy of your credit report, available at AnnualCreditReport.com, and reach out to the credit bureaus to correct any issues. 

How to qualify for refinancing in the future

After a denial, working on your finances may help you qualify for a refinance in the future.

“Borrowers can maintain a positive payment history to keep their credit score up so that hopefully with some time — and possibly higher income along with potentially lower interest rates — they will be better-positioned to get approved,” says Adam S. Minsky, a Massachusetts-based student loan lawyer.

“Borrowers can also explore getting a cosigner, although that would make someone else fully responsible for the loan's repayment as well as the borrower,” adds Minsky.

Another option is to find a lender with more flexible eligibility requirements. For example, you might seek out a lender known for working with borrowers who have a less-than-ideal credit score. However, keep in mind that these lenders often charge higher interest rates due to the increased risk on their end.

Alternatives to refinancing your student loans

If you don't want to pursue refinancing again, there are other options to consider. Some include:

Income-driven repayment (IDR) plans

If you have federal student loans, you can choose an income-driven repayment plan. An IDR plan adjusts your monthly payment based on your income and family size. Generally, this leads to a smaller payment, which can make paying back your loans easier on your budget.

Negotiate with your current lender

Consider approaching your current lender to ask for better terms. In some cases, the lender may accommodate your request. Even if the lender doesn't agree, it never hurts to ask. If you're interested in refinancing because you're facing temporary financial hardship, your lender may also be able to offer you a hardship forbearance.

Consider student loan consolidation

If you have federal student loans, you can opt for loan consolidation instead. Consolidation combines multiple student loans into a single loan, and your interest rate becomes a weighted average of your existing loans, rounded up to the nearest one-eighth of a percent.

Tips for navigating the refinancing process

Refinancing your student loans could lead to significant relief for your monthly budget. As you dive into the process, implement these tips for a smooth journey:

• Compare multiple lenders: Every lender has unique offerings, which might include different interest rates and terms. Take the time to compare rates and terms across lenders to find the best fit for your situation. Many online lenders allow you to prequalify for a loan, which allows you to see what rates you may be offered without negatively impacting your credit score.
• Wait for your credit to improve: If you have a relatively low credit score, consider waiting to apply until you've improved your credit score. It can take time to see results, but a higher credit score generally increases your approval odds.
• Increase your income: If lenders don't think your income can support the loan payments, you'll usually face a denial. Take action to boost your income by negotiating a raise, finding a new job, or even picking up a side hustle.