Senate Cents: A Financial Wellness Blog

With fixed interest rates as low as 3%, it’s a great time to refinance private student loans. Except if you can’t.

Mario Martinez, a 29-year-old from Houston, owes approximately $130,000 in private student loans and hoped that refinancing could reduce the $1,600 he pays each month.

“I’d finally have some wiggle room to do extra things I wanted to do,” he says.

But he hasn’t found a lender he qualifies with. So he’s put this plan on hold, even though his six-figure debt is accruing interest at 12%.

If you’ve also been denied for refinancing — or think you might be — keep trying if this option could save you money. Here’s how to put yourself in a better position before applying.

Understand your eligibility

If you’re not sure whether you’ll qualify for student loan refinancing, start by looking at lenders’ eligibility criteria. Most have similar baselines: generally a FICO credit score in at least the high 600s, a debt-to-income ratio below 50% and steady income.

Other requirements will vary by lender. For example, many want borrowers who have graduated, often with at least a bachelor’s degree. Most won’t accept noncitizens; that factor contributed to Martinez’s denial.

“Because of my status as a non-U.S. citizen, I wasn’t able to go through the usual channels of refinancing,” he says.

But these policies aren’t universal. For example, refinance lenders Brazos Higher Education and Citizens Bank accept international students if they have an eligible U.S. citizen co-signer.

Research individual student loan refinance lenders to find ones that meet your specific needs. See if those lenders will let you pre-qualify. That way, you’ll know if you’re likely to be approved — and at what rate — without repeated credit checks affecting your credit score.

Check your credit history

You may also be denied for student loan refinancing because of your credit history. Get a free copy of your credit report at annualcreditreport.com to identify potential roadblocks. Some might be obvious, like a recent bankruptcy.

Kaitlyn Coyle, 32, of Montgomery County, Pennsylvania, wanted to refinance her roughly $33,000 variable rate private loan into a fixed rate. But her application was denied, in part, because of medical debt that had been in collections.

“I was definitely upset,” she says. “I paid those accounts off.”

If old accounts are impacting your credit, one option is to send a goodwill letter to ask for their removal. Coyle tried to do this but couldn’t find a way to contact the loan holder.

You could file a dispute with the credit bureau in such instances, says Eric J. Ellman, senior vice president of public policy and legal affairs for the Consumer Data Industry Association.

“You can dispute anything you want to,” he says.

You can start the dispute process online, by mail or over the phone. If you’re not satisfied with its outcome, Ellman says, you can put a 100-word statement on your report to explain your situation. That may help your approval chances.

Listen to the lender

A loan denial is ultimately up to the lender’s standards and discretion. However, the lender must send you what’s known as an “adverse action notice” that explains its reasoning.

Ellman says the reasons on these notices aren’t standardized but often fall into similar buckets, like having too many open credit lines, not enough income or too much debt.

You'll likely receive your adverse action notice by email or mail.

After a lender issues an adverse action, you’re also entitled to a free copy of your credit report for 60 days. Double-check your report to ensure the accuracy of all the information.

If everything seems good with your credit or the adverse action notice is unclear, reach out to the lender.

“Go to the source,” says Barbara Thomas, chief operating officer of Education Loan Finance Inc., or ELFI. “Make sure you understand the precise reason why you’re being rejected.”

She stresses that lenders must adhere to federal and state regulations regarding discriminatory lending. But she says institutions must also make sound financial decisions.

“As a consumer, you think that you should get whatever loan you apply for,” Thomas says. “But at the end of the day, lenders need to be profitable to stay in business.”

Take necessary action

If you find outdated or incorrect information on your credit report, dispute it with the credit bureau. If your financial situation is what’s holding you back, make a plan to address potential trouble spots.

For example, if you have too many open credit lines, consider consolidating or closing some. If you’re carrying a lot of debt, try to pay off some accounts before you reapply.

Thomas says that changing your current financial situation in a short period of time can be difficult. If you want to take advantage of low rates now and have been rejected for a loan on your own, consider applying with a co-signer.

That person will be responsible for your loan, so don’t take this step lightly. Research a lender’s co-signer release policy, and keep working on your finances so you can reapply in the future on your own.

“You always have the chance to refinance again without the co-signer once you get back on your feet again,” Thomas says.