What to do if your student loan is declined

I talked yesterday with an LJ Blogger whose private student loan had been turned down, and she was inquiring what to do, who to apply with next. Before she did, I made some recommendations that are vitally important.
First – find out WHY you were declined before you do anything else. Remember – applying for a loan, any kind of loan, takes a bite out of your credit score. The more loans you apply for, the lower your credit gets. Why? Because it’s assumed in the FICO formula that the more loans you apply for, the more desperate you must be – and therefore, a higher risk. Higher risk = lower credit score.
In this case, the borrower’s cosigner, her grandfather, was the reason for the decline. Read more…

Her grandfather didn’t meet what’s commonly called the 2-2-2 rule for alternative student loans:
– 2 years of US citizenship
– 2 years of full time employment
– 2 years of good credit history
In this case, he was retired, and therefore as a cosigner he didn’t meet the employment rule. Had the borrower continued to apply over and over again at different loan companies, she would have gotten the same declined message, and may never have gotten an indepth explanation as to why.
Second, once you know why, do your best to fix it before applying elsewhere. In this case, get a different cosigner.
Third, reapply at the places you were declined first. Why? Because in most cases, the lender will not need to run another credit check on you, which means that your score won’t decline any further. If you just can’t make it work, then consider a different lender, but always retry first.