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College Students and Recent Grads

5 Reasons You Might Be Denied for a Private Student Loan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When you’re applying for money to pay for college, experts agree that federal loans are usually the best way to go. They’re less expensive (especially for undergraduates) and more flexible than private student loans.

But if you need more money than you’re being offered in federal aid, a private student loan from a bank or other lender may be your best option to fill the gap. In the most recent numbers on private student loan borrowers, 43% turned to private lenders because they could not borrow any more in federal Stafford loans, according to the Institute for College Access & Success (TICAS).

But if you’re thinking of applying for a private loan, you should know that getting approved isn’t a slam-dunk.

“Lenders are focusing their money on the borrower who is least likely to default and most likely to be profitable,” said Mark Kantrowitz, financial aid expert and publisher of Savingforcollege.com. As a result, applicants who seem even a little risky might find themselves rejected for a private student loan.

Here are five reasons you might be denied for a private student loan:

1. Your credit isn’t good enough

Many undergraduate students — and some graduate students — don’t have a robust enough credit history to qualify for a private student loan. Or, if they do, their score might be too low.

Can you get a private student loan with bad credit? Possibly, but you might need a cosigner on a private loan application to get it approved. “About 90% of our private education loans are co-signed,” said Rick Castellano, a spokesperson for Sallie Mae.

Note, however, that using a cosigner can also cause problems of its own.

2. You’ve borrowed a lot recently

The Department of Education, guaranty agencies and other federal student lenders report your loans to the credit bureaus, as do most private lenders. As a result, future lenders are able to easily see how much money you’re borrowing and what your total debt load looks like.

Your debt-to-income ratio ideally needs to be 40% or less, though standards range from lender to lender. If you have a lot of debt and not much income, you’re a riskier bet, leading private lenders to reject your loan request.

3. You’re going into the ‘wrong’ field

“If you’re applying for private aid for a degree in a field that pays well, like a medical degree or in the sciences, and you’ve got a reasonably good credit background, you’re getting approved,” Kantrowitz said. On the other hand, if you’re pursuing a degree in a field that traditionally pays poorly — thus making it harder for you to repay a loan later — it’s a tougher call.

Keep in mind that your future earnings will also play into your likelihood of getting approved for student loan refinancing after you graduate. We definitely aren’t telling you to avoid pursuing your dreams, just to be careful about your debt burden if you’re entering a historically low-paying field.

4. You’re asking for too much

It could be that the private lender thinks your loan request is too high. “To ensure applicants borrow only what they need to cover their school’s cost of attendance, we actively engage with schools and require school certification before we disburse a private education loan,” Castellano said.

In this case, you might not get rejected, but the school might certify a lesser amount.

Also be aware that you can sometimes get approved for more than you actually need. If that’s the case, you probably shouldn’t use those extra student loan funds to cover the cost of decorating your dorm, grabbing coffee after class or bar hopping. The cost of using student loans to cover living expenses can take a heavy toll down the road.

5. You’re a freshman

If you’re only a year or two away from graduating, you’re more likely to get approved than if you still have four years of undergraduate schooling ahead of you. This is because, as Kantrowitz explained, “there’s less risk of you dropping out.”

Graduate students may also have an easier time getting a private student loan because they’re more of a known quantity — they even started to pay down debt and established themselves as less of a risk.

Why you might be denied for a private student loan (and what to do instead)

In all circumstances, experts feel you should weigh the costs and benefits of private loans carefully — and whether you need them at all. For one thing, 45% of private loan borrowers borrowed less than they could have in federal loans, according to TICAS. So make sure you’ve exhausted your federal loan opportunities before heading this way.

Private student loans can be harder to get than federal ones because they’re credit-dependent. Everything from existing debt and credit scores to how far you are into your education will play a role in whether or not your application is accepted.

But getting denied for a private student loan doesn’t mean that you’re out of luck when it comes to funding college. There are many other options, from racking up scholarships to finding a tuition-free school. You could even start with a low-cost or no-cost community college and then try to build your credit to qualify for a private student loan later on when you transfer to a four-year university.

Devon Delfino contributed to this report.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate at [email protected]

Devon Delfino
Devon Delfino |

Devon Delfino is a writer at MagnifyMoney. You can email Devon here

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Banking

How Regulation D Affects Your Savings Accounts

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you have a savings or money market account, you may have noticed that there’s a rule that goes with it — no more than six transfers or withdrawals per month from the account. It may feel oddly specific, but it’s true for all savings accounts at all banks and credit unions. Congratulations, you’ve experienced Regulation D.

What is Regulation D?

Regulation D refers to the Federal Reserve’s reserve requirements for depository institutions — or, more plainly, how much money a bank needs to hold in reserve as a percentage of the total amount of money it owes to its customers. So, for instance, currently banks must keep a minimum reserve of 3% of the total amount over $16.3 million and 10% of the total amount over $124.2 million.

Why is this important? “It’s designed to make sure that banks have an appropriate amount of money in reserve,” says Robert Föehl, J.D., executive-in-residence for business law and ethics at Ohio University’s College of Business. “It’s about making sure that banks are safe and sound.”

As part of these reserve requirements, banks must classify what types of deposit accounts they have and keep reserves accordingly. For accounts categorized as savings accounts, Regulation D limits bank customers to six transfers or withdrawals per month. This rule is in place, in part, because banks aren’t required to hold a reserve against savings accounts.

In general, transaction accounts, which include checking accounts, are considered riskier types of deposits. “You write a check; that check could bounce,” Föehl says. “There’s more risk to the financial institution to have transaction accounts than to have savings accounts.”

Savings accounts are considered safer for banks because — by definition — people aren’t using them for all of their financial business. If you’re writing all your checks on your savings account, it’s not really a savings account. “You can’t call something a savings account if it’s a transaction account,” Föehl says. “This is where the limit comes into play.”

Regulation D’s limits are also a way of encouraging people to save, says Mayra Rodríguez Valladares, a financial regulation consultant and trainer in New York City. “The downside is that if you wanted to withdraw more than six transactions a month you could incur some kind of penalty,” she says.

How does Regulation D work for customers?

If you go over your allowed six transfers or withdrawals, your bank may charge you a fee. If you do it regularly, they may convert your account to a checking account or even close your account entirely.

In general, any account that limits “convenient” transfers and withdrawals is considered a savings deposit account and would be covered by Regulation D. These include:

  • Savings accounts: Deposit accounts in which a customer earns interest on the money they deposit, which often have lower minimum deposits.
  • Money market accounts: Deposit accounts in which a customer earns interest on the money they deposit, and the interest is typically higher than a savings account.

These accounts also come with a “reservation of right” requirement, in which the bank reserves the right, at any time, to require seven days’ written notice of an intended withdrawal — but banks don’t typically do this in practice.

Transactions that are limited under Regulation D

Essentially, Regulation D caps transactions that are considered easy for you to initiate without having to drive to a bank or visit an ATM. That would include:

  • Preauthorized, automatic transactions — including those from a savings account for overdraft protection or for direct bill payments
  • Telephone transfers
  • Withdrawals initiated by fax, computer, email or the internet
  • Transfers made by check, debit card or another similar method made by the depositor and payable to third parties

How can I get around the limits of Regulation D?

You may bypass the six-withdrawal limit under certain conditions, including if you’re willing to travel to your local branch in person. “It’s getting to be less and less of a problem,” Valladares says. Transactions that don’t go against your limit include:

  • Transfers and withdrawals made in person at the bank
  • Withdrawals and transfers requested by mail
  • ATM withdrawals and transfers
  • Transfers and withdrawals initiated by telephone, where the withdrawal gets disbursed as a check and mailed to the depositor

How to avoid trouble with Regulation D

If you’re feeling hemmed in by the six-transaction limit of your savings accounts, there are a few ways to work around it:

  • Visit your bank branch or ATM. Transactions made at your local branch or from your bank’s ATM don’t go against your monthly limit — this is the simplest way to avoid trouble with Regulation D.
  • Plan ahead. If you know you’ll need a certain amount of money in a month, don’t drag it out over multiple transactions — get what you need in fewer trips. Withdraw more at a time.
  • Decline overdraft protection. Generally, overdraft protection works by dipping into your savings account if you write a check that your checking account can’t cover. That counts as one of your six transactions, but if you decline overdraft protection, it can’t happen.
  • Get a checking account. If you need more than six transfers or withdrawals, save yourself some trouble and get a checking account with unlimited transaction power.
  • Don’t pay bills from your savings or money market accounts. Your checking account makes the most sense for regular payment withdrawals. Reconsider setting up a direct debit from your savings account, which will count toward your six transactions.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate at [email protected]

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Banking

NCUA vs FDIC: Understanding the Differences

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

You deposit money in the bank because it’s safe and always available when you need it. But who ensures that the money kept in banks and credit unions is safe? That’s the job of the FDIC and the NCUA.

The FDIC is the Federal Deposit Insurance Corporation, the government agency that insures customer deposits in banks and thrift institutions. FDIC insurance covers all deposit accounts, from checking and savings to CDs and money market accounts, and even some types of retirement accounts. The FDIC provides up to $250,000 of insurance per depositor, per bank, per category of account.

The NCUA, or National Credit Union Share Insurance Fund, insures accounts at federal credit unions, such as regular shares and share draft accounts. NCUA coverage also insures up to $250,000 in total deposits per owner, per insured credit union, per account category.

For all intents and purposes, the two types of coverages are identical, but FDIC insurance applies at banks and NCUA insurance applies at credit unions.

What FDIC insurance protects

It’s helpful to understand what kinds of accounts qualify for FDIC insurance protection. Here’s the rundown:

Type of Account
Description of AccountCoverage Limit
Checking accounts
An account you can write checks against

$250,000 per owner, per account
Negotiable order of withdrawal (NOW) accounts
An interest-earning account you can write checks against
$250,000 per owner, per account
Savings accountsAn account you can save money to, generally earning interest$250,000 per owner, per account
Money market deposit accounts (MMDA)An interest-earning account that usually pays more than a savings account and offers limited check-writing ability$250,000 per owner, per account
Time deposits, such as certificates of deposit (CDs)An account with a fixed interest rate and fixed date of withdrawal$250,000 per owner, per account
Cashier’s checks, money orders, and other official items issued by a bankA check or printed order for payment, guaranteed by the bank$250,000 per owner, per account
IRA, 401(k) and KEOGH retirement accountsSelf-directed retirement accounts with assets invested in deposits like savings, CDs, or MMDAs (speculative investments held in such accounts are not insured)$250,000 per owner for total of all retirement accounts with the same owner
Revocable trust accountAn account owned by one or more people that names one or more beneficiaries to receive the funds upon the death of the owner(s).$250,000 for each named beneficiary
Irrevocable trust accountAn account held in connection with an irrevocable trust$250,000 for the trust

What accounts are not protected under FDIC insurance

As noted in the table above, speculative investments are never insured by the FDIC, only deposit products. Speculative investments include products such as:

  • Stock investments
  • Bond investments
  • Mutual funds
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Safe deposit boxes or their contents
  • U.S. treasury bills, bonds or notes

How to maximize FDIC insurance

There are a few ways to make sure you’re insured for as much as possible. They include:

  • Get an account for each family member. The FDIC insures up to $250,000 for each account owner, so if you and your spouse both have accounts at a bank, you’re insured for $250,000 each.
  • Open a joint account. The FDIC insures joint accounts separately from single-owner accounts, so you’d be insured for an additional $250,000 here.
  • Open a revocable trust. This is an account owned by one or more people that names a beneficiary (or more than one) to receive the deposits upon the death of the owner. A revocable trust account is insured for up to $250,000 for each unique beneficiary.

What NCUA coverage protects

When it comes to credit union accounts, here’s how NCUA coverage works:

Type of Account
Description of AccountCoverage Limit
Single ownership accounts
All credit union accounts with a single owner

$250,000 for all single-ownership accounts owned by the same person at one institution
Joint accounts
Accounts owned by two or more people with equal rights to withdraw money and no named beneficiaries
$250,000 per account owner
Retirement accountsTraditional and Roth IRA accounts and KEOGH retirement accounts$250,000 total for all IRAs and
$250,000 for KEOGH accounts
Revocable trustsAccounts owned by one or more people that name one or more beneficiaries to receive the funds upon death of the owner$250,000 per each named beneficiary
Irrevocable trustsAccounts owned by one or more people that name one or more beneficiaries to receive the funds upon death of the owner$250,000 per each named beneficiary

What NCUA coverage does not cover

Just like the FDIC, speculative investments are never insured by the NCUA, only deposit products. Speculative investments include products such as:

  • Mutual funds
  • Stocks
  • Bonds
  • Life insurance policies
  • Annuities offered by affiliated entities

How to maximize NCUA insurance

  • Open single and joint accounts. NCUA insurance covers up to $250,000 per account owner, per type of account, so you’ll be covered for up to $250,000 in your single-owner accounts and another $250,000 (per owner) in your joint accounts.
  • Open an account for each family member. Since NCUA insurance covers up to $250,000 per account owner, each account owner gets $250,000 of coverage for all single-owner accounts combined.
  • Open accounts at more than one credit union. You’ll be insured for up to $250,000 on your accounts at each institution.

NCUA vs FDIC: Is your account insured?

Determining if your funds are protected depends on where they’re located:

Bank account: You can ask your bank representative, search for the FDIC sign at your bank, or call the FDIC at 877-275-3342 to see if your account is covered. You can also use the FDIC’s BankFind tool.

Credit union account: You can ask your credit union representative or look for the NCUA sign at your credit union or on their website. You can also search for your credit union in the Credit Union Locator.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Ashford
Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate at [email protected]

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