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Key takeaways
- In order to qualify to refinance student loans, you will need a strong credit score, a stable income, and a decent debt-to-income ratio. Some lenders also require U.S. citizenship and a completed college degree.
- Most lenders require a minimum amount to refinance. This ensures that the lender will earn sufficient interest to generate a return on their investment.
- To refinance, you’ll likely need to provide detailed paperwork, such as tax documents, bank statements, transcripts and government-issued identification.
Deciding whether to refinance your student loans will depend on a few factors. You’ll want to investigate whether your loans even qualify for refinancing – there may be limitations, especially if your total balance exceeds a certain amount or you did not graduate from your degree program.
If your student debt is eligible for refinancing, carefully review the interest rate and terms and conditions. If you qualify to refinance your loans at a better rate and term, doing so may be a smart financial move.
7 Eligibility requirements for student loan refinancing
1. A strong credit score
In order to qualify, you will need a good credit score. Your credit history and credit score are some of the biggest influences on your eligibility for student loan refinancing. A higher credit score will help you get the best interest rates when refinancing your student loan.
If you have little to no credit history, some lenders may not approve you, but it is possible to refinance student loans with bad credit or a limited credit history. If this is your circumstance, it is critical to shop around to compare rates and terms.
You may not qualify for the lowest rates on the market, but comparing lenders can help you get the lowest rate possible. Ideally, you’ll want a credit score in the mid-600s to qualify and one above 700 to get the most competitive rate.
2. Stable income
Lenders also consider your income stability. If you don’t have a consistent income, lenders may assume that you don’t have the cash on hand to make payments on your bills. Many lenders require proof of employment and consistent income to qualify. You may use bank statements or pay stubs to provide a record of regular, steady deposits into your account.
Common reasons for fluctuating income includes the following:
- Self-employment
- Working on a contract
- Receiving disability payments
- Being employed sporadically
3. Decent debt-to-income ratio
Your debt-to-income ratio (DTI) is the percentage of your income committed to existing debt payments. The lower your DTI, the more likely you are to be approved since you have more cash freed up to stay current on your payments.
Lenders might be more cautious if you have a high DTI. Try to keep your DTI to less than 50 percent and pay off as much debt as you can right before applying for a loan or refinance.
4. Minimum refinancing amount
Each lender sets a different minimum refinancing amount, which is the smallest amount of debt the company is willing to refinance. For many, this starts between $5,000 and $10,000.
Many lenders don’t have a maximum amount, but those that do will typically set a high ceiling, like $300,000. Minimum amounts help lenders determine whether the loan will generate enough interest to make servicing it profitable.
5. A degree
Many lenders have requirements for how much schooling you’ve completed. Some require you to hold a degree to be eligible for student loan refinancing; others may be more lenient with these requirements. You can even refinance after earning an associate degree in many cases.
Keep in mind:
If a lender doesn’t require that you hold a degree, it may have other eligibility criteria, such as credit completion or enrollment status requirements.
6. A cosigner
You may need a cosigner if you do not meet the loan requirements on your own. Lenders may require a cosigner with primary borrowers who have bad or no credit, a high DTI ratio or unstable income. Some may even require a cosigner if you are not a U.S. citizen. The cosigner legally agrees to repay the loan along with the primary borrower.
It’s common to have a cosigner for student loans since they are designed for younger individuals who may not have established enough credit history. In these cases, the cosigner is typically an older adult with a strong financial track record, such as a parent or guardian.
Check whether the lender offers a cosigner release. If the primary or student borrower makes a certain number of payments or meets credit requirements, the cosigner may be released from the loan. Companies with fast cosigner releases include Sallie Mae, SoFi and Ascent.
7. Paperwork
Once you’ve found the lender with the lowest interest rate, fewest fees and best repayment terms for your budget, it’s time to get your paperwork in order. Here’s what you’ll likely need for your application:
- Proof of employment: A recent pay stub, a W-2 and your tax returns.
- Government-issued ID: A license, passport or ID card.
- Proof of degree: A college transcript or diploma (may not be required with all lenders).
- Proof of residency: A document confirming your current address – commonly, a utility bill with your name, a mortgage statement or a bill addressed to you will suffice.
- Loan documents: Recent loan statements detailing your account and payoff information.
After you submit your application, the lender will run a credit check. If you’re approved, you’ll sign formal paperwork to transfer the debt. This usually consists of giving the lender permission to pay off your current loans for you, with you agreeing to your new loan terms, interest rate and monthly payment.
3 Alternatives to student loan refinancing
Depending on your reasons for considering refinancing, you may consider alternative routes to achieving your financial goals.
Keep in mind:
Both discharge and forgiveness programs have uncertain futures at this time as they are being assessed in federal court.
Bottom line
Choosing to refinance may lower your interest rate and monthly payments, as well as allow you to find terms that fit your situation. By making sure you meet the requirements for student loan refinancing, it now makes sense to start shopping for a refinance loan.
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