Are you eager to conquer your student loan debt, but wondering if you qualify for refinancing? Here at Comet, we’ve helped people save more than $200 million on their student loans. Refinancing requirements can vary by lender, but we’ve put together a list of the most common things lenders look for.
Typical requirements for student loan refinancing:
You are at least 18 and a legal U.S. resident. A loan is a legal contract. To refinance in your own name, you must be an adult. You’ll also need to provide a Social Security number (or Alien ID number for permanent residents).
You have at least $5,000 of student loan debt. Many companies require a student loan balance of at least $5,000 to refinance. However some, including Citizens Bank, require a minimum of $10,000.
A college degree. Grads represent lower risk and have higher approval rates. Most lenders require you to have at least a bachelor's degree from an accredited university. However, Citizens Bank will consider non-graduates, if you have made at least 12 consecutive, on-time payments.
A good credit score. You know that you’re hardworking, trustworthy, and responsible with your finances. But student loan refinancing is done by private companies that have to answer to investors. They need evidence that you’re a good credit risk. Most lenders require a FICO score of 650 or higher.
A low debt-to-income ratio. Banks want your credit score to be high, but they also want your debt-to-income ratio to be low — less than 36%. Calculate your ratio by adding all monthly debt payments and then dividing that sum by your gross monthly income (what you earn before taxes). For example, if you’re paying $1,000 a month toward debt and you earn $4,000 a month, your debt-to-income ratio would be 25%.
Solid employment. It will be difficult to refinance if you’re unemployed, underemployed, or have a low-paying job. Most lenders want to see recent pay stubs or tax returns that show you can comfortably make your payments. However, in some cases, lenders will consider your application if you have an offer of employment that will begin in 90 days or less.
History of on-time payments. A good track record of paying your bills on time, including credit cards and student loans, is an important loan criterion. You’re unlikely to be approved If you’re behind on your payments or have loans that are in default.
If you meet these requirements, find out how much you could save with these best banks for refinancing and consolidating student loans.
What can I do if I don't qualify?
Refinancing can be a game-changer for people who are trying to lower their monthly student loan payments or get out of debt faster. If for some reason you don’t qualify right away, here are some things you can do:
Try other lenders. There are many great companies that offer student loan refinancing. Although they tend to have similar underwriting standards, some are a bit more lenient than others. If the first lender doesn’t approve your application, try a couple more. Shopping around is always a good idea, even if you do get approved right away.
Check your credit report for inaccuracies. A Federal Trade Commission study found that 25% of Americans had some kind of error on their credit reports, but most were able to dispute them with an immediate improvement in their scores. Everyone is entitled to one free credit report every 12 months. You can get yours by going to AnnualCreditReport.com. If you see any errors, dispute them.
Set up autopay for your current loans. Make sure you never miss a payment by having the bills deducted automatically each month. This will help you establish a pattern of consecutive, on-time payments. Many lenders will also reward you with a discount on your interest rate when you enroll.
Increase your income. If you’ve been in your current job for a while, consider asking for a raise. There are also creative ways to earn extra money by turning hobbies into “side hustles,” or participating in the gig economy.
Pay down credit card balances. If you have high-interest rate credit card debt, consider transferring the balances to a new card with a low introductory APR. Then, work on paying down the balance(s) to less than 30% of your credit limit. Decreasing your revolving debt will raise your credit score and boost your chances of being approved for refinancing.
Sign up for a credit monitoring service. You can monitor your progress toward improving your score by signing up for monitoring through one of the three major credit bureaus (Experian, Equifax, TransUnion) or a company like Credit Karma. Some credit cards or banks will also show you your credit score for free on your monthly statement. Monitoring your credit can also alert you to possible identity theft.
Consider applying with a co-signer. If your credit isn’t as strong as you would like it to be, consider asking a parent, spouse, or family friend with strong credit to co-sign the student loan refinance application with you. A co-signer not only improves your chances of getting approved, but could also help you get a lower interest rate on that new loan. Some lenders have programs that let you release co-signers after 36 consecutive on-time payments.
Give it time. The first few years out of college can be a struggle. As you advance in your career, pay down some of your debt, and establish a longer credit history, your risk profile will improve. If you aren’t approved for refinancing right away, wait six months to a year and try again.
A savvy step toward conquering debt
The best way to find out if you qualify for refinancing is to apply. We strongly recommend that you apply with at least three different companies, and then compare rates and options. Each inquiry generally takes less than 15 minutes. You can get an instant decision with no application fees, and there’s no need to worry about the effect on your credit score. The initial inquiry is considered a “soft pull,” and does not impact your score.
As part of the National Student Loan Union’s mission to help students and their families manage education costs, we regularly review lenders. The following are the companies we consider the nation’s best banks for student loan refinancing, based on their interest rates, transparency, product offerings, ease of applying, and customer service.