Refinancing your student loans — in other words, taking out a new student loan to pay off your existing loans — is a way to save money or get a different repayment period. Sometimes you can refinance with your current lender, but often you get a new one. In either case, you must meet a lender’s minimum refinancing requirements, which may include a strong credit history, a low debt-to-income ratio, and a stable income.
Requirements for refinancing student loans
Student loan refinance eligibility requirements vary by lender, but many share the same general qualifications.
A solid credit history
Your credit score and background are some of the biggest influences on your eligibility for student loan refinance. If you have little to no credit history to your name, some lenders may not be willing to take a risk. Those that do could give you a higher interest rate, since the best interest rates go to borrowers with good credit. In general, aim for a credit score in the mid-600s to qualify and above 700 to get the lowest interest rates.
If you’re currently unemployed, lenders may assume you don’t have the cash to pay your bills. Many lenders require proof of employment and income when you apply for refinance.
Decent debt to income ratio
Your debt-to-income ratio (DTI) is the percentage of your income that’s taken up by bills and necessary expenses. The lower your DTI, the more enticing you are to potential lenders, as it frees up more money to keep your payments on track.
Lenders may be more cautious if you have a high DTI. Try to keep your DTI below 50 percent and pay off as much debt as possible before applying for your loan.
Minimum Funding Amount
Each lender has a different minimum amount that you can refinance. In most cases, lenders need at least $5,000 in student loans to be refinanced. Some have a maximum — like $300,000 — but many don’t.
Many lenders require how much schooling you have in order to refinance your loans. Some of them require you to have a degree in order to be eligible for student loan refinance, although some may be more lenient with these requirements.
Other documents you need to prepare
When you’ve done your homework and found the lender with the lowest interest rate, fewer fees, and best repayment terms for your budget, it’s time to get your paperwork in order. You need this for your application:
- Confirmation of work: A recent payslip, W-2 or your tax return.
- Government-issued ID: Driving license, passport or identity card.
- Study graduation: A certificate or diploma. May not be required by all lenders.
- Proof of residence: A document confirming your place of residence.
- Loan documents: Current credit statements with detailed account and payment information.
If you have a co-signer, they will also need these relevant documents.
While your credit score and history will be retrieved once you’ve completed a complete application, you may be able to see if you’re pre-qualified with a lender by entering your credit information. With this basic information, the lender can give you an assessment of whether you qualify and what interest rates you may be offered.
After you complete your application, your lender will perform a credit check. If approved, sign formal paperwork. This usually consists of allowing the lender to repay your current loans for you, agreeing to your new loan terms, interest rates, and monthly payments.
Once you’ve decided refinancing is the right move for your student loans, take steps to prepare for your application.
- Check your credit reports and reviews. AnnualCreditReport.com gives you access to all three of your credit reports once a year. Only by checking your reports can you ensure that they are error-free. Once you have an idea of the form of your loan, you’ll have a better sense of which lenders are likely to approve you.
- pay off debts. If possible, eliminate as much debt as possible before applying for your refinance loan. Decreasing your credit card balance could increase your credit score and improve your eligibility with lenders.
- Compare lenders. Get pre-qualified with some lenders before making your decision. Only by seeing your potential interest rates and terms can you determine which loan is best for your unique situation. A lender may advertise low interest rates but may have stricter requirements to receive those rates.
- Submit an application. When you officially apply to a lender, you are subjected to a tough credit check. However, in most cases you can get the money within a few weeks.
- Consider alternatives. If you don’t qualify for refinance or want to try other methods of managing your student loans, you have options. If you have a federal student loan, income-based repayment plans or a direct consolidation loan might be the right choice. If you have personal loans, you can negotiate a deferral or forbearance to temporarily reduce your monthly payments.