How to refinance student loans with a low income

Refinancing student loans can allow you to save money on interest, choose a more desirable payment structure and generally improve your financial health. However, your ability to qualify for refinancing is directly tied to how healthy your finances already are.

If you’re seeking to refinance with low income, meeting the eligibility requirements for a refinance loan can be difficult. Thankfully, there are plenty of methods that borrowers can use to increase their chances of getting approved.

Student loans income requirements

Many lenders have minimum income requirements for refinancing, meaning they won’t accept borrowers with incomes below a certain threshold. Some companies solely focus on high-income borrowers, like physicians and lawyers, while others provide student loan refinancing for a wider range of salaries.

While some lenders don’t publicly list their income standards, others state that you’ll need to have “sufficient income” or be able to demonstrate “consistent income” by providing pay stubs. In most cases, you’ll likely need to pass the $20,000 threshold. For example,  Education Loan Finance requires an annual income of at least $35,000.

How to refinance student loans with a low income

Refinancing your student loans can shave a big chunk off your monthly payment and reduce the total interest paid over the life of the loan. And when you have a lower income, finding ways to minimize your monthly payments or overall loan costs can help stretch your money a bit further.

Although lender requirements vary, here are some of the best strategies to increase your approval chances.

Get a co-signer

If you have a low income, one of the best ways to improve your odds of approval is to apply with a co-signer. A co-signer is someone with a good credit score and steady income who agrees to take on responsibility for a loan if the primary borrower defaults.

Lenders are more likely to approve borrowers with a co-signer, because they have a backup option in case the primary borrower defaults. Even if you can qualify for student loan refinancing without a co-signer, you may be offered a lower interest rate if you add a co-signer with stronger finances.

Asking someone to co-sign on a loan — especially if you have a long repayment term — is a huge favor. The loan will appear on the co-signer’s credit report and can affect their ability to qualify for loans. In addition, any late payments will impact the co-signer’s credit score alongside your own. On the flip side, staying current with your payments when you refinance can also improve your and your co-signer’s credit score.

Some lenders offer the option to remove your co-signer after a few years of on-time payments once you’ve had a chance to increase your income.

Compare multiple lenders

Every lender has its own set of income, credit score, debt-to-income and loan balance requirements. If one lender rejects you, don’t assume that will be true with every lender.

Start by applying with lenders known to accept low-income borrowers or those that consider many variables outside of income. For instance, some lenders consider such factors as the degree you obtained, your earning potential or even how much money you have in savings.

You can prequalify with many lenders to get an idea of whether you qualify and what rates you’ll be offered without going through a hard credit check. Apply with at least three lenders that offer prequalification to esure you’re getting the most competitive rates and terms for your financial situation.

Improve your credit score

If you have a low income, you’ll have a better chance of qualifying for a loan with a good credit score. Most lenders require a credit score in the mid-600s or higher. If your score is below 650, you’ll find it difficult to qualify for refinancing, especially with a low income. To improve your score, take these steps:

• Obtain your credit report:  Checking your credit score with your credit card company or one of the major credit bureaus is the first step to take. You can also obtain a copy of your credit reports from AnnualCreditReport.com to make sure that there aren’t any mistakes bringing down your score.
• Audit your finances: If your credit score is lower than you expected, do an audit of your finances. Your debt payment history is the most important factor in your score, so set calendar reminders or set up autopay if you have a streak of late payments and try to make at least the minimum payment.
• Minimize your debt: You should also try to pay off as much debt as possible before applying for a refinance. A high credit utilization ratio can lower your score.

Reapply

If you’re denied a student loan refinance because of low income, you can always reapply later when your income has improved. If your credit score increases during that time, that may also help your case.

You may also be able to appeal your case if you don’t have one steady stream of income but can prove that you earn money in other ways. Reach out to a lender by phone or email to find out why your loan was denied and the steps for their appeal process.

Lenders that will refinance student loans with a low income

Several lenders refinance student loans for low-income borrowers. Here are our top picks:

• Education Loan Finance: Requires a minimum annual income of $35,000 and a credit score of at least 680.
• Laurel Road: Accepts borrowers who are still in school but who have a signed contract or letter of employment.
• Nelnet: Requires a minimum annual income of $36,000.
• PenFed Credit Union: Requires a minimum annual income of $42,000 for loans of less than $150,000 and $50,000 for loans of more than $150,000.
• SoFi: Accepts borrowers who are not employed but who have an offer of employment to start within the next 90 days.

Next steps

If you have a low income, you might think that refinancing student loans is impossible. However, there are multiple lenders that offer unique eligibility requirements and base approval on factors other than just income.

Even if you’re offered a high rate now because of your income, you can always choose to refinance again once you’ve established better credit or increased your annual earnings. However, make sure that the rate you’re offered is lower than the rates on your original loans, or you’ll just end up paying more in the long run.