Requirements for student loan refinancing: Do you qualify?

Lender requirements to refinance student loans include a good credit score and proof of stable income. If you don’t meet the credit score and income guidelines, you may be asked to apply with a cosigner. Not all student loans qualify for refinancing, especially if the balance exceeds a certain amount or if you did not graduate from your degree program.

7 requirements for student loan refinancing

1. A strong credit score

In order to qualify, you will need a good credit score to refinance student loans. Your credit history and credit score are some of the biggest influences on your eligibility for student loan refinancing. The higher your credit score, the more likely it is that you will qualify for the best interest rates when refinancing your student loan.

If you have little to no credit history, some lenders may not approve you. The ones that do will likely give you a higher interest rate since the best rates go to borrowers with high credit scores. Aim for a credit score in the mid-600s to qualify and one above 700 to get the lowest rates.

2. Stable income

Lenders also consider your income amount, income source and payment schedule. Common reasons for fluctuating income can include self-employment, working on a contract, receiving a disability or being employed sporadically.

If you don’t have a steady 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.

If you have income outside traditional employment, you may be required to prove your earnings through documents like tax forms or bank statements, as lenders are still looking for steady income in these situations.

3. Decent debt-to-income ratio

Your debt-to-income ratio (DTI) is the percent of your income taken up by bills and necessary expenses. The lower your DTI, the more likely you are to get approved since you have more cash freed up to stay current on your payments. You can even calculate DTI yourself.

Lenders might be more cautious if you have a high DTI, as this means you are at a higher risk of falling behind on payments. Try to keep your DTI to less than 50 percent, and pay off as much debt as you can right before you apply for your loan.

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 if the loan will return enough interest for servicing it to be 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, although some may be more lenient with these requirements. You can even refinance after an associate degree in many cases.

If a lender doesn’t require that you hold a degree for approval, it may have other eligibility criteria, like grade level or enrollment status requirements.

6. A cosigner

You may need a cosigner if you do not meet the loan requirements yourself. A cosigner is usually required when the primary borrower has bad or no credit, a high debt-to-income ratio or unstable income. The cosigner legally agrees to repay the loan along with the primary borrower.

It’s common to have a cosigner for student loans since student loans are made with younger people in mind who have not had time to build credit. The cosigner in these cases is usually a creditworthy adult, like a parent or guardian.

Check into 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 or your tax returns.
• Government-issued ID: A license, passport or ID card.
• Proof of degree: A transcript or diploma (may not be required with all lenders).
• Proof of residency: A document confirming where you live.
• Loan documents: Recent loan statements detailing your account and payoff information.
• If you have a cosigner, they’ll need these corresponding documents as well.

After submitting your application, the lender will run a credit check. If you’re approved, you’ll sign formal paperwork. 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.

How to refinance student loans

If you meet the common refinancing requirements above, the next step to refinancing student loans is comparing your lender options. You’ll want to get prequalified with multiple lenders to compare the rates you’re offered. Play around with different terms to see how they impact your monthly payments and total owed interest.

Also, consider alternatives like income-driven repayment or a Direct Consolidation Loan for federal student loans. For private loans, forbearance or deferment can temporarily pause your monthly payments and give you a chance to catch up on financial obligations.

Bottom line

By ensuring that you meet the above requirements for student loan refinancing, you can confirm that it makes sense to start shopping for a refinance loan. Choosing to refinance might lower your interest rate and monthly payments, as well as potentially allow for terms that work better for your situation.

Remember to check your credit score and compare refinance lenders to help make payments easier to manage.