Student loan refinancing can be a complete game changer. You can combine your private and federal loans together and potentially get a better interest rate, saving you thousands of dollars over the life of your loan.
Unfortunately, student loan refinancing isn’t guaranteed. You need to be approved by a private lender first. And if you don’t meet the eligibility requirements, a lender might reject your application.
Here are the most common reasons you could get rejected for student loan refinancing, along with some tips on how to improve your chances.
One reason you might be rejected is your income. Lenders want to know that you’ll pay back your debt, and one of the greatest indicators they have is how much you earn. Because of this, approval for refinancing is harder for those who are unemployed, underemployed, or work in low-paying jobs.
But even if a lender thinks your income is too low, there’s still hope. If you need to boost your application, you can always apply with a cosigner. Cosigners are usually someone you have a close relationship with, such as a parent or spouse.
If you miss payments or are otherwise unable to repay your debt, your cosigner will be legally responsible for doing so. But if you make consistent, on-time payments, the lender might eventually release your cosigner from the loan.
In the meantime, you could also try to boost your income. Through proper budgeting and steady work, you can increase your earnings along with your chances for student loan refinancing.
2. Debt-to-income ratio
Beyond your annual salary, lenders also look at your debt-to-income (DTI) ratio. A typical calculation takes all your monthly debt payments (such as those for a car loan, credit card, or mortgage) and divides it by your gross income (your income before taxes and deductions).
Lenders are looking for low DTI ratios, typically 40 percent or less, but each lender will have their own specific requirements. Even if you’re making six figures, it’s possible you may not qualify for refinancing if you also have six figures in debt.
Applying with a cosigner could help make your application stronger. If a cosigner has your back, you won’t seem like such a risky candidate for a refinanced student loan.
You should also strive to pay down your debts as fast as possible. If you have credit card debt, for instance, consider switching to a card with a lower interest rate. Sometimes, it’s even useful to take out a low-interest personal loan to pay off high-interest credit card debt more quickly.
The sooner you improve your DTI, the faster you’ll get approved for student loan refinancing.
3. Employment history
You’re so much more than your job, but on paper your job and employment history play an important role in whether you get approved for refinancing or not. Some lenders also prioritize borrowers who work in certain fields.
Most lenders ask for proof of employment or a job offer letter. Lenders want to know that you have a stable job now and that you’ll continue to have one in the future.
If you don’t have steady work yet, hold off on applying until you do. Make the job search a priority over refinancing. Once you’ve established a steady source of income, you can try applying for student loan refinancing again.
4. Repayment history
Have you ever missed a payment on any of your loans? No matter how careful you are, we all make mistakes sometimes. Unfortunately, that late payment will show up on your credit report.
They say that the past is the greatest indicator of the future and prospective lenders definitely abide by this rule. Even a one-time mistake could blemish your repayment record. Some lenders might be more forgiving, but typically, they’re looking for borrowers who can manage their payments and make them on time.
Even though late payments stay on your record for seven years, you can still take steps to improve your credit. Paying down debt and making on-time payments can help your credit bounce back.
5. Credit score
Your credit score is essentially the GPA of your creditworthiness — it’s a numerical value that lenders use to evaluate your risk as a borrower.
Your payment history, credit utilization (how much of your credit limit you use), length of your credit history, and amounts owed all affect your credit score. If you missed a few payments or consistently charge your credit cards up to the limit each month, you might be considered a risk.
In order to qualify for student loan refinancing, you need a good credit score. But what’s considered good? Most lenders want to see a score of 680 or above. Popular refinancing lender SoFi will consider applicants with a score of 650 or higher.
You can monitor your credit score with a free service such as Credit Karma. Plus, you can request one free credit report a year from AnnualCreditReport.com. If you spot any errors, make sure to dispute them and get them removed from your report.
If you continue to make on-time payments toward your debt, your credit score will increase over time. And this will give you a better shot at being approved for refinancing.
You can improve your eligibility for refinancing over time
These are the most common reasons why people get rejected for refinancing. But by being proactive about your finances, you can improve your chances for approval.
If a lender rejects your refinancing application, try applying with other lenders. Each lender sets its own requirements, so even though you get a “no” from one lender, another could say “yes.”
If you’ve been rejected for student loan refinancing, try to pinpoint the specific reason. Then, do what you can to fix the problem. In the meantime, continue to research student loan refinancing lenders to find one that’s the best fit for you.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Rates (APR)||Eligible Degrees|
|Get real rates from up to 4 Lenders at once
Check out the testimonials and our in-depth reviews!
|2.56% - 7.40%||Undergrad & Graduate||Visit SoFi|
|2.57% - 6.32%||Undergrad & Graduate||Visit Earnest|
|2.58% - 8.12%||Undergrad & Graduate||Visit Lendkey|
|2.80% - 7.02%||Undergrad & Graduate||Visit Laurel Road|
|2.54% - 6.65%||Undergrad & Graduate||Visit CommonBond|
|2.90% - 7.34%||Undergrad & Graduate||Visit Citizens|