Many people turn to student loan refinancing to lower their loan interest rates. However, student borrowers do not get automatically approved for refinancing. Student loan refinancing is only offered by private lenders and they require borrowers to meet certain requirements in order to qualify for refi.
Although lenders vary in their specific criteria for approving student loan refinancing applications, the basic requirements remain the same across lenders.
Have a Strong Credit Score
You must have a strong credit score to qualify for refinancing. Lenders only approve refinancing applications for borrowers who demonstrate that they are financially responsible and the best way to measure this is through your credit history. A history of timely payments will help build a strong credit score, which will in turn boost your chances of getting approved for refinancing.
If you do not have a strong credit score, you may be able to qualify with a co-signer.
Be Employed and Earning an Above-Average Income
Before they can approve your refinancing application, lenders will want to make sure that you have the financial capacity to repay your refinanced loan. The only way you will be able to afford your monthly payments is if you are employed and are earning a stable income. Your income should be enough to cover both, your monthly payments as well as your basic living expenses. If you do not yet have a job or are in graduate school when you apply for refinancing, some lenders may approve your application if you have a firm written job offer.
The only other way to qualify for student loan refinancing while you are unemployed is by applying with a co-signer who has a good credit history.
Should Have No Other Debt Obligations
When you apply for student loan refinancing, lenders will take into consideration all your debt to get a realistic picture of your overall financial commitments. If you have mortgage debt, credit card debt, or auto debt, you can expect to have a harder time qualifying for refinancing as lenders know that these repayments will get priority because of their higher rates of interest.
One way you can increase your chances of getting approved is by reducing your other debts as much as possible before applying for refinancing. The lower your overall debt obligations, the higher your chances of qualifying for student loan refinancing.
Have A Low Debt-To-Income Ratio
Your debt-to-income ratio indicates the relationship between your monthly debt commitments and your monthly income. A high debt-to-income ratio indicates that your monthly debt obligations are more than what you earn every month, which is not an ideal scenario as far as lenders are concerned. On the other hand, a low debt-to-income ratio indicates that you earn enough every month to cover your monthly debt obligations comfortably. The lower your debt-to-income ratio, the easier it will be to qualify for student loan refinancing.
If your debt-to-income ratio is not ideal, you should take steps to improve it before applying for student loan refinancing. You can do this by taking up a higher paying job or finding ways to lower your debt. Ideally both.