Financial Wellness • Forbes

How To Get Approved For Student Loan Refinancing

By Zack Friedman | 3-min read

If you are one of the 44 million student loan borrowers who, according to personal finance comparison site Make Lemonade, collectively owe more than $1.4 trillion, then student loan refinancing should be at the top of your to-do list.

Here is what you need to know to get approved for student loan refinancing.

What Is Student Loan Refinancing?

Student loan refinancing allows you to consolidate your existing private and federal student loans into a new, single student loan with a lower interest rate.

The result is lower monthly payments and significant interest savings.

Unlike federal student loans, which only carry a fixed interest rate, you have the option to choose a fixed or variable interest rate with student loan refinancing. You can also choose payment terms that range from 5-20 years.

Since the federal government does not refinance student loans, private lenders are the only lenders that offer student loan refinancing options.

When you refinance student loans, you no longer will have a federal student loan, including access to federal repayment programs and other federal benefits. However, most student loan lenders offer some form of forbearance and/or deferral options to help you if you face some financial hardship.

How To Get Approved For Student Loan Refinancing

It is no secret that private student loan lenders have strict underwriting criteria.

By lending you money, private lenders are putting their own capital at risk (not the federal government’s money).

As such, private student loan companies lend to borrowers who they believe will repay their student loans.

Of course, each lender has its own underwriting criteria, and each applicant’s financial background and circumstance is unique.

Here is a general roadmap to demystify the student loan refinancing approval process and help you to increase your chances for student loan refinance approval.

1. Have a strong credit score

Lenders want to refinance student loans for borrowers with a history of financial responsibility.

One way they measure financial responsibility is through your credit score (or its underlying components).

Lenders want to ensure that you meet your financial obligations and have a history of on-time payments.

Insider Tip: To maximize your chances for approval, you should aim for a credit score of 700 or higher. However, lenders will refinance student loans for borrowers with credit scores starting at about 650.

2. Have a strong income

In addition to a strong credit score, student loan lenders want to ensure that you have a stable and recurring income to repay your student loans.

How do you know if you have enough income to get approved?

Review your monthly after-tax income. When you subtract your monthly student loan payments (after refinancing), does a sufficient amount remain for other essential living expenses?

Insider Tip: If you do not have sufficient income after making student loan payments, you can increase your chances for approval with a qualified co-signer who has a strong credit profile.

3. Have no or limited other debt

Student loan lenders will evaluate all your debt – not just your student loan debt.

If you have credit card debt, mortgage debt or auto debt, lenders will sum all your debt payments together to understand your total debt obligations.

Insider Tip: If you have the resources, try to repay, or at least reduce, your other debt obligations as much as possible prior to applying to refinance student loans. 

4. Have a relatively small debt-to-income ratio

Student loan lenders are interested in the relationship between your monthly income and your monthly debt obligations, which is known as your debt-to-income ratio.

For example, if you have $10,000 of monthly income and $3,000 of monthly debt expenses, then your debt-to-income ratio is 30%.

Insider Tip: The lower your debt-to-income ratio, the better. You can improve your debt-to-income ratio by increasing income or decreasing debt (or both).

5. Be employed

If you are unemployed or do not have stable, recurring income, it will be difficult to be approved for student loan refinancing.

However, if you have a written job offer when you apply to refinance student loans (even if you are in graduate school or residency, for example), you can still get approved for student loan refinancing.

Insider Tip: If you are unemployed or underemployed, your best option is to apply with a qualified co-signer with a strong credit profile.


