If you want to refinance your student loans but are not sure if you will get necessary approval, here are the inside tips that you need to know.
Refinancing your student loans 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, which frees up extra money to repay more student loan debt, save or invest.
Student loan refinancing could save you more than $50,000 over the life of your student loans. If you have student loans from a health-related degree, your savings may be even higher. According to Doc Benjamins, an affiliate of Make Lemonade that is focused exclusively on new student loans and student loan refinancing for dentists, doctors, pharmacists and veterinarians, your cost savings can be even higher given the average student loan debt balance upon graduation for each degree type.
So how exactly do you get approved to refinance student loans?
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. While approval for student loan refinance is not guaranteed and a rejection letter may seem unfair or frustrating, here is a general roadmap to help you increase your chances for student loan refinance approval.
1. Credit Score
Your credit score is a measure of your financial responsibility. Most lenders evaluate your credit score (or its underlying components), and want to ensure that you meet your financial obligations and have a history of on-time payments. Generally, top lenders expect a minimum credit score in the mid to high 600's, while others do not have a minimum.
2. Income
Private student loan lenders want to ensure that you have sufficient income to repay your student loans. Lenders want proof that you have stable and recurring monthly income and cash flow. Examine your pay stubs and identify your after-tax monthly income. When you subtract your proposed monthly student loan payments, does a sufficient amount remain for other essential living expenses?
3. Other Debt
Your other consumer debt such as mortgage, credit card or auto debt will influence underwriting your student loan. If you have existing debt obligations, lenders will account for your total monthly debt payments as part of the underwriting process.
4. Debt-To-Income Ratio
Student loan lenders will focus on your debt-to-income ratio, which is the ratio of your total monthly income compared with your monthly debt obligations. 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%.
5. Employment
You should be employed or have a written job offer when you apply to refinance student loans. Some private student loan lenders will refinance your student loans while in school or residency, while others will require some work experience.
How Much Money Can You Save With Student Loan Refinancing?
You can use the Make Lemonade student loan refinancing calculator to calculate how much money you can save from student loan refinancing.
What To Do If You Get Rejected For Student Loan Refinance
1. Apply to multiple lenders
There is no limit on the number of lenders to which you can apply to refinance your student loans. You should apply to multiple lenders to maximize your chances for approval.
2. Check your credit report
Make sure that you have reviewed your credit report for any errors. If there are any errors, you should dispute them.
3. Consolidate debt
If you have outstanding debt, you should consolidate your debt into a lower interest rate loan.
4. Pay off your debt
Your debt-to-income ratio is driven by two factors: debt and income. If you lower your debt or increase your income (or preferably both), you will improve your debt-to-income ratio. Use a monthly budget to cut expenses and manage your finances. Use the cost savings to make extra debt payments.
5. Increase your income
The flip side of lowering your debt is raising your income.
6. Get a qualified co-signer
Ask your spouse, parent, grandparent or someone else close to you to act as a co-signer for your student loans. Your co-signer needs to have a strong credit profile and be willing to be equally responsible with you for your student loan.
Having a qualified co-signer can make the difference between "approve" and "not approve."
We hope refinance loan has been demystified. Thanks.
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