What Insiders Know About Student Loan Refinance


If you want to refinance your student loans but are not sure if you will get approved, 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 $20,000 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 focused exclusively on student loans 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:

Dental School: $260,000

Medical School: $180,000

Pharmacy School: $160,000

Veterinary School: $140,000

So how exactly do you get approved to refinance student loans?

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. 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 barometer 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.

Insider Tip: To maximize your chances for approval, you should aim for a credit score of 700 or higher.

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?

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

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.

Insider Tip: Try to repay your other debt obligations as much as possible prior to applying to refinance student loans.

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%.

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. 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.

Insider Tip: If you are unemployed or underemployed, it will be difficult to be approved for student loan refinance (although you can try with a co-signer).

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