Paying off student loans can always be a challenge but COVID-19 has made the process tougher for many borrowers.
The Biden administration has taken steps to help student loan borrowers during this time, including suspending payments and interest on federal student loans. And it's also considering other student loan reforms, such as possibly forgiving some debt. However, these efforts aren't aimed at borrowers with private student loans.
Those whose educational debt is owed to private lenders have largely been left to cope with their loans on their own, often with fewer options for deferment or forbearance compared to what's available with federal student aid. And private student loans most likely won't be eligible for forgiveness in the future.
The good news is if you have private loans, a student loan refinance could possibly help you reduce your interest and make payments more manageable. Refinance rates have never been lower so now may be an optimal time to secure a new loan to pay off your old ones.
You can use an online student loan refinancing calculator to see what your monthly payments would be if you refinanced your private loans and you can also get an idea of how much you'd save.
However, you do have to meet certain requirements regarding your credit score and other credentials to be approved for a student loan refinance.
Minimum credit score for student loan refinance
Refinancing student loans means taking out a new loan that you can use to pay your old one. While this isn't a good move if you have federal loans, it can be a great choice for private student loans. However, lenders want to make sure you're qualified before you get a new loan. And that means they'll check your credit.
If you're interested in student loan refinancing, you'll generally need a minimum credit score of 670 or higher, according to Experian, one of three major credit reporting agencies. While some lenders may have more flexible qualifying requirements than others, you'll have the widest choice of lenders and the best chance of securing a refinance loan with this score.
If you want to shop around for lenders and find out both whether you're eligible to refinance and what rate you'll be charged, Credible can help. You can visit Credible to get prequalified student loan refinancing rates without affecting your credit score.
Other factors lenders consider beyond your credit
Although your credit is a key factor, lenders consider other financial credentials as well. These include:
- Your income: Lenders want to know your income is high enough to repay what you're borrowing. The specific amount you must earn depends on how much debt you're refinancing. They also want to know that your earnings are stable so there's less of a chance you'll experience a loss of income that affects your future ability to pay.
- Your debt-to-income ratio: Your debt-to-income (DTI) ratio is a measure of total monthly debt payments relative to income. Lenders want to see a reasonable debt-to-income ratio to ensure you aren't in over your head when it comes to your debt payments. The lower your DTI ratio, the better your chances of loan approval.
- Your history of student loan payments: A history of on-time payments with your current loan is crucial. Lenders typically won't let you refinance student loans if you're in default or have many recent late payments.
Most student loan refinancing lenders consider a combination of all these factors, along with your credit score. Stronger financial credentials in one area could help you overcome weaknesses in another.
If you’re considering refinancing your private student loans, make sure to compare student loan refinancing rates before you apply so you can make sure you find the best deal for you.
Find the lender that's right for you
Taking out a student loan refinance loan could potentially save you a lot of money if you get a new loan at today's low interest rates.
Of course, you don't want to refinance federal student loans because doing so would mean giving up the chance at forgiveness, as well as other borrower benefits. But if you have private loans, it's worth seeing if you can qualify for an affordable new loan.
Credible makes it easy to assess your options. Visit Credible to view a rates table that compares rates from multiple lenders at once to find out if refinancing is right for you.
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