Student Loan Refinancing Requirements ExplainedJanuary 30, 2020
If you have student loan debt, you probably have thought about ways you can lower your monthly payment or save money over the life of the loan. Maybe you have heard about student loan refinancing, but you are not sure what it entails and how to get started. Read on to learn more about student loan refinancing to see if it’s a good option for you.
What is Student Loan Refinancing?
When you refinance student loans, you are borrowing a new loan in order to pay off your old loan(s). Refinancing is possible through your current lender or from another private lender or bank. When you refinance, your new student loan has a new interest rate (presumably lower), a new payment amount, and, if you choose, a new term length.
Some reasons you may want to consider student loan refinancing are:
- Consolidate Loans: If you have multiple student loans, you can consolidate them into one new loan for ease of payment. Keeping track of just one loan as opposed to multiple loans can help you remember to make on-time payments and never be stuck paying a late fee.
- Lower Interest Rate: If you have a high interest rate and can qualify for a lower interest rate, it may be beneficial to refinance so you can save money over the life of the loan and lower your monthly payment.
- Lower Monthly Payment: You can refinance your loans to extend the term length of the loan. Although this may cause you to pay more interest over time, if your monthly budget is squeezed and you are finding it hard to make payments, extending the term of the loan can help lower the amount you have to pay each month.
- You Have a Variable Rate: If you have a variable interest rate on your student loan and are concerned it could rise, it may be beneficial to refinance to a fixed interest rate. This would eliminate any worries about rising interest rates and will also give you a stable monthly payment to work into your budget each month.
If you want to see your potential savings, check out our Student Loan Refinance Calculator1.
Student Loan Refinancing Requirements
For many borrowers, student loan refinancing is a simple way to save their hard-earned money. Before you submit your application, read the below requirements to make sure you qualify.
- Good credit score: In order to refinance, some lenders may require a minimum credit score in the 600s. At ELFI, we require a minimum of 680. The higher your credit score, think 700s or higher, the better chance of scoring a lower interest rate. If your credit score is an issue, you can work on raising it or find a qualified co-signer to apply with you.
*Need tips on increasing your credit score? Check out these credit score boosting strategies.
- Low debt-to-income ratio: Lenders will want to be sure your income can cover all your debt payments, including your potential new student loan payment. This is determined by calculating your debt-to-income ratio. The lower the ratio the better. Most lenders will look for a ratio of 50% or less to qualify for student loan refinancing. The debt considered includes mortgage, credit card, and auto loans.
- For example: if you have a $1,200 mortgage payment, $300 car loan payment, and $400 student loan debt, your total monthly debt payments are $1,900. If your monthly income is $4,000 your debt-to-income ratio is $1900/$4000 = 47.5%.
Related Video >> What is Debt-to-Income Ratio?
Note: In addition to a low debt-to-income ratio, some lenders may still require a minimum amount of income.
- Employment History: Some lenders may refinance your loans while you are still in school but may want to see a written job offer. But most lenders will want to see that you are currently gainfully employed.
- Minimum loan amount: Some lenders will not be able to help with refinancing if you do not have a minimum loan amount remaining. The minimum loan amount required could be as low as $15,000.
- Minimum length of credit history: Lenders want to see a reliable credit history and may require a credit history of a certain number of years, such as 3 years. If you do not meet the credit history requirement, a co-signer with a good credit history and length may be helpful to refinance.
- Degree requirement: Some lenders will require that you earned a Bachelor’s degree or higher.
- Required Documents: You will need to be able to provide pay stubs and your most recent W-2, in addition to any other documents lenders request.
Here is a full look at ELFI’s student loan refinancing requirements.
What to Look for When Refinancing
There are a lot of choices in companies when you are looking to refinance your student loans. Here are some things to look for when comparing lenders:
- No application fees – You do not want to have to pay money to apply for refinancing when you are trying to save. Find a reputable lender with a free application. At ELFI, you won’t pay application or prepayment fees.
- A low interest rate – You’re likely refinancing to save money, so of course you want the lowest rate you can qualify for, otherwise you won’t be saving! Just be sure not to get lured in by a suspiciously low rate. Research all aspects of the lender before giving out any of your information.
- No prepayment penalty – Be sure your new lender doesn’t apply a penalty if you try to pay your loan off early.
- Great customer service – If you have questions during the refinancing process, you want to be able to have them easily answered by someone you can trust. It’s usually a good idea to read customer reviews and see what type of customer assistance opportunities the lender offers. ELFI stands out as a leader in customer service and was even awarded the NerdWallet’s Best Refi for Customer Service in 2019.
Student loan refinancing may be a good choice for you that could save you thousands of dollars over the life of the loan. Now that you know the requirements and what to look for in a lender, you will be better equipped to begin the process and start crushing your student loans.
1Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.10 per $1,000 borrowed. Rates are subject to change.
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