HOW TO REFINANCE STUDENT LOAN: Step-By-Step Guide

how to refinance student loan
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If you want to lower your interest rate, one of the steps you should take is to refinance your student loan. But how do you refinance your student loan debt if your credit is bad or if you don’t have a degree? We’ll deal with it in this article.

How to Refinance Student Loans

Here are simple steps you can take to refinance your student loan debt:

#1. Determine Whether Refinancing Is Suitable for You

Refinancing may make sense if it can save you money, but not everyone should refinance. To qualify for the lowest rates and meet the eligibility criteria of a refinance lender, you must have good credit and a stable financial situation.

Because of the coronavirus outbreak, refinancing federal student loans will make them ineligible for government programs such as income-driven repayment and student loan relief. Do not refinance federal student loans unless you are certain that your job is secure and that you will not require these options.

Refinancing private student loans, on the other hand, has a few drawbacks. These federal programs will not accept private loans.

#2. Check for Lenders

Most student loan refinance lenders appear to be relatively similar at first sight. However, you may want to look for specific characteristics, depending on your situation.

For instance, if you would like to refinance parent PLUS loans in your child’s name, Find a lender who will approve it. And if you did not graduate? Find a lender who does not demand a college degree.

#3. Obtain Several Rate Estimations

Once you’ve identified a few lenders who meet your requirements, request rate quotes from each of them. Finally, the best refinance lender for you is the one with the lowest interest rate.

In calculating the student loan payoff amount, you can compare rates from many student loans refinance lenders at the same time, or you can visit each lender’s website separately.

While shopping, some lenders will want you to pre-qualify providing basic information so that the lender can give you its best estimate of the rate you might qualify for. Other lenders will only show you a rate once you complete a full application, but that rate is a real offer.

A soft credit check, also known as pre-qualification, usually has no effect on your credit ratings. A genuine application necessitates a hard credit check, which may temporarily lower your credit scores.

#4. Select a Lender and Loan Terms

Once you’ve decided on a lender, you’ll need to make a few more decisions: Do you want a fixed or variable interest rate, and how long do you want your repayment period to be?

For most borrowers, fixed interest rates are the best option. Variable rates may appear to be lower at first, but they are liable to alter on a monthly or quarterly basis.

By calculating the student loan payoff amount sooner rather than later, you can save as much as possible, and you will get a lower interest rate on the refinanced loan. You can prioritize other expenses if you choose a longer payback period.

#5. Fill Out the Application

Even if you have been pre-qualified, you must submit a full application to proceed with a lender. You will be requested to provide additional information about your loans and financial condition, as well as to upload supporting documents. You will require a mix of the following:

  • Statements of loan or payback verification
  • Employment verification (W-2 form, recent pay stubs, tax returns).
  • Proof of residency 
  • Graduation certificate
  • Identification from the government.

Finally, you must agree to allow the lender to perform a hard credit pull in order to validate your interest rate. You’ll also be able to refinance with a co-signer, which may help you qualify for a lower interest rate.

#6. Sign the Final Paperwork

If you are authorized, you will need to sign some final documentation in order to accept the loan. When you sign the loan’s final disclosure paperwork, a three-day rescission period begins. You can cancel the refinance loan if you change your mind during that time.

If you are turned down, the lender will explain why. If it’s because of your negative credit, you might be able to qualify with a co-signer, or you might need a lower debt-to-income ratio.

#7. Wait for the Loan to Be Paid Off

Your new lender will pay off your previous lender or servicer once the rescission period expires. You will now make monthly payments to your new refinance lender.

Continue to make payments to your current lender or servicer until you receive confirmation that the transaction is complete. If you overpay, you will be refunded.

Read Also: Refinancing Home Loan: Rates, Costs and All You Need

How to Refinance Student Loans with Bad Credit

When you have solid credit, it’ll be a wise decision to refinance your student loan to a lower interest rate or a longer term.

This is especially true if you have private student loans or don’t qualify for an income-driven repayment (IDR) plan on your federal student loans due to a high salary.

But what if you have bad credit or none at all? Can you refinance your credit loan with bad credit? Here’s what you should know.

How Does Credit Affect Your Student Loan Refinance?

In general, whether you have good or bad credit is decided by how well you repay debts, the amount of debt you take on, and the amount of debt you have in relation to your income.

It can be difficult to refinance your student loan if you have bad credit. Even if you are still eligible, poor credit might make refinancing more expensive. When lenders conduct credit checks, they frequently examine a wide range of financial characteristics to evaluate creditworthiness.

When determining your eligibility for Direct Subsidized or Unsubsidized Loans, the Department of Education does not evaluate your credit history. However, private lenders consider a borrower’s credit history to be one of the most important factors in underwriting and approving them for refinancing. 

What Lenders Refinance Student Loans for Persons With Bad Credit?

Most lenders have rigorous qualifying restrictions for customers, making it nearly impossible for someone with bad credit to refinance student loans. If you are not outright denied, you may be subjected to an extremely high-interest rate or be compelled to include a creditworthy cosigner on your application for student loan refinance.

A high-interest rate isn’t ideal, but keep in mind that you can always refinance your student loan if your credit has improved. You’ll have a lower loan balance and can save money throughout the life of the loan this way. In addition, some lenders grant cosigner freedom after a certain number of consecutive on-time payments.

These are some of the lenders that refinance student loan debt for persons with bad credit:

#1. Earnest

This is one of the most consumer-friendly lenders available. Earnest is a wonderful alternative for folks with weak credit because they have no predetermined income restrictions while having a minimum credit score requirement of 650.

It also examines factors other than a borrower’s credit score when making approval choices, such as the borrower’s work condition and banking habits.

Earnest does not charge origination, loan application, or prepayment fees. To qualify for earnest refinancing, you must have a continuous income or a documented job offer for employment beginning within the next six months.

In addition, Earnest provides generous unemployment benefits, but it does not allow you to add a cosigner to your refinancing application.

#2. LendKey

This is another good refinancing option for folks with bad credit. LendKey just demands a 660 credit score and a $24,000 income (or $12,000 with a cosigner). Furthermore, it collaborates with a large number of community banks and credit unions, which may be more eager to work with consumers who do not have perfect credit.

LendKey does not charge any origination, application, or prepayment fees. It also provides hardship forbearance for up to 18 months.

To be eligible for student loan refinancing through LendKey, you must have at least an associate’s degree. LendKey accepts cosigners and provides a cosigner release. 

#3. Credible

Credible is a third-party online loan marketplace rather than a direct lender. Simply fill out a form on Credible’s website, and they will send you quotes from different lenders who use its platform.

Because they represent many lenders, Credible does not have a minimum credit score or income criterion. For people with poor credit, credible is an excellent alternative because they frequently identify refinancing solutions for customers who have been turned down by other lenders. 

How Do You Refinance Your Student Loan Without a Degree?

You must continue to make payments on your student loan debt even after you graduate. Refinancing can help many people manage their student debt, but it might be tough to refinance your student loan without a degree.

To weigh your options, let’s look at the following:

Can You Refinance Your Student Loan if You Don’t Have a Degree?

Refinancing and consolidating student loans makes the debt more bearable for many people. They might be eligible for a lower interest rate, alternative repayment options, or even a lower monthly payment. This can free up funds in their budgets for other expenses.

Finding a lender who would refinance your student loan can be difficult if you didn’t complete your degree. To be eligible for refinancing offers, many lenders require that you graduate.

However, lenders who will refinance your student loan with no degree do exist. Citizens Bank, for example, offers refinancing loans to qualified people who have not completed their degrees, but there are slightly different application conditions.

To be eligible, you must have at least $10,000 in a student loan to refinance and have made 12 qualifying debt payments after leaving school. You must have a valid Social Security number and be a U.S. citizen, permanent resident, or resident alien.

A few other lenders will refinance student loans for individuals who did not complete their studies. PNC, for example, does not need a graduation to apply for refinancing, but applicants must be enrolled in school and making payments on the loans they wish to refinance.

Read Also: HIGHEST PAYING MASTER’S DEGREES: Best Master’s Degrees 2022

Other Repayment Options

If you are unable to refinance student loans without a degree, there are still options to make your federal student loans more manageable. Income-driven repayment programs, deferral, or forbearance may be available to you.

#1. Income-driven Repayment Plans

If you have federal student loans, the normal payback period is ten years after you graduate or drop out. If the payments under this plan are too high for you, you can enroll in an income-driven repayment plan.

Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) are the four federal income-driven repayment options.

#2. Deferment

Payments may be suspended in some cases until you get back on your feet. If you have lost your job or are facing another financial hardship that has prompted you to drop out of school, these choices may provide you with a reprieve from payments.

Deferment allows you to postpone federal loan payments for up to three years. Furthermore, if you have federally subsidized student loans, the government will pay your interest. If you are unemployed, unable to find full-time work, or otherwise facing financial trouble, you may be eligible for deferment.

#3. Forbearance

If you do not qualify for deferral, you may be eligible for forbearance, which allows you to postpone your federal payments for up to twelve months at a time.

In contrast to deferment, all loans will accrue interest during this period. You may be eligible for forbearance if your payments exceed 20% of your gross income, you are facing financial difficulty, or you are battling an illness, among other things. Private student lenders may also provide forbearance; check with your lender to learn more about its policy.

Contact your loan servicer directly to see whether you qualify for deferment or forbearance.

In Conclusion,

If you want to lower your interest rate, you should look to refinance your student loan. But if you have bad credit, your interest rate will most certainly be higher, even though you might still be able to refinance your student loan. Hence, we have outlined steps you can take to refinance your student loan, your credit score notwithstanding.

Frequently Asked Questions

Is it wise to refinance my student loans?

If you can save money by refinancing, and your finances are stable, you should refinance your loans

Can you refinance student debt?

You can refinance both federal and private student loan debt, even if they have previously been consolidated or refinanced.

Does refinancing hurt your credit?

Refinancing will lower your credit score temporarily but may improve it in the long run.

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