When it comes to whether or not you should refinance your student loan, keep in mind the various advantages and disadvantages before you make a decision. Some of the most beneficial reasons to apply for a student loan refinance program is the availing of low interest rate and choosing your desired loan term.
In today’s world, education isn’t cheap. Many people take out student loans to pay for college and start their career on a high note but these loans can be quite expensive. If you are looking to refinance your federal or private student loan, you need to approach a loan provider who offers loan refinancing as the federal government does not refinance any type of student loan.
However, every loan provider has their own eligibility criteria as well as terms and conditions, they will also require the applicant’s financial background and the reason for refinancing the loan. To ensure that you get selected for the loan refinancing process, you can improve on certain factors, these are listed below.
Important Factors to Consider When Refinancing a Student Loan
Applicant’s Credit Score
The applicant’s credit score will be scrutinized by the loan provider. They will evaluate the applicant’s entire credit history and check to see the frequency of payments made for the existing loan. This is to ensure that the applicant can meet the financial obligations of the lending firm and make regular loan repayments on time.
The leading loan providers will expect a credit score of 600 and above. In case you have a lower credit score, check for providers who do not have a minimum credit score requirement.
Income of the Applicant
Loan providers need to know that the applicant is a trustworthy individual. They will need to verify the applicant’s source of income and duration of employment. Once it is determined that the applicant has a steady source of cash flow, the chances of getting approved for student loan refinancing is much higher.
Whether the Applicant Has Other Debts
If the applicant has any other consumer debts such as credit card payments, mortgages, etc. it can influence the loan refinancing approval process. Be sure to inform the loan provider about your other monthly payment obligations, most lenders will account for the total amount of debt you owe as part of the loan underwriting process.
The Applicant’s Debt-To-Income Ratio
Student loan providers always tend to focus on the debt-to-income ratio. This is the ratio of the applicant’s total monthly income which is compared with their monthly debt payments.
As an example, let’s say, $1000 is the applicant’s monthly income, out of which $300 is due monthly for existing debt expenses, this will result in the debt-to-income ratio being 30%.
Employment Status of the Applicant
The applicant must submit their certificate of employment or at least, have a written job offer when applying for the student loan refinancing process. Certain student loan providers allow the refinance of loans while the applicant is still completing their education program, some loan providers however, require that the applicant shows some form of valid work experience.
Incase You Get Declined for the Student Loan Refinance Process
It is not uncommon for you to get declined when trying to avail the student loan refinancing option. However, you can still try some of the following ways listed below to increase your chances of approval in the future.
Apply to Multiple Loan Providers
Remember that there is no cut off limit on the number of loan providers you approach in order to apply for the process of refinancing a student loan. In fact, applying to multiple lending agencies can help as it maximizes your chances of approval.
Pay Off Existing Debt
The applicant’s debt-to-income ratio is calculated based on the current debt amount the applicant owes and the amount of money they earn on a monthly basis. Once the applicant manages to lower the debt amount and increase their monthly income, the debt-to-income ratio will improve. This will result in the applicant getting better rates from loan providers who offer student loan refinancing.
Get a Qualified Co-Signer
If the applicant can get someone close to them (parent, guardian, relative, spouse, etc.) to act as a co-signer for availing a student loan. Remember that the co-signer will be required to have a strong credit score and impeccable credit record.
Loan providers often allow individuals with a bad credit score to avail a loan if there is a co-signer. They can help the poor credit individuals get approval as well as low interest rates.
How Many States Have a Student Loan Forgiveness Programs?
The student loan forgiveness program is where federal student loans are canceled. If you qualify for these forgiveness programs, your debt can be discharged or forgiven. Once this occurs, the individual who was in debt will not have to repay the loan amount that was due.
The chances of availing this student loan forgiveness program is higher if you hold employment in the public service sector such as government agencies, nonprofit organizations, police officers, etc.
There are student loan forgiveness programs by states, out of which 46 of them offer these programs as well as the District of Columbia. The states that do not offer student loan forgiveness are Alabama, Connecticut, Tennessee and West Virginia. The states with the most programs are New York and Texas, they both have 9 student loan forgiveness programs.