If you have student loan debt, refinancing might be a wise decision because it can reduce your interest rate and consolidate various loans into a single liability. Before taking this move, however, it is critical to build the framework for the most competitive loan available.

This approach may entail a variety of aspects, such as analyzing and enhancing your credit score and investigating multiple lenders. However, by adequately planning for the refinance procedure, it may be easier to locate the best solutions and save money in the long term.

1. Determine if student loan refinancing is the best option

Refinancing a student loan may help you get out of debt faster and maybe lower your monthly payments, but this is dependent on whether you qualify for a fair offer.

Begin by reviewing your credit scores and reports to discover where you stand. To qualify for student loan refinancing without a cosigner, you must have an excellent credit score (generally a FICO score of 670 or higher). If your credit isn’t in good shape, you can seek to repair it before refinancing.

It is also vital to evaluate the sort of loan you presently have, the remaining loan duration, the current interest rate, and the monthly payment. Here are some major benefits and negatives to consider.

Pros

• Lower interest rate: Most people refinance to get a lower interest rate. Getting a lower rate means you could pay less interest over the loan term if you don’t extend your repayment term.
• More affordable payments: Refinancing is a good idea if you have an unmanageable monthly payment. Extending your repayment term may ultimately increase the interest you pay, but it will also lower your monthly bill.

Cons

• Forfeiture of key benefits: Refinancing your federal loans means losing federal protections — like federal forbearance and income-driven repayment plans — since it can only be done through private lenders.
• Increased borrowing costs: Refinancing into a longer repayment period could increase the interest you’ll pay on your loan. If it is almost paid off, it could be cheaper to stick with the loan you already have. If you’re at the start of your repayment period, on the other hand, refinancing may make more sense. You may also incur higher borrowing costs if you switch from a fixed-rate loan to a variable-rate loan.

When in doubt, use a student loan calculator to compare your existing loan to any new loans you’re considering.

If you have federal student loans and are considering refinancing, approach with caution. Once you move forward with a private loan, you can’t revert back to a federal student loan to take advantage of the key benefits they offer, as noted in a warning issued by the Consumer Financial Protection Bureau. So, do your homework to ensure you’re making a smart financial move.

2. Research lenders

If you decide to refinance your student loans, the next step is to compile a list of lenders that could work for you. Consider different types of private lenders, which could include banks, credit unions and online lenders, to identify options with attractive terms. Some popular options with competitive rates are:

• LendKey
• Earnest
• Citizens Bank
• SoFi

When researching lenders, you will also want to consider:

• Whether the interest rate you are quoted is fixed or variable
• If the lender allows co-signers to help boost your approval odds
• If the refinanced loan would have simple or compound interest
• If the lender offers bonuses or incentives for refinancing
• What payment options are available, and if they work for your finances
• If flexible due dates and skip-a-payment perks are available
• How the fees assessed by the lender stack up to the competition
• How the lender is perceived by past and current borrowers
• What reviews say about the lender’s responsiveness to inquiries and if borrowers are satisfied

3. Shop for the best student loan options

Each lender uses different criteria to determine your borrowing eligibility and interest rates. Your rate will likely vary between one lender and the next and can be impacted by factors like your credit history, the repayment term you select, and whether you choose fixed or variable interest on the loan.

To find the best deal, you’ll want to prequalify with at least three lenders on your shortlist. Prequalifying typically only requires a soft credit inquiry on your credit report, and you can see the rates and loan terms you might qualify for if you refinance.

4. Submit a loan application

Once you’ve narrowed your shortlist to your preferred lender and loan offer, you must complete an official loan application. Even if you went through a lender’s prequalification process, you must complete this before your loan can be approved.

The lender will likely run a hard credit inquiry to access your full credit report and may want additional information that wasn’t on your prequalification form. If you’re applying with a co-signer, you’ll need to also provide their information.

You may need to provide the lender with copies of documents and information such as:

• Social Security number (SSN)
• Driver’s license or government ID
• Loan payoff statements from existing student loan lenders or servicers
• Proof of graduation
• Proof of employment (pay stubs, W-2, etc.)

Most lenders make it easy to apply online for student loan refinancing in minutes. You could also hear back as soon as the same day or the next business day. Funding timelines vary by lender, though, so it’s worth inquiring before applying to confirm.

Upon approval, the final step of the application process is to review and sign your loan documents. Technology has made this step considerably easier. Where you once had to sign loan documents in person or fax or mail them in, most student loan companies now handle their entire process online for ultimate convenience.

5. Transfer payments to your new lender

After the new loan closes, you will begin making payments on your new loan just like you were with your old one. However, your new lender may not immediately pay off your former loans. Sometimes the process can take a few weeks. Continue making any student loan payments that come due in the meantime so you don’t face late fees or potentially negative credit reporting.

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Once your student loan refinance is complete and the debt has been transferred, you should receive a payoff letter from your old lender. You will need to create an account with your new loan servicing company and begin making payments on your refinanced loan.

Keep an eye out for correspondence from the new lender identifying your first bill due date. Many lenders let you choose a date each month that works best for your schedule and budget, and some will offer a discounted rate if you enroll in autopay.

What Will you Need to do in Order to Qualify to Refinance a Student Loan?

If you’re struggling to make student loan payments or want to free up more space in your monthly budget, refinancing could help. Refinancing your student loans could give you a lower interest rate, lower monthly payments and different repayment terms than your current student loans offer. However, you may need to find a new lender to do so.

Most requirements to refinance student loans include a good credit score and proof of stable income. If you don’t meet the credit score and income guidelines, you may be asked to apply with a co-signer. Along with that, not all student loans qualify for refinancing, especially if the balance exceeds a certain amount or if you did not graduate from your degree program.

Consider seven common requirements before you get started.

1. A strong credit score

In order to qualify to refinance a student loan, you will need a good credit score. Your credit history and credit score are some of the biggest influences on your eligibility for student loan refinancing. The higher your credit score, the more likely you will qualify for competitive terms when refinancing your student loan.

If you have little to no credit history, some lenders may not approve you. The ones that do will likely give you a higher interest rate since the best rates go to borrowers with high credit scores. Aim for a credit score in the mid-600s to qualify and one above 700 to get the lowest rates.

If you have a low score, it’s critical to shop around. Many lenders offer prequalification, which lets you see your estimated APR and approval odds before applying without impacting your credit. Get prequalified with at least three lenders to find your best rate. If you do have a low credit score, you might think about using a co-signer, which can help you get approved or could even lower your interest rate.

2. Stable income

Lenders also take into account what your income source(s) or payment schedule look like. Common reasons for fluctuating income can include self-employment, working on contract, receiving disability or being employed sporadically.

If you don’t have a steady income, lenders may assume that you don’t have the cash on hand to make payments on your bills. Many lenders require proof of employment and consistent income to qualify– you may use bank statements or pay stubs to provide a record of regular, steady deposits into your account.

If you have income outside traditional employment, you may be required to prove your earnings through documents like tax forms or bank statements, as lenders are still looking for steady income in these situations. If you cannot prove a stable income, you may need a co-signer.

3. Decent debt-to-income ratio

Your debt-to-income ratio (DTI) is the percent of your income taken up by bills and necessary expenses. The lower your DTI, the more likely you are to get approved since you have more cash freed up to stay current on your payments. You can even calculate DTI yourself.

Lenders might be more cautious if you have a high DTI. Try to keep your DTI to less than 50 percent, and pay off as much debt as you can right before you apply for your loan.

4. Minimum refinancing amount

You might see minimum amounts, which is how much money you still need to repay that the lender will take on. Every lender has a different minimum amount you can refinance. For many, this starts between $5,000 and $10,000. Many lenders don’t have a maximum amount, but those that do will typically set a high ceiling, like $300,000. Minimum amounts help lenders determine if the loan will return enough interest.

5. A degree

Many lenders have requirements to refinance student loans for how much schooling you’ve completed. Some require you to hold a degree to be eligible for student loan refinancing, although some may be more lenient with these requirements. You can even refinance after an associate degree in many cases.

If a lender doesn’t require that you hold a degree to get approved, it may have other eligibility criteria, like grade level or enrollment status requirements.

6. A co-signer

You may need a co-signer if you do not meet the loan requirements yourself. A co-signer is usually required when the primary borrower has low or unestablished credit, a high debt-to-income ratio or unstable income. The co-signer legally agrees to repay the loan along with the primary borrower.

It’s common to have a co-signer for student loans since student loans are made with younger people in mind who have not had time to build credit. The co-signer in these cases is usually a creditworthy adult, like a parent or guardian.

Check into whether the lender offers a co-signer release. If the primary or student borrower makes a certain number of payments or meets credit requirements, the co-signer may be released from the loan.

7. Paperwork

Once you’ve found the lender with the lowest interest rate, fewest fees and best repayment terms for your budget, it’s time to get your paperwork in order. Here’s what you’ll likely need for your application:

• Proof of employment: A recent pay stub, a W-2 or your tax returns
• Government-issued ID: A license, passport or ID card
• Proof of degree: A transcript or diploma (may not be required with all lenders)
• Proof of residency: A document confirming where you live
• Loan documents: Recent loan statements detailing your account and payoff information
• If you have a co-signer, they’ll need these corresponding documents as well

After submitting your application, the lender will run a credit check. If you’re approved, you’ll sign formal paperwork. This usually consists of giving the lender permission to pay off your current loans for you, with you agreeing to your new loan terms, interest rate and monthly payment.

Bottom Line

By making sure you meet the above student loan refinance requirements, you can better ensure that you are finding the right student loan option for you. Choosing to refinance might lower your interest rate and monthly payments, as well as potentially allow for terms that work better for your situation.

Remember to check your credit score and compare refinance lenders to help make payments easier to manage.