What Is a Good Debt-to-Income Ratio (DTI) for Student Loan Refinancing?

What Is a Good Debt-to-Income Ratio (DTI) for Student Loan Refinancing?

Brian O'Connell

Brian O'ConnellUpdated January 7, 2025

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

If you’re considering student loan refinancing, it’s wise to check your debt-to-income ratio, a number that compares your income to your debt. Lenders look at your student loan debt-to-income ratio to help decide whether to approve you for a loan. Here’s what you need to know about debt-to-income ratio and student loans.

What Is the Debt-to-Income Ratio?

Debt-to-income ratio (DTI) compares your gross monthly income (your income before taxes) to your monthly debt. It signifies how well you’re managing your monthly budget and paying off the debt you owe.When you apply for a loan, lenders look at your credit score and your DTI to help determine if you’re a good candidate.

How Is Debt-to-Income Used During the Student Loan Refinance Process?

Debt-to-income ratio is important when it comes to student loan refinance. Essentially, the lower your debt-to-to-income figure is, the better you look to lenders.A high debt-to-income ratio indicates that you may have problems managing debt. In that case, lenders might be more likely to see you as a credit risk and reject your loan application.

Will Your Debt-to-Income Ratio Be Affected by Taking Out Student Loans?

If you’re using student loans to help pay for college, those loans do affect your debt-to-income ratio. Here’s how: When lenders calculate your DTI, they will include your monthly student loan debt in the formula. The higher your monthly loan payments, the more of an impact they will have on your DTI.Refinancing can also affect your DTI. There are pros and cons to refinancing student loans. For instance, if you can qualify for a lower interest rate, refinancing your student loans could help improve your DTI by lowering your monthly loan payment.However it’s important to note that refinancing federal student loans with a private loan servicer means you will forfeit certain benefits. You will no longer be eligible for income-driven repayment plans, Public Service Loan Forgiveness, and protections like federal deferment and student loan forbearance options. Think carefully before you refinance federal student loans to make sure it’s the right choice for you.

What Is Considered a Good Debt-to-Income Ratio for Refinancing?

Ideally, your debt-to-income ratio should be below 36%. That indicates to lenders that you have enough income to comfortably pay your debts, and therefore, you’re a good candidate for student loan refinancing.If you’re still in college and considering student loan refinancing, you may first want to explore whether you can refinance while in school, and if it makes sense financially for you to do so. It’s also a good idea to understand refinancing and your credit score, and how student loan refinancing might impact your credit.

How to Calculate Debt-to-Income Ratio

To calculate your debt-to-income ratio:1. Add your monthly debt together, including the following:

Monthly mortgage or rent payment
Monthly child support or alimony payments
All monthly student loan, auto loan, and personal loan payments
Credit card monthly payments—use the figure for the minimum monthly payment listed on your bill

Do not include utility bills, cell phone bills, cable payments, health insurance, or taxes.2. Divide the total amount of your monthly debt by your monthly gross income, which is your income before taxes). The resulting percentage is your debt-to-income ratio.Here’s an example of how debt-to-income is calculated:Let’s say you earn $6,000 per month and owe debt of $2,000 for your monthly rent, student loans, and credit card payments. Calculate your DTI by taking the $2,000 and dividing it by $6,000. That gives you 0.333, or 33% DTI.

Improving Your Debt-to-Income Ratio for Student Loan Refinancing

There are several ways to improve your debt-to-income ratio and improve your chances of student loan refinancing. These strategies include:

Increasing Your Income

The higher your income, the better your chances of having a favorable debt-to-income ratio. To earn more money, you could start a side hustle like tutoring, driving for Uber, or pet sitting. Or you could do freelance work, such as website design or writing, to bring in extra income.

Lowering Your Debt

If you have debt such as multiple credit card balances or other types of loans, such as a car loan, paying off some of that debt will lower your amount of debt overall and improve your DTI. Choose one account, like a credit card, and pay the balance, if you can.

Avoiding More Debt

Limit your spending so that you don’t take on more debt. Make a budget and stick to it. Avoid impulse purchases and only buy necessities. Keeping your debt in check will help improve your debt-to-income ratio.

Can You Refinance Student Loans With a High Debt-to-Income Ratio?

A debt-to-income ratio under 36% is recommended. If yours is higher, you may still be able to refinance student loans, but it might be more difficult. For instance, if your DTI is between 36% and 49%, lenders may work with you if your credit score or income is high. If not, you may need a cosigner on the loan. And while maximum DTI can vary by lender, a DTI of 50% and above signifies that much of your income is likely needed to pay your existing debts, and many lenders may consider you too big of a risk.

The Takeaway

If you're looking to refinance your student loans, you’ll want to shop around with multiple refinancing lenders to find the best rates and terms. Lantern by SoFi can help you compare offers from lenders to find the one that’s the right fit for you.Explore your student loan refinancing options with Lantern.

Frequently Asked Questions

Does debt-to-income affect my student loans?

Can you improve your debt-to-income ratio?

What is a bad debt-to-income ratio for student loan refinancing?

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About the Author

Brian O'Connell

Brian O'Connell

Brian O’Connell is a freelance writer based in Bucks County, Penn. A former Wall Street trader, he is the author of the books CNBC's Creating Wealth and The Career Survival Guide. His work has appeared in multiple media platforms, including TheStreet.com, Bloomberg, CBS News, Yahoo Finance, and U.S. News & World Report.

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