How to Refinance Your Student Loan With Bad Credit: Step-By-Step Guide

Q: When do I refinance my student loans?

It can make sense to refinance your student loans when rates are low and you can meet a lender’s criteria for approval. If you have bad credit, you might need to shop around to locate a lender who will approve your application. Alternatively, you can apply with a cosigner or wait until you’ve built your credit score into the good or excellent range (typically 670 or higher). Note that some lenders also require that you’ve earned your degree before approving you for refinancing.

Q: How can I calculate my student loan refinance?

Before refinancing your student loans, you can use a student loan refinancing calculator to compare your new loan with your old ones. You can enter your total debt amount, interest rates, and repayment terms to see what refinancing would save you, if anything. Keep an eye out for any fees, such as an origination fee, that a lender might charge, as well.

Q: What is the difference between student loan refinancing and consolidation?

Student loan refinancing involves taking out a new loan from a private lender to pay off one or more of your existing loans. It can be beneficial if you qualify for a lower interest rate than what you have currently, as a better rate can save you money and lower your monthly bills. One of the disadvantages of refinancing federal student loans , however, is that you lose eligibility for federal repayment plans and programs. Direct loan consolidation, on the other hand, is a program that the Department of Education offers for federal student loans. By consolidating, you can simplify repayment by combining multiple loans into one. You can also choose new repayment terms. Unlike refinancing, however, consolidation won’t lower your interest rate.

Q: What is the minimum credit score needed for student loan refinancing?

Many lenders require good to excellent credit before approving you for student loan refinancing. In the FICO scoring model, a good credit score is 670 or higher. That said, every lender is different, and some may set a lower minimum.

How to Refinance Your Student Loan With Bad Credit: Step-By-Step Guide

Rebecca SafierUpdated August 17, 2023

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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.

It can be difficult to refinance student loans with bad credit, as many lenders require good to excellent credit for approval. But that doesn’t mean you’re out of options—you might be able to find a lender with more flexible requirements or apply with a cosigner. Alternatively, you could take steps to improve your credit score before you pursue student loan refinancing. If you’re concerned that your credit isn’t strong enough to qualify for refinancing, here are some steps that could boost your chances.

Compare Lenders

Just because one lender rejects your student loan refinancing application doesn’t mean all lenders will. Every refinancing provider sets its own criteria, and some will accept a lower credit score than others. It’s worth shopping around with multiple lenders, such as banks, credit unions, and online lenders. By comparing your options, you might find someone willing to work with you despite your weak credit. Some lenders and loan marketplaces let you prequalify for student loan refinancing offers online, meaning you can compare preliminary offers with no impact on your credit.

Apply With a Cosigner

If you can’t qualify for student loan refinancing on your own due to bad credit, many lenders let you apply for refinancing with a cosigner. A cosigner could be a relative, friend, or other trusted person who agrees to share responsibility for the loan. Your cosigner’s strong credit can make up for your bad credit and help you get approved. Plus, adding a creditworthy cosigner can often help you score better interest rates. Some lenders also offer cosigner release, meaning you can remove the cosigner from the loan after certain conditions have been met. Cosigning a loan isn’t without its risks, however. The loan will show up on your cosigner’s credit report, thereby driving up their debt-to-income ratio. If you miss payments, both your credit and your cosigner’s credit will be damaged. And if you default on the loan, a lender can demand repayment from your cosigner. Before adding a cosigner to your student loan refinance application, make sure that both of you are on the same page about what it means to share debt.

Consider Your Credit Score

Since refinancing student loans with bad credit can be a headache, it might make sense to work on your credit score before you apply. While there are few quick fixes when it comes to credit, there are strategies that will increase your score over time.

Pay Bills on Time

Making on-time payments on your loans and credit cards is good for your credit score. In fact, payment history is one of the most influential parts of the FICO credit scoring model, making up 35% of your score. On the flip side, missing payments is a surefire way to damage your credit score. To avoid missing payments, try signing up for autopay or adding your payment deadlines to your calendar so you never miss a bill. If you’re in danger of falling behind, reach out to your creditor to discuss your options. Some might be willing to change your payment due date or temporarily pause payments during a period of financial hardship.

Reduce Your Credit Card Balance

Along similar lines, paying off your credit cards can boost your credit score. Paying down credit card debt reduces your credit utilization ratio, or the amount of credit you’re using compared to the total amount available to you. It’s typically recommended to keep your credit utilization ratio at 30% or lower. By reducing it—and keeping it low—you could see a jump in your credit score.

Check Your Credit Reports for Errors

One of the best ways to diagnose problems with your credit is to look at your credit report. You can order a free copy from each of the major credit bureaus—TransUnion, Experian, and Equifax—by heading to AnnualCreditReport.com. While your credit report doesn’t show your credit score, it does give you the full picture of your various loans, credit cards, and other financial accounts. If you see any errors, you can try disputing them with the appropriate credit bureau. If your dispute is successful and the error is removed, you could see an improvement in your credit score.

Improve Your Cash Flow

Credit scores aren’t the only criteria for refinancing student loans. Lenders also examine your cash flow or how much money you’re making and spending each month. If you don’t have much left over after rent, car payments, and other expenses, a lender might not think you’ll be able to pay down a refinanced student loan. If you’re worried about qualifying for student loan refinancing with a low income, you have two options: increase your income and/or decrease your spending. In terms of increasing your income, you could try negotiating a raise at work or applying to a new job entirely. You might also set up a side hustle, such as driving for a ride-sharing service or freelancing online, to bring in some extra cash. If, on the other hand, your living expenses are breaking the bank, consider downsizing your living situation or trading in your car for a less expensive model. Taking these steps could not only help you reduce your debt-to-income ratio so you qualify for student loan refinancing, but might also aid you in paying off your student debt faster.

Student Loan Refinance Alternatives

Refinancing student loans isn’t the right strategy for everyone. It might not make sense to refinance federal student loans, for example, since doing so means you forfeit access to federal protections. You will no longer qualify for cancellation of federal loans. And if you’re unable to qualify for a bad credit student loan refinance, it could be worth exploring alternative options.

Income-Driven Repayment Plan

If you have federal student loans, you could adjust your monthly payments by applying for an income-driven repayment plan. There are four IDR plans:

Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)
Income-Based Repayment (IBR)
Income-Contingent Repayment (ICR).

All of these plans cap your student loan bills at a percentage of your discretionary income. In June 2023, President Joe Biden announced the creation of the SAVE Plan, which could provide the lowest monthly payments of any IDR plan available to nearly all student borrowers. By 2024, some plans could be as reduced to as low as 5% of monthly income.

Federal Student Loan Consolidation

Another option for managing federal student loans is Direct loan consolidation. A Direct Consolidation Loan combines your loans into a single loan with one monthly payment. You’ll also get to choose new repayment terms, typically up to 30 years. Choosing a longer term can lower your monthly payments, but it will likely increase your interest charges over the life of your loan. It can be useful to use a student loan calculator so you understand the long-term costs before changing your repayment terms. Unlike refinancing, Direct loan consolidation won’t lower your interest rate. Instead, your new interest rate will be the weighted average of your previous rates rounded up to the nearest one-eighth of one percent. Federal loan consolidation can help simplify debt repayment, but it’s unlikely to save you money on interest.

Reach Out to Your Loan Servicer

Private student loans aren’t eligible for IDR plans or Direct loan consolidation. If you’re struggling with a lot of private student debt but can’t qualify for refinancing due to bad credit, it’s worth reaching out to your loan servicer to see if it can help. A loan servicer might be willing to change your payment due date or even pause payments temporarily through student loan forbearance. Some lenders also offer the option to skip a payment after you’ve made a certain number of on-time payments. While assistance isn’t guaranteed, it’s worth communicating with your loan servicer if you’re at risk of default.

Student Loan Refinancing Options With Lantern

If you want to refinance student loans with bad credit, it’s useful to check your rates with multiple lenders. Lantern makes it easy to prequalify with several lenders at once with no impact on your credit. Learn more about how to find and compare student loan refinance options with Lantern.

Frequently Asked Questions

When do I refinance my student loans?

How can I calculate my student loan refinance?

What is the difference between student loan refinancing and consolidation?

What is the minimum credit score needed for student loan refinancing?

Photo credit: iStock/solidcolours

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About the Author

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).

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