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Refinancing Student Loans With a Low Income

Refinancing Student Loans With a Low Income
Rebecca Safier
Rebecca SafierUpdated November 2, 2022
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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.
Refinancing your student loans can lead to better interest rates and a lower monthly payment. But it can be difficult to qualify for refinancing if you have a low income. Difficult doesn’t mean impossible, though. Every lender sets its own requirements, and some are more flexible with their income requirements than others. Even if your income is on the low side, you may be able to find a refinancing provider that’s willing to work with you. 

Can You Refinance Student Loans With a Low Income

When you apply for student loan refinancing, lenders check your income to make sure you have the means to pay back a loan. If you don’t meet their requirements, your application may not be approved.  If you’re looking for student loan refinance with no income verification, you might be out of luck. However, that doesn’t mean you can’t qualify, as there’s no specific income cutoff across the board. Every lender sets its own criteria, with some accepting a lower income than others. Education Loan Finance (ELFI), for example, requires a minimum annual income of $35,000.Even if you have a low income, you may still have options for refinancing private and federal student loans. It’s worth shopping around with multiple lenders to find out what they require. And if you have strong credit or a cosigner, your chances for approval could increase. The Department of Education has several income-driven repayment programs for holders of federal loans who can no longer make their monthly payments because they simply don’t have the money. It’s worth noting that if you refinance a federal loan with a private lender, that amount will no longer be eligible for federal forgiveness or income-driven repayment relief.Recommended: What Is Need-Based Financial Aid?

Refinancing Student Loans With a Low Income

If you’re worried that your income is too low to qualify for loan consolidation through refinancing, here are some steps that could help you put your best foot forward. 

1. Checking Lender's Requirements

Your first order of business is checking a lender’s requirements. Many refinancing lenders don’t advertise their minimum income requirement online, but they may share the information if you reach out directly to customer service. Don’t be discouraged if one lender’s requirement is too high, as you may find another lender that sets its minimum much lower. Along with asking about the minimum income requirement, find out what other criteria you need to meet to qualify. The lender might look for a specific credit score, debt-to-income ratio, or other financial qualification. By understanding the expectations upfront, you can determine whether it’s worth applying with a lender or not. Besides communicating with lenders directly, you can also try prequalifying online. Many lenders let you check your rates with a few pieces of information and a soft credit inquiry that doesn’t impact your score. While this prequalification does not guarantee an offer, it’s a useful way to gauge your chances of qualifying without having to fill out a full application. 

2. Having Good Credit

Besides reviewing your income, lenders also look at your credit when considering your application for student loan refinancing. Most lenders want to see that you have good credit, as it indicates that you’re responsible when it comes to paying back debts. On the FICO scoring model, a good credit score starts at 670. As with income requirements, however, every lender is different. One lender might look for a higher score, while another might approve you with a lower score. That’s why checking requirements with multiple lenders is important if you’re looking to refinance student loans with a low income or weak credit. If you can’t find a lender willing to work with you, you have two options: applying with a cosigner or improving your credit. Some steps that can improve your credit involve paying off student loans and other debts, making on-time payments on your loans, and reducing your credit utilization ratio, or the amount of credit you’re using compared to what’s available to you. If you’re having trouble qualifying for refinancing due to bad credit, it could make sense to spend a few months or a year improving your credit before applying again. 

3. Managing Your Debt-to-Income Ratio

Another factor that lenders look at is your debt-to-income ratio or the amount of debt you owe compared to your income. By looking at your debt-to-income ratio, lenders get a sense of whether you have enough cash flow to pay back a loan. Every lender has different DTI limits, so it’s worth doing your research on this requirement, too. Once you have a sense of what a lender wants, you can calculate your own DTI by adding up your monthly debt payments and dividing them by your gross monthly income. If you pay $600 on your debts and make $3,000 every month, for example, your DTI would be 20%. If your DTI is too high, you can lower it by paying down your debts and/or increasing your income. 

4. Applying With a Cosigner 

If you can’t meet a lender’s requirements for income and credit on your own, there may be a workaround: applying with a cosigner. When you add a cosigner to your application, a lender may feel reassured that one of you will pay back the loan on time. By applying with a cosigner, you might boost your chances of approval or even qualify for better rates. Asking someone to cosign on a loan is not a decision that should be made lightly, however. Cosigning can be a burden since your cosigner becomes equally responsible for the loan. If you fall behind on payments, the lender could ask your cosigner to pay. Cosigning a loan can also impact your cosigner’s credit and debt-to-income ratio. Before employing a cosigner on your loan, make sure you both are on the same page about what it means to share debt. It could also be worth checking if your lender offers cosigner release after a certain period of on-time payments. 

Alternative Options to Refinancing Student Loans

While refinancing student loans can have a number of financial benefits, it’s not the only option for managing student debt. Besides refinancing, it could also be worth exploring forgiveness programs and student loan consolidation. 

Student Loan Forgiveness

Depending on your profession, you could qualify for forgiveness of some or all of your student loans. The government offers some student loan forgiveness options, such as Teacher Loan Forgiveness and Public Service Loan Forgiveness (PSLF). The Teacher Loan Forgiveness program offers up to $17,500 in forgiveness for teachers who work in low-income schools for five consecutive years. PSLF will forgive your entire balance after 10 years of service in a nonprofit or other qualifying organization. Federal forgiveness programs typically only forgive federal student loans, not private ones. But you may be able to find loan assistance for private student loans from alternative loan repayment assistance programs or even some employers. If you’re struggling under the burden of student debt, it’s worth exploring your options for loan forgiveness or repayment assistance to see if you could get help.

Loan Consolidation

Another option for managing your federal student loans is loan consolidation. Unlike refinancing, there’s no credit or income required for consolidation. While consolidation won’t get you a lower interest rate, it can simplify repayment by combining multiple loans into one. Depending on your loan amount, you can choose new repayment terms as long as 30 years. Choosing a longer term can lower your monthly payments, but it will mean you’re in debt for longer and pay more interest over the years. If you go this route, make sure to weigh your desire for a low monthly payment with your goals for getting out of debt as soon as possible when choosing your new repayment terms. 

The Takeaway

Having a low income doesn’t necessarily disqualify you from refinancing student loans, since every lender sets its own requirements. It’s worth shopping around and researching your options to see if there’s a lender willing to work with you. Applying with a cosigner can also help you get approved if you can’t qualify on your own. If adding a cosigner isn’t an option, you could also take steps to increase your income before applying for refinancing. You might try working a side hustle to bring in extra cash, or earning a new certification that would qualify you for a promotion at work or even a new job. Before you refinance, furthermore, make sure you understand both the pros and cons. Refinancing federal student loans might score you a better interest rate, but it can also turn your federal loans private and thus ineligible for federal plans and protections. If you want to retain access to federal programs, it wouldn’t make sense to refinance federal loans with a private lender. If you decide refinancing is right for you, however, make sure to shop around and compare offers from multiple lenders. Lantern can help you find the best lenders for refinancing student loans
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Frequently Asked Questions

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About the Author

Rebecca Safier

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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