Although refinancing your student loans is a great way to jump start your student loan repayment and save money on interest, unfortunately not everyone will qualify for a student loan refinance.
Sometimes you get declined for a student loan refinance because of your credit or because of your job situation. Below is more information about the three most common reasons why someone might get declined when trying to refinance.
Low Credit Score
The most common reason someone might be declined for a student loan refinance is because they have a low credit score. Low credit scores are indicators that a borrower has missed payments in the past, and all a lender really wants is to be repaid on time for their loan. Many popular student loan refinance lenders require excellent credit scores, so if you know your credit score is not excellent, you might want to wait until it is before applying. The average credit score in America is 695, which is close to excellent, so with a few adjustments someone could easily raise their score.
Too Much Debt for Your Income
Lenders look at the amount of debt you have in relation to your current income. When you refinance your student loans, lenders often ask you what your rent or mortgage payments are in addition to any other debts or expenses you might have. If your bills seem high in relation to your income, they might not want to refinance your student loans. After all, their entire goal is to help you by offering you a lower interest rate, but also to ensure that they stay in business by only offering loans to those with financial situations that show they are likely to make their payments on time every single month.
You Don't Meet Basic Qualifications
Some student loan refinance lenders have a few basic qualifications that must be met before refinancing student loans. As mentioned, some of these qualifications might include a specific credit score or a specific debt-to-income ratio. Other basic qualifications might include a particular income or residing in a certain state. Some companies only refinance student loans from particular schools, as well. So, even if you have solid personal finances, you could be declined for one of these basic reasons that is outside of your control. Luckily, there are many student loan refinance companies that are competing for your business, so you're likely to find at least one who will help you at some point in the future even if you get declined now.
What to Do In the Future
It's important to remember that just because you are declined from a student loan refinance initially doesn't mean you won't qualify for one in the future. All you need is to focus on improving your credit and your income over time and then reapply. Some ways you can improve your credit are to pay down as much of your debt as possible and make your monthly payments on time every time. Then, if you can improve your income in addition to this, lenders will be much more willing to help you in the future even if you were originally declined for a student loan refinance in the past.