Refinancing a student loan is a great way to save on interest costs over the life of your loan. Essentially, you can consolidate your student loans or have a new company take the loan over all while enjoying one simple payment each month with a lower rate. Because the national student loan debt has climbed to $1 trillion, student loan refinancing is becoming a popular way for people to pay back their debt.
Unfortunately, not everyone is qualified to refinance their student loans as a number of financial factors are involved when determining refinance eligibility. If this happens to you, here's what to do if your student loan refinance was declined.
Get a Co-Signer
The simplest way to get approved for a student loan refinance is to get a co-signer. You can ask your parent or your spouse to co-sign the loan for you, which means that they are responsible for the loan just as much as you are. The loan will also show up on their credit report as well as yours, and if you fail to make a payment, they will be calling you and your co-signer, so make sure your co-signer is someone you trust to help you in a bad situation.
When you add in a co-signer, you are showing the loan company that you have someone else's income to back the loan. Typically, a company will have your co-signer fill out the loan application too with their information and income, and then they will re-process the loan application. Sometimes, not even a co-signer can help you to get a new student loan; however, it is the first step to try if you are declined.
Assess Your Credit
If you don't have someone who is willing to co-sign a student loan for you, the next step to take would be to assess your credit. You can get a free credit report from each of the three credit bureaus every year through www.AnnualCreditReport.com.
Get a copy of your credit report and scan through it. The first thing you might notice is if there are adverse accounts. These are accounts that might be past due or in default. Your credit report should include a number next to that account so you can call and settle your debt. If you can't pay off that debt right away, you can always call and try to work out a payment plan.
Pay Off Debt
Student loan refinance companies will be pulling your credit and calculating your debt to credit ratio. They will want to make sure that with your income, you can pay your debts, including the new student loan monthly payment amount that you are about to take on.
If you have a high amount of debt, work hard to reduce the amount of money you owe. The less debt you have, the more attractive you will be to lenders who refinance student loans.
Sit and Wait
If you've done all the above and your student loan refinance was declined, the best thing you can do is to sit and wait. Over time, as you make payments on your debts, your debt amount will lower and your credit score should increase as long as you are making every payment on time. Try again to apply to refinance your student loans after six months or one year when your finances are in better shape.