You’re stuck with all the student loans you’ve taken out, whether you have a degree or not, so paying them off should be a priority. One of the tools you have is student loan refinancing, which can make your payments more affordable and help you pay off student debt faster.
The only problem? Not all lenders allow student loan refinancing if you haven’t graduated. Here’s what you need to know about student loan refinancing without a degree.
How does student loan refinancing work?
You can consolidate or refinance student loans to make them more manageable.
Student loan consolidation involves taking out a consolidation loan directly through the federal government and combining two or more federal student loans into one. The interest rate is a weighted average, rounded to the nearest eighth of a percent. Consolidation may be required to enroll in some federal student loan repayment programs, such as income tested.
Refinancing, on the other hand, involves taking out a new loan from a private lender and using the funds to pay off one or more existing loans. Usually, the goal of refinancing is not only to consolidate student loan debt, but also to lower the interest rate. Borrowers can also choose a shorter or longer repayment term, depending on their goals. While you can refinance federal and private student loans, the refinancing process definitely makes all of your loans private.
For this reason, you must carefully weigh the option of refinancing federal loans. This means you lose all federal protections and benefits, including eligibility for public service loan forgiveness, income-based repayment options, deferral, and forbearance.
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Refinancing of student loans without a diploma
When it comes to refinancing when you haven’t actually graduated from college, your eligibility will depend on the policy of the individual lender.
“Many private consolidation loans are not available to students who have not graduated because dropping out of college is a good predictor of default,” says Mark Kantrowitz, editor and vice president of research at Savingforcollege.com. “Students who drop out are four times more likely to default on student loans than graduate students and account for two-thirds of defaults.”
But that doesn’t mean you’re out of luck. Some private lenders allow borrowers without a degree to refinance if they meet certain eligibility conditions.
First of all, you will need to meet the general refinancing requirements of the lender. Alyssa Schaefer, Marketing Director of Laurel Road, an online loan company that offers student loan refinancing and other services, says, “While some refinance lenders do not require a college degree, borrowers should still meet the eligibility criteria. ”
For example, she says that attending a school that offers federal student aid (Title IV school), a stable financial history, sufficient income, and a good credit rating are usually necessary.
To increase your chances of qualifying for refinancing without a degree, Kantrowitz suggests the following:
- Maintain a stable job. “Borrowers who change jobs frequently are more likely to default,” says Kantrowitz. So if you’re hoping to eventually refinance your student loans, it’s a good idea to maintain uninterrupted employment for at least a few years to improve your chances of getting approved.
- Avoid reprieve and tolerance. According to Kantrowitz, borrowers who need to temporarily suspend repayment are also more likely to default. If you can help it, avoid hanging or suspending your loans, which can be a red flag for refinancing companies.
- Manage your finances responsibly. Do your best not to fall behind on other financial obligations. Paying all of your invoices in full by the due date will contribute to an increase credit score, which will help you qualify for refinancing. In fact, most lenders require a credit score of at least 650 to 680 to qualify.
- Maintain a low debt-to-income ratio. In addition to a good credit rating, lenders also want to make sure that you are not overloaded with other types of debt. Keep the amount of your monthly income that goes towards paying down debt – known as debt to income ratio – the lowest possible will improve your chances of being approved.
- Apply for refinancing from a creditworthy co-signer. It may be helpful to have a co-signer if you are not eligible for refinancing on your own. Co-signers leverage their own credit to help you get approved. The tradeoff, however, is that they are also responsible for repaying the loan; if you fall behind on payments, it will also negatively impact your co-signer’s credit.
Individual lender policies
Although lenders generally follow certain general refinancing requirements, each lender can set their own requirements for refinancing student loans. You can usually find the eligibility requirements online with the lender or on the application. “It’s important that borrowers do their homework to understand where they can qualify,” Schaefer says.
Here is an overview of some of the major lenders’ policies for refinancing student loans:
- Discover. According to Sarah Grage Silberman, senior public relations associate for Discover, refinancing without a degree is okay. However, borrowers will need to meet eligibility requirements, including passing a credit check and holding no more than $ 150,000 in total student loan debt.
- Serious. Currently, Earnest requires applicants for refinancing to have a full degree to qualify. However, “we will be reviewing this policy again in the near future,” said David Green, Product Manager at Earnest.
- Laurel Road. The lender only refinances student loans for those with a bachelor’s or graduate degree and certain associate’s degrees. This also applies to parents who wish to refinance student loans they have taken out for their offspring.
- SoFi. SoFi does not currently allow refinancing without a degree. “To be eligible for student loan refinancing, people must have completed an associate’s degree or more from a Title IV school,” says Rachel Reichblum, director of product communications for SoFi.
- Financing of education loans. ELFI requires borrowers to have obtained a bachelor’s degree or higher from an approved post-secondary institution in order to be eligible for student loan refinancing.
- Splash Financial. Splash Financial does not accept non-graduate applicants who refinance as solo borrowers. However, there are still options. “Borrowers who did not graduate would need either 1) a co-signer with a bachelor’s degree or 2) a relative to refinance loans on their behalf,” says Patrick Leimkuehler, COO by Splash Financial.
Your options if you are not eligible for refinancing
If you can’t qualify to refinance your student loans, all is not lost. There are a few steps you can try to improve your odds, as well as alternatives to refinancing that you can consider.
Improve your credit. “In most cases, the better the credit score, the more financing options you have,” says Schaefer. If you don’t qualify for refinancing because of your credit, spend time improving your score before you reapply. This can include paying bills on time and paying off other unpaid debts such as credit cards.
Apply with a co-signer. If you have a trusted friend or family member who qualifies for their own refinance, consider applying for refinancing with them as a co-signer. Again, remember that the co-signers share the same responsibility in repaying the loan, so you should only go with a co-signer if you are confident that you can afford to make all the payments on time.
Adhere to income-based reimbursement. If you have federal student loans, refinancing may not even be the best option available. “Federal student loan borrowers can get a direct federal consolidation loan even if they haven’t graduated,” Kantrowitz says. “However, a better option for these borrowers might be to obtain an income-based repayment plan, which bases the monthly payments on income.”
Seek forgiveness. There are several programs that will forgive some or all of your student loan debt if you qualify. Income-oriented plans, for example, will write off any remaining debt after the repayment period has passed. There are also career-oriented student loan forgiveness programs, such as the Public Service Loan forgiveness program. Find out about the types of programs that exist for the field in which you specialize. However, keep in mind that debt relief under some programs is considered taxable income, so talk to a tax professional about the impact of debt relief on your finances.
Consider completing your degree. Finally, if it is financially possible for you to go back to school and complete your education, it might be worth pursuing. Not only will you improve your employment prospects and you will be more likely to get a higher income, but you will also improve your eligibility for refinancing later on. Of course, taking on more debt to complete your degree just so you can refinance later is probably not worth it.