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Your student loan debt-to-income ratio gives refinancing lenders a quick look at how well you’re able to afford your monthly payments. Find out more about how DTI works and how to calculate your own DTI in just a few minutes.

In this post:

What DTI is needed to refinance student loans

A high debt-to-income ratio signals to lenders that you may not be able to afford your payments, so DTI is very important when applying for nearly any loan. In many cases, the maximum student loan refinancing debt-to-income ratio is 50% — but a lower DTI is better.

To calculate your DTI, add up your minimum monthly bill payments — credit cards, student loans, or any other type of loan all contribute to your DTI. Divide that total by your monthly income to get your DTI.

If you earn $3,000 per month and have debt payments that total $1,000 per month, your DTI calculation is $1,000 divided by $3,000 (then multiply by 100 to get the percentage). In this example, the DTI is 33%.

(Total monthly payments ÷ monthly income) x 100 = DTI

Find Out: How Often Can You Refinance Your Student Loans?

How student loan refinancing affects your overall DTI

Just like a car payment or personal loan, student loan payments are part of your DTI. Depending on how you refinance your loans, your DTI could go up or down:

  1. If you refinance and end up with a higher monthly payment, your DTI will go up. While that may be bad for future loans, it isn’t always a bad thing in the long-run. Sometimes a higher monthly payment means you’ll pay off the loan faster and save on interest. That’s an overall financial win.
  2. If you refinance with lower monthly payments, your DTI will go down after the refinancing is completed. A lower monthly payment could mean it takes longer to pay back your student loans and more total interest you could end up paying.

Although you shouldn’t make a refinancing decision purely because of a change in DTI, it is one of the factors to be considered.

Learn More: When to Refinance Your Student Loans

How to improve your DTI to qualify for refinancing

Every lender has its own credit score needed to refinance student loans, DTI, and other factors when approving a loan. Some refinancing lenders might want a much lower DTI than 50% while others give you a bit more wiggle room to go above that key number.

If you run the numbers and you don’t have a qualifying student loan refinancing debt-to-income ratio, consider these steps to improve your DTI:

  • Pay off credit cards: Credit card debt is usually expensive and should be paid off every month in full. If you pay off your cards, your credit report will show a $0 minimum monthly payment when your credit report updates.
  • Pay off other loans: Paying off a car or mortgage is a lot harder than a credit card in most situations, but if you have the cash to pay off a loan, your DTI will go down.
  • Get a raise at work: It’s easier said than done, but if you’ve been at the same job for a while and get good reviews from your boss, you could consider asking for a raise.
  • Find a better paying job: Again, this one isn’t always easy. But if you’ve been in your position for a couple of years and don’t see a promotion on the horizon, maybe a higher paying job at a new company is in your future.
  • Start a side hustle: If your job and schedule allow, adding an evening or weekend side hustle can quickly add to your income and lower your DTI. Many hobbies could easily translate into a small, part-time business.

Wherever you are in your financial journey, don’t lose track of your debt-to-income. It is a good measure of your financial health, so even if you aren’t worried about your student loan refinancing debt-to-income ratio today, it could come in handy in the future.

Find out if refinancing is right for you

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About the author
Eric Rosenberg
Eric Rosenberg

Eric Rosenberg is a Credible expert on personal finance. His work has been featured at Business Insider, Investopedia, The Balance, The Huffington Post, MSN Money, Yahoo Finance, Mint.com and more.

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