How To Refinance Student Loans With Bad Credit

You typically need good to excellent credit to qualify for student loan refinancing — which means it will likely be difficult to get approved if you have bad credit or no credit. However, there are a few options that could help you qualify, even with less-than-stellar credit.

Here’s what lenders often look for in refinancing applicants, and how you can get approved even if you don’t have a perfect credit background.

Common requirements to refinance student loans

While the exact eligibility criteria vary by lender, many companies look for the following when approving refinancing applications:

• Good credit: A minimum credit score in the mid-to-high 600s is recommended, though to qualify for the lowest rates, you’ll need excellent credit.
• Reliable income: Some lenders may institute specific income minimums, such as earning at least $30,000 annually.
• Loans in good standing: If your current student loans are delinquent or in default, you’ll have a hard time refinancing. 
• A degree: Many lenders like to see that you’ve graduated with your degree, though a handful will still work with you if you left school before finishing your program. 
• U.S. citizenship or residency: Most lenders require that applicants be U.S. citizens or permanent residents. 

Borrowers who can meet the criteria above will have an easier time refinancing, but those that don’t may still have options. Here’s what can help if you hope to refinance student loans with bad credit.

1. Increase your credit score

Generally, borrowers with higher credit scores qualify for better interest rates compared to those with bad credit. If you can wait to refinance your student loans, consider spending some time improving your credit first.

Here are a few ways to build your credit score:

• Pay all your bills on time: Your payment history is the largest factor in your credit makeup, accounting for 35% of your FICO credit score. Consider setting calendar reminders or enrolling in autopay so you won’t miss any of your monthly payments.
• Pay down debt balances: Your credit utilization — or the amount of outstanding credit you owe compared to your total available credit — makes up 30% of your FICO score. Paying down debt balances such as credit cards can help lower your credit utilization and improve your credit score. Aim to keep your credit utilization below 30%.
• Don’t close old accounts: Closing accounts will impact the length of your credit history, which in turn could lower your credit score. Even if you no longer use some of your accounts, it’s a good idea to keep them open so your credit won’t be affected. If unused credit cards charge an annual fee, see if you can switch to a fee-free version to maintain the account without paying unnecessary costs.
• Don’t apply for new loans: When you apply for a new loan or credit card, the lender will perform a hard credit check. This could cause a slight dip in your credit score — though it’s usually only temporary. If you’re trying to build your credit, only apply for new loans if necessary to avoid dragging your credit score down.

As you’re working to build your credit, keep tabs on your credit reports to track your progress. You can use a site like AnnualCreditReport.com to review your credit reports for free. If you find any errors, be sure to dispute them with the appropriate credit bureau to potentially boost your credit score.

If you can improve your credit score, you could qualify for a lower interest rate on refinancing in the future. This could help you save money on interest charges and even pay off your loan faster.

2. Take a closer look at your cash flow

Lenders like to see that applicants have a healthy financial cushion to repay what they borrowed. 

Compare how much you earn each month with what you spend on housing and debts, such as a car loan, credit card payments, and your student loans. If those costs eat up a significant portion of your pay, you may have trouble getting approved for a refinance loan.

You can address this in two different ways: Either increase your earnings, or decrease your housing and debt expenses. To boost your pay, consider asking for a raise, applying for a higher-paying job, or starting a side hustle to pad your income. If you choose to focus on your debt instead, you might move to a cheaper location or start paying more than the minimum on your loans each month.

3. Apply with a cosigner

If you don’t have time to improve your credit with the suggestions above, adding a cosigner to your application can be a useful work-around. 

A cosigner can be anyone — such as a parent, relative, or trusted friend — who has good credit and is willing to sign on a loan with you. Having a well-qualified cosigner can make it easier to get approved for refinancing and might also qualify you for a lower interest rate.

However, your cosigner is just as responsible for the debt as you are. If you make late payments, your credit will be damaged — and so will your cosigner’s. If you can’t make payments at all, your cosigner will have to make payments for you. 

Before you apply for refinancing, talk with your cosigner about the risks involved. Also consider setting up a plan for what to do if you ever have trouble making payments.

4. Find the right lender

Exact requirements vary between lenders: While you’ll need good to excellent credit to qualify with most, others accept lower credit scores. This is why it’s important to compare as many student loan refinance companies as possible to find the right loan for you.

In addition to credit requirements, be sure to consider interest rates, repayment terms, and any fees charged by the lender.

Also keep in mind that while some lenders offer student loan refinancing specifically for borrowers with bad credit, these loans typically come with significantly higher interest rates compared to good-credit loans.

Refinancing alternatives

If you can’t qualify for refinancing, or aren’t able to lock in low enough interest rates to make it worth your while, there are other ways to get help with your student loans. 

Research federal loan consolidation

If you have federal student loans, you may be able to consolidate them instead of privately refinancing. By getting a federal Direct Consolidation Loan, you can combine multiple federal debts into one. You might also be able to extend your repayment term, which would give you lower monthly payments.

This can help simplify your repayment, but you aren’t able to lower your interest rate with this method. However, consolidation can help you qualify for additional repayment plans, depending on your loan type. 

Look for loan forgiveness or assistance programs

Those with federal student loans may qualify for a forgiveness program like Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness. Both of these options offer partial loan forgiveness in exchange for several years of service in a qualifying job. 

Many states also offer loan repayment assistance programs for workers in high-need jobs, and both private and federal student loans are often eligible. Common qualifying industries include teaching, health care, dentistry, and law. You typically must work several years in an underserved area to qualify.

Read More: The Complete List of Student Loan Forgiveness Programs

Review other repayment options

If you can’t afford your current loans, see if another repayment plan could help. Federal loan borrowers may qualify for income-driven repayment, which sets your monthly payment at a percentage of your income. 

Even if you don’t qualify for an income-based plan, both private and federal loans may be eligible for deferment or forbearance. Both of these options allow you to temporarily pause or reduce your loan payments in qualifying circumstances. Note that interest continues to accrue in most cases. 

Contact your loan servicer

No matter what challenge you’re facing with your student loans, contact your loan servicer to see what they can do to help. They may be willing to work with you if it means you can continue to make payments and keep your loans current. 

Take action early if you’re having trouble managing your debt, as lenders may be more willing to help if you haven’t already missed several payments. 

Refinancing with bad credit FAQ

Here are the answers to a few commonly asked questions regarding student loan refinancing.

Can you refinance student loans with bad credit?

Yes, there are several lenders that offer student loan refinancing to borrowers with bad credit. Every lender has different credit requirements, so be sure to compare as many as possible to find a loan that suits your needs.

Also keep in mind that while it’s possible to refinance student loans with bad credit, you’ll likely get a higher interest rate compared to the rates offered to borrowers with good credit.

Is there a downside to refinancing student loans?

While refinancing can be a good idea in some cases, it isn’t right for everyone. Here are a couple of potential downsides to student loan refinancing to consider:

• Loss of federal protections: While it’s possible to refinance federal student loans, doing so will cost you your federal protections, such as access to student loan forgiveness programs and income-driven repayment plans.
• No repayment flexibility: Unlike federal student loans, private student lenders generally don’t allow borrowers to switch between various repayment options according to their needs. For example, most private lenders don’t offer income-driven or graduated repayment plans.

What credit score do you need to refinance?

You’ll generally need good to excellent credit to qualify for refinancing — a minimum score in the mid- to high 600s is recommended.

However, keep in mind that credit requirements vary between lenders. While some require borrowers to have good credit, others accept lower credit scores. 

How do I get the lowest student loan refinance rate?

Having excellent credit can help you qualify for the lowest refinancing rates available — in general, the higher your score, the lower your interest rate. If you want to get approved for better rates, consider spending some time building your credit first or refinancing with a well-qualified cosigner.

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