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Borrowers who don’t check rates with multiple lenders may mistakenly assume they don’t qualify for student loan refinancing — and may miss out on a better rate.

Those are key takeaways from an analysis of thousands of student loan refinancing rate requests submitted through the Credible marketplace.

Credible’s analysis found:

  • Most borrowers who are eligible to refinance their student loans can qualify to refinance with more than one lender, opening up an opportunity to compare rates and terms.
  • It's typical for borrowers who are eligible to refinance to be accepted by some lenders and rejected by others. So a "no" from one lender doesn't mean refinancing is not an option.
  • The most common reason borrowers are turned down for refinancing is not their credit score, but their overall debt-to-income ratio. So borrowers who have been paying down debt or landed a better-paying job may find they now qualify for refinancing, or that they are offered better rates.
  • Other common issues that trip up applicants include the lack of a degree, the school they attended, and the size of the loan they're trying to refinance.

No two lenders are the same

A growing number of lenders offer student loan refinancing. Each has their own unique borrower requirements, and will offer borrowers different rates and terms. Not all lenders require applicants to have completed their degree, for example, while some are more selective about what school the borrower attended than others.

So borrowers need to check rates with multiple lenders to find the one that’s the best fit for their own unique circumstances.

Through integrations with lenders and credit bureaus, the Credible marketplace allows borrowers to fill out a single form and see actual rates they prequalify for with multiple lenders.

%
of eligible borrowers were turned down by three or more lenders

The chart below demonstrates that a “no” from one lender doesn’t mean refinancing is not an option. In fact, most borrowers who prequalified for refinancing with at least one lender competing for business through the Credible marketplace were turned down by several others.

Our analysis found that more than two-thirds of eligible borrowers (68%) were turned down by three or more lenders. In other words, if those borrowers had only applied with those lenders, they might have mistakenly concluded that they were not eligible to refinance their student loans.

How to get lenders to say ‘yes’ to student loan refinancing

Pay down outstanding debt.

Credible’s data shows the most common obstacle to refinancing is not the applicant’s credit score, but excessive debt-to-income ratio, or “DTI.” DTI is calculated by adding all of your monthly obligations — including your mortgage or rent, car payment, and student loans — and dividing it by your gross (pre-tax) income. So paying off bills can reduce your DTI. Paying down credit card balances can also reduce your “credit utilization” — a key component of your credit score. As long as you’re not taking on new debt, time is on your side. If you’ve been turned down for refinancing, you might be in a better position after making a few months of payments. You can use the Credible marketplace anytime to check your eligibility for refinancing and see prequalified rates without affecting your credit score.

Land a better-paying job.

Student loans can elevate a borrower’s DTI, but it’s less of a problem for those who earn degrees that land them high-paying jobs. If you think your employer doesn’t fully appreciate your skills, landing a better-paying job can lower your DTI, and help you pay off debt faster. If you’ve recently landed a better paying job, you can use the Credible marketplace to see whether the boost in income helps you qualify with lenders who offer student loan refinancing. Checking rates takes two minutes, and does not affect your credit score.

Get rates from multiple lenders.

Credible’s analysis included a range of lenders who compete for business through our marketplace, including traditional banks and community lenders, state student loan authorities, and online lenders. You can read about all of the lenders who compete through the Credible marketplace to refinance student loans, and other lenders who offer student loan refinancing, here.

Protect and monitor your credit.

Borrowers requesting rates through the Credible marketplace authorize a “soft” credit inquiry that does not affect their credit score. If borrowers see an option they’d like to proceed with, the lender will perform a hard credit inquiry that may affect their credit score. Recognizing that consumers will want to compare rates with different lenders, credit scoring models treat multiple hard inquiries made during “rate shopping” of up to six weeks as a single inquiry.

Before checking rates or applying for a loan, borrowers may want to request a copy of their credit report to make sure it is free of errors or other issues that can be resolved. Consumers can request a free copy of their credit report from each of the credit bureaus every 12 months through AnnualCreditReport.com. For more tips on building and monitoring credit, click here.

Find lenders that fits your strategy.

Borrowers employ different strategies for refinancing. Borrowers who want to pay their debt off as quickly and cheaply as possible often refinance into loans with shorter repayment terms. Those who are more interested in reducing their monthly payment may choose to extend their repayment term. Some lenders may offer more options for pursuing a particular strategy than others. Lenders competing for business through the Credible marketplace offer repayment terms ranging from 5 to 25 years.

You can read more about strategies and outcomes for real borrowers who have used the Credible marketplace to refinance here.

Other considerations when refinancing

Savings

Refinancing student loan debt has helped thousands of borrowers lower their interest rate, in many cases allowing them to pay off their debt faster or reduce their monthly payment. A previous analysis showed borrowers refinancing into loans with shorter repayment terms through the Credible marketplace can expect to save $18,668 over the life of their loan.

Federal borrower benefits

Refinancing isn’t for everyone. Borrowers who refinance federal student loans with a private lender typically lose borrower benefits like access to income-driven repayment programs and the potential to qualify for loan forgiveness after 10, 20 or 25 years of payments. But many borrowers decide the savings they can achieve by refinancing outweigh these benefits.

Do your research, and talk to a financial advisor if you have questions about your own unique situation.

Reasons lenders say no, defined

The reasons that lenders may turn borrowers down for student loan refinancing are defined below. Some applicants may be turned down for more than one reason.

The ratio of all of a borrower’s regularly occurring monthly obligations (such as rent or mortgage payment, car payment, credit card payments, utilities) divided by monthly income. The higher the DTI, the more concerns lenders will have about the borrower’s ability to take on additional debt. Many student lenders have maximum debt-to-income ratios of around 45 percent, although some will go higher with a cosigner.

A FICO score of 670 or above is considered “good,” but many lenders will approve borrowers with credit scores as low as 650 if they have a cosigner. An applicant’s credit score can be an important in determining not only whether they will be approved for a loan, but the rate they will qualify for.  

Lenders’ tolerances for late loan payments vary. Some are most concerned about bills that are 60 or 90 days delinquent, while others may flag borrowers with bills that are just 30 days late.

In addition to debt-to-income limits, many borrowers who offer refinancing have minimum annual income requirements.  

Some lenders who offer student loan refinancing will only approve borrowers who have completed a post-secondary degree.

Many lenders who offer student loan refinancing will only consider borrowers who graduated from a school that is eligible to receive federal student aid. Lenders may also limit eligible schools based on geography or performance metrics.

Lenders may reject borrowers who have had outstanding debts turned over to collection agencies.

Lenders who offer student loan refinancing often have minimum and maximum loan limits. Among lenders competing to refinance student loans through the Credible marketplace, minimum limits range from $5,000 to $25,000. Maximum limits range from $150,000 to $500,000 and some lenders have no firm upper limit.

Lenders who offer student loan refinancing may require that the borrower have made a certain minimum number of payments on their loans, particularly if they have not earned a degree.

An all-encompassing term for negative events on a borrower’s credit report such as tax liens, legal judgments, charge-offs, and debts settled for less than the full balance owed.

Some lenders will not refinance student loans for borrowers who have gone through a bankruptcy filing within a certain time period — the last 7 years, for example.

Some borrowers have insufficient information in their credit file for lenders to determine their creditworthiness.

A tradeline is any account that shows up on a report. Lenders will typically want to see a minimum number of tradelines.

Lenders may want borrowers to demonstrate a history of employment.

Considered more serious than delinquencies. For most federal student loans, borrowers will not be considered to be in default until they have not made a payment in more than 270 days.

If a lender agrees to settle a debt for less than what is owed, the unpaid debt is a “charge off.”

Lenders may agree to let borrowers who are facing financial difficulties take a break from making payments on their loans. Depending on the lender, this does not necessarily disqualify them from refinancing.

Some lenders will not refinance student loans for borrowers who have gone through a bankruptcy filing within a certain time period — within the last 7 years, for example.

Regardless of a borrower’s overall debt-to-income ratio, lenders may decide they have too much student loan debt relative to their income.

Lenders typically require borrowers refinancing student loans be U.S. citizens, permanent resident or resident aliens with a valid U.S. Social Security Number. Resident aliens may be approved if they have a cosigner who is a U.S. citizen or permanent resident.

Lenders may turn down borrowers who have had their car or other property serving as collateral for a loan repossessed because they failed to make payments.

Editor’s note: This article was originally published on Dec. 18, 2017.