When you’re motivated to take control of your student loans, it can be frustrating to learn that you don’t qualify for refinancing. While it may feel like you may be stuck paying high rates forever, at CommonBond we prefer to think of it as a temporary bump in the road. Here’s are some ways you can keep making progress:
1. Work on your credit score
Many people who come to CommonBond are just 20-40 points shy of the minimum 660 score required to refinance. Even though they don't qualify right away, they’re often able to work on their score and come back to refinance within a year or less. And it’s worth it: the higher your credit score, the lower interest rates you can qualify for, allowing you to save up to tens of thousands of dollars over the life of your loans.
2. Examine your monthly cashflow
When you apply for a loan (such as a mortgage or a student loan refinance), lenders want to make sure you can comfortably make the minimum monthly payment. To do that, they consider both your monthly income and your monthly bills – things like housing costs, credit cards, car payments, and student loans. This is sometimes called your debt-to-income ratio, or DTI. If your minimum monthly payments take up too big a portion of your monthly income, or you don’t have a large enough “cushion” in your monthly budget, you may not be able to qualify for a refinance.
There are two ways to improve this ratio. First, you can work to increase your monthly income by seeking a raise, a new job, or taking on extra work on the side. Second, you can work on reducing or eliminating any recurring monthly payments. Keep in mind that the focus here is on your minimum monthly payments, not total debt, so you may want to consider paying off an auto loan, or paying off or consolidating high interest credit cards.
3. Consider your total debt
In addition to your monthly cashflow, lenders also consider your total debts (including things like your mortgage balance, credit card debt, and student loans) as it compares to your income. Even if you meet the credit and monthly cash flow requirements, you may need to pay down some of your total debts before you can qualify.
4. Add a temporary cosigner
If you’re not able to qualify for a refinance, you also have the option to add a cosigner to your loan. Your cosigner would need to apply using their own credit and income information, and agree to be on the hook for your loan if you are unable to pay for any reason. A cosigner can be a parent, spouse, family member, or friend – and they don’t necessarily have to be attached to your loan forever. At CommonBond, if you make consecutive, on-time payments for three years, you can request that your cosigner be released. If at that point you meet the criteria for your particular loan without your cosigner, we can take them off your loan.