Student loan refinancing can be beneficial, or even life-changing, for many people. However, you might be wondering if refinancing is even possible for those who never graduated college. Maybe some unexpected life events caused you to take a break from school. Perhaps you stumbled upon a fulfilling career that doesn’t require a degree. Or, maybe you decided that college just wasn’t for you. Whether you’re planning to return to school or not, you may still have student loans to pay off. You’ll have to keep up with those regular payments and money can sometimes become tight.
The good news is that even when you didn’t earn a degree, refinancing your student loans may be possible. It’s just that the process may be more difficult than if you had graduated. Many lenders, including those that partner with LendKey, do not allow you to refinance if you do not have a degree, but some lenders will allow you to refinance without ever graduating from a college or university. You must do your research, verify with the different lenders in consideration, and carefully review the eligibility requirements.
Refinancing Your Student Loans: Breaking Things Down
It’s important to make sure that you know what student loan refinancing entails.
At its core, student loan refinancing is obtaining a new loan and using it to pay off your old ones. Often, people refinance their student loans when they’re in a different position financially than they were when they first took them out. Refinancing can help you to obtain a new interest rate and overall, more favorable loan terms.
Refinancing is only available through private lenders. Typically, you can refinance both private and federal student loans with a private lender, although you may lose some of the benefits associated with federal loans by doing so.
The Criteria for Refinancing
In addition to whether or not you graduated, lenders will consider a number of important things before approving you for refinancing. These include factors like:
- Your income. Lenders will look at how you earn your income. For example, lenders might look at someone making a stable salary differently than someone who is a commissioned-based employee, self-employed, or working temporary jobs. They want to make sure you have enough reliable income to meet your monthly student loan obligation.
- Your other debt obligations. Your debt-to-income ratio is a major factor here. Essentially, this ratio indicates how much you earn versus how much you owe. This can include your home mortgage, car payments, credit card debt and more. Even with a higher salary, significant additional debt can certainly tip your debt-to-income ratio in an unfavorable direction. This can make it less likely for you to get approved. Each lender sets its own underwriting, so there isn’t one set standard. However, your debt-to-income ratio is something to consider before applying to refinance.
- Your credit score. It is possible to get approved for student loan refinancing without a perfect credit score, but a higher credit score typically grants access to lower interest rates and more favorable loan terms. A high credit score alone will not always guarantee your approval, but it one of the most important variables lenders look at when determining your risk.
Can You Refinance Student Loans through the Federal Government?
You cannot refinance student loans through the Department of Education. There is a government student loan consolidation program, but it will not give you a lower interest rate. Only a private lender will allow you to refinance your student loans. However, once you refinance your federal student loans into a private loan, you lose federal loan benefits, such as income-driven repayment plans and any progress made towards student loan forgiveness.
Alternative Options to Refinancing Your Student Loans
If you have federal student loans, there are numerous repayment plan options that may help you with managing your monthly payments. You could sign up for an income-driven repayment plan, for example, which allows you to make smaller monthly payments that are directly tied to your income.
The Department of Education offers four different types of income-driven repayment plans, including:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan). This plan will set your monthly payments at 10% of your discretionary income.
- Pay As You Earn Repayment Plan (PAYE Plan). Your monthly payment will be10% of your discretionary income but under this plan, you will never pay more than you would under the standard 10-year Standard Repayment Plan amount.
- Income-Based Repayment Plan (IBR Plan). For new borrowers on or after July 1, 2014, your monthly payment will be 10% of your discretionary income, but not more than the Standard 10-Year Repayment Plan amount. Otherwise, your payment will be set at 15% of your discretionary income.
- Income-Contingent Repayment Plan (ICR Plan). Your monthly payment will either be 20% of your discretionary income or exactly what you would pay on a fixed payment plan over the course of 12 years – whichever is smaller.
An income-driven repayment plan may not decrease your interest rate, but it can make monthly payments more manageable. Electing to go with a longer repayment term with lower monthly payments could cause you to pay more in interest over time.
These repayment plans are specifically for federal student loans. Private lenders are typically more limited and not as flexible with their repayment plan options. Check with your lender for more information about their policies.
Your Path to Refinancing Your Student Loans Begins Today
If you want to refinance in the future, not having a degree could make it more difficult. The key is finding a lender who allows you to refinance without having earned a degree. After that, it’s important to make sure that you meet all the standard criteria for refinancing, degree or no degree.
The experts at Forbes agree that one of your top priorities should be improving your credit score. Not only will lenders use this to determine whether you are eligible, but it could also help you to maximize your savings. Taking meaningful steps to increase your cash flow and even obtaining a cosigner are also great ways to improve your chances.
By now, you know exactly what you need to do to refinance your student loans and create a better financial future for yourself. The process is always less daunting when it is broken down into a series of smaller, more manageable steps. And if refinancing isn’t an option for you, you can always speak with your lender to see what repayment options may be available to help you better manage your monthly payments.