Refinancing your student loans — which means paying off your existing loans with a new one — can help you save money. But you have to meet lender qualification requirements to access those savings. And income, among other things, is a key factor.
Here’s what you should know if you’re looking to refinance student loans with a low income:
- Why your income matters when refinancing
- Refinancing options for low-income borrowers
- Cosigner requirements
- Strategies for improving income (and credit score)
Why your income matters when refinancing student loans
When you apply to refinance student loans, lenders look at factors like your credit score, your debt-to-income ratio (DTI), and a consistent payment history. So you’ll typically want to have good-to-excellent credit (670 and higher), and a DTI ratio that’s below 50%.
You can calculate this by dividing your gross monthly income by your minimum monthly debt payments — including credit cards, monthly mortgage payments or rent, and existing loans.
Income is going to be important when you’re trying to refinance student loans since it can play into those other factors. And low-income families and individuals may find it difficult to qualify. Lenders do have specific minimum income requirements, but income is certainly not the only factor involved
“I would rank income fourth, probably behind your credit score, the balance of the loan, and your employment history and consistency, because these loans are ones that can’t be defaulted on, and have to be paid down over a long period of time,” explains Nate Hoskin, a certified financial planner and founder of Hoskin Capital.
For example, someone who is doing a medical residency may still be able to qualify — even if they aren’t earning nearly as much as they would once they finish that part of their program.
“In that scenario, the lender is not necessarily betting on the income that you’re earning, they’re betting on the safety and reliability of your job,” Hoskin continues.
Still, even if you aren’t on a high-earning track like that, there are strategies you can use to qualify. For example, increasing your income, getting a qualified cosigner, or seeking out lenders with lower income requirements can help you refinance with a lower interest rate.
Student loan refinancing options for low-income borrowers
Here are the minimum income requirements for Credible refinancing partners:
| Lender | Minimum income requirements |
|---|---|
| Brazos | $60,000 (or $30,000 with cosigner) |
| Citizens | Not disclosed |
| College Ave | Not disclosed |
| EDvestinU | $30,000 |
| ELFI | $35,000 |
| INvestEd | $36,000 |
| ISL Education Lending | None (though they do require applicants have a DTI below either 25% or 40%, depending on whether or not they have a mortgage) |
| LendKey | Not disclosed |
| MEFA | $24,000 |
| RISLA | $40,000 |
Income requirements aren’t the only factor to consider. Scrutinize interest rates and repayment terms too, as they’ll significantly impact how much you’ll pay in the long run.
For example, MEFA has one of the lowest income requirements with fixed rates from 2.68% to 5.08%, and seven to 15 year terms.
ISL Education Lending, which doesn’t have an income requirement, offers fixed rates from 6.93% to 11.58%, but you can choose from five to 20 year terms.
But INvestED — which has a moderate income requirement, compared to others on this chart — has rates starting at 6.61% for variable loans, or 5.61% for fixed loans and, like ISL, offers five to 20 year terms.
The best student loan refinancing lender for you will really depend on your individual goals and needs, so you’ll want to shop around to find that ideal option.
One key thing to keep in mind, as CFP Hoskin notes: if you’re having trouble making your student loan payments, and they’re all government loans, refinancing is probably not the best option. Since that would mean giving up borrower protections like income-based repayment plans and loan forgiveness.
| Good to know: There’s one possible exception here: If you have older federal loans, like those from Fannie Mae or Freddie Mac, you can consolidate them to make them eligible for those government borrower protections. Your interest rates would generally be averaged. |
Student loan rehabilitation is also an option if you’re having trouble making your payments.
But for those with private student loans, prequalification is a great way to understand which lenders are available to you, and compare terms and rates, without impacting your credit. You may need to get a cosigner depending on your prequalification status.
Once you’ve decided on a lender, you (as well as your cosigner) can typically apply via the lender’s website. You’ll need to provide items like pay stubs or a tax return (if you’re self-employed), and a government-issued ID. Once submitted, they’ll run a hard credit check, which will impact your credit. You’ll have the option to accept or reject that refinancing offer once you’ve been approved.
Cosigner requirements for refinancing with low income
Adding a cosigner can help low-income borrowers qualify for refinancing if you don’t otherwise meet a lender’s requirements. But it’s not the perfect solution for all, and it’s important to understand what getting a cosigner would entail.
“Refinancing with a cosigner is beneficial as a way of getting the lowest possible rate, but it does involve the credit of the person who is cosigning, so there is some extra risk that gets added in there,” says Hoskin.
Your cosigner generally has to show that they have adequate credit and income to qualify (the specifics will depend on the lender.) This is because the cosigner is agreeing to be on the hook for payments, should you stop making them. So asking someone to cosign on a loan or when refinancing is no small thing.
Some lenders do offer a cosigner release, however, for borrowers who meet certain requirements, like making a number of on-time payments and meeting credit and income requirements. This can be a great option for those who expect their income and credit to climb as they advance on their career track.
In general, a cosigner needs to have a lot of faith in the other person to agree to put their name on the application. So you’ll want to ask someone who both has that kind of relationship with you (such as a parent or guardian), and who has the credit and income to help you qualify.
Strategies for improving income (and credit score)
Increasing your income can be a difficult task, but it’s not impossible. And it certainly has its perks. For example, increasing your earnings may lead to a boost in your credit score, especially if it means that you start paying down consumer debt, like credit cards. It can also shore up your qualifications and open up a new refinance option that can help you save on your student loans.
There are a few ways you can go about increasing your compensation.
- Ask for a raise. First, there’s asking for a raise from your current employer. Having research in your back pocket about how much other local professionals in your role are earning, as well as information on your contributions to the company can help you make your case. While this isn’t a sure thing, taking this kind of initiative is definitely an opportunity that’s worth exploring.
- Look for another job. This can be difficult since job availability can vary depending on the time of year and the state of the economy. So it may take months to find a higher-paying job, but it’s well worth the effort if you can swing it.
- Get a side hustle. Typically, it makes sense to lean on your existing skill set. That way, you can charge more than an entry-level gig worker. Of course, your availability outside of work could be a limiting factor here. Still, if you can add $200 or $300 more to your monthly income with relatively little extra work, it can be a great way to supplement your income.
Outside of these more traditional income changes, you can (and should) also be strategic if windfalls come your way. For example, if you get a tax refund or work bonus, you can put that money toward your student loans (or other debt) to save money while improving your credit. After all, every little bit helps.