Thinking About Refinancing Student Debt? New Data Highlights Tough Approval Criteria
Are you thinking about refinancing your student loan debt? If so, you certainly would not be alone. Student debt has become a massive problem throughout the United States, and many borrowers are suffering under the weight of trying to pay back their student loans. Refinancing student loans offers the opportunity to obtain a lower interest rate, lower payments, and even possibly pay off loans faster. Before you rush to refinance your student loan debt, however, you should be aware that it might not be as easy as you might thinkyou should familiarize yourself with the financial requirements needed. New data shows that the approval guidelines for refinancing student loan debt can be tough. A study published by LendEDU found that 57 percent of applicants are approved their request to refinance their student loan debt.
The factors used to approve applicants for student loan refinancing can vary from one lender to lender. Among those factors is credit score. According to the report published by LendEDU, the average FICO credit score for approved borrowers is 750. Creditworthiness is not determined based solely on FICO score by most lenders, however. Numerous other factors may be evaluated as well, including cash flow. In some cases, lenders may be willing to accept a lower credit score, but in such instances, a co-signer may also be required. The LendEDU report found that more than 32 percent of loans refinanced have a co-signer.
For borrowers who are considering refinancing their student loans with a private lender, it’s important to take several factors into consideration when shopping among lenders. One of the most important factors to consider is the rate they can get. Available rates can vary among lenders. For instance, borrowers who have excellent credit may find they are able to obtain a more competitive interest rate by going with a lender who rewards creditworthiness. By comparison, borrowers with lower credit scores may find that their options are more restricted.
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The biggest rate reductions usually come with the shortest loan terms, but it’s also important to keep in mind that this strategy will typically drive up your monthly payments. Unless you are certain that you can pay off your student loan debt within a short time period, this might not be the best strategy. On the other hand, if you have a fair degree of certainty that you will be able to pay off your loans over a short loan period, this approach could save you a significant amount of money in interest and help you to get out from under the burden of your student loan debt much faster. This could be a good strategy for individuals who have graduated with a large amount of debt but who also have a significant income potential. To be certain, it’s a gamble, but for many borrowers, it’s a risk they are willing to take to pay off their loans.
It’s also important to keep in mind that by refinancing your federal student loan debt, you could be giving up perks, including possible loan forgiveness programs. Opting to refinance student loans also eliminates the ability to participate in an income-driven repayment program, a perk that many borrowers need as they struggle to make their loan payments each month.
Certainly, the question of whether to refinance or not is one that is quite complex and may vary among borrowers based on their individual circumstances. Over the last few years, refinancing options in the private student loan consolidation sector have increased significantly.
For the moment, the student loan repayment and refinancing landscape remains complex. That well could change in the future, but for now, it’s important for borrowers to make sure they are aware of all options available to them. For many, refinancing student loans could be a viable option for saving a tremendous amount of money. Even so, with those advantages come eligibility requirements. For the moment, it seems that some borrowers may have a difficult time meeting those eligibility criteria.