How to Refinance a Student Loan With Bad Credit

‍Refinancing student loans with bad credit is challenging unless you add a cosigner or raise your credit score.

Finding a lender willing to refinance student loans with bad credit is tough. Many student loan refinancing lenders’ minimum credit score requirements range from 650 to 680.

The only creditor that ignores your score is the Department of Education. You can consolidate your student loans to qualify for loan forgiveness or other repayment plans even if you have bad or no credit. But the department only benefits federal student loans. Private student loan borrowers aren’t eligible for consolidation. They have to look elsewhere for help in finding a lower interest rate and better repayment terms.

Ahead, learn how to refinance student loans with bad credit and alternatives if refinancing isn’t an option.

Lenders rarely offer student loan refinancing for borrowers with poor credit. Companies like Sofi, Laurel Road, Earnest, and Common Bond want to minimize their risk. And that means lending to people with stellar credit, stable income, and a track record of making monthly payments on time.

The minimum credit score that many private lenders will accept is 670. But you may be able to find a bank or credit union willing to refinance your loans with a FICO score lower than that if you have a cosigner with good credit. Read more about student loan cosigner rights.

You can also use a free online student loan refinance marketplace tool like Credibleto prequalify with multiple lenders without adding a hard pull to your credit history. After you apply, you’ll be able to compare refinance rates, loan terms, and origination fees.

Another option if you defaulted on private student loan debt is to refinance with Yrefy.

Yrefy is a lender who works specifically with borrowers with private loans in default or charge-off status. The fixed APR for Yrefy’s refinance loans is between 0.5% and 7%. It does not offer variable interest rate loans.

Learn More: How to Get Rid of Private Student Loans

Follow these three tips to get approved for a refinance loan if you have less than excellent credit.

• Raise your credit score. Student loan refinancing is a numbers game. You need a credit score that’s at least in the high 600s to have a shot at meeting the lender’s underwriting criteria. You can help raise your score by taking care to make on-time payments and keeping the utilization low on your credit cards. You can also try to raise your score by getting inaccurate information removed from your history. Read more about how to remove student loans from a credit report.

• Get a cosigner. Adding a friend or family member with good credit to your application can increase your chances of getting approved for refinancing despite your credit issues. It may also qualify for a better interest rate. Ask the lender for its cosigner release terms if you go this route. Typically, the company will grant a release after you’ve made several on-time payments and improved your score and personal finances.

• Improve your cash flow. In addition to checking your report, lenders will also evaluate your debt-to-income ratio when you apply for a new loan. Your DTI compares the income you earn each month minus your monthly living expenses. You may be able to increase your creditworthiness by paying down other debts or making more money. You can also look into lowering the monthly payments on your federal student loans by applying for student loan consolidation and enrolling in an income-driven repayment plan.

• Apply to refinance some of your loans. If you can’t find a lender willing to refinance all of your student loan debt, maybe you can refinance some of it. Your refinancing options may improve if you reapply and add only some of your loans.

Learn More: Private Student Loan Forgiveness Programs

Sometimes student loan refinancing won’t be an option. Here are some other things you may be able to do depending on your situation.

• Explore your repayment options. If you need to temporarily pause the monthly payments on your current loans to work on your score, ask your loan servicer for a deferment or forbearance. You can also ask if you qualify for an interest rate reduction program or if you can make interest-only payments for a limited time.

• Negotiate a settlement. Private lenders are often willing to accept a settlement for less than your current loan balance — but only after you default. Defaulting on your student loans adds late payments to your credit report, which lowers you and your cosigner’s credit score. It also puts you at risk of having your wages garnished, your bank account seized, and a lien placed on your home. Read more about private student loan settlement.

• File bankruptcy. If you’re struggling with your loans and your lender won’t offer you lower monthly payments, filing student loan bankruptcy may be able to help. Getting rid of your loans in bankruptcy is challenging and expensive, but it could give you the relief you need. Read more about how to prove undue hardship for student loans.

Refinancing for a lower rate is a good idea, but there are two downsides if you’re trying to refinance federal student loans.

• Loss of benefits. Refinancing federal loans with a private lender will cause you to lose federal protections such as access to payment plans based on your income and forgiveness programs unique to loans owned by the U.S. Department of Education. Those programs include the Public Service Loan Forgiveness Program, student loan forgiveness after 20 years, and student loan disability discharge.

• No longer eligible for the Covid-19 forbearance. The payment pause and interest rate freeze from the White House applies only to loans owned by the Education Department. If you refinance, you’ll have to start paying immediately.

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