How Low-Income Earners Can Refinance Student Loans: A Complete Guide

Student loan debt can be a burden on households. Among college graduates ages 25 to 39, 25% of those with educational debt say it's difficult to get by financially or indicate they're barely getting by, according to a Pew Research Center analysis. By contrast, only 9% of those without loans say the same.

Further, while 53% of grads without loans say they're living comfortably, just 29% of young grads with loans describe themselves that way.

Low-income borrowers often face the biggest challenges because more of what they make goes to lenders. It's also more difficult to refinance student loans for low-income earners, so reducing the cost of debt becomes harder.

The good news is there are refinancing options for low-income earners.

Current student loan refinance rates

Best student loan refinance lenders for low-income earners

EdvestinU: Best nonprofit lender

ELFI: Best for high balances

INvestEd: Best for forbearance

RISLA: Best for income-based repayment

Why you can trust us

The Credible editorial team is independent and unbiased. Partners do not influence our editorial content. To help you find the best student loan for your situation, we conduct thorough research and analyze more than 1,700 of lender data points. Using data-driven methodologies, we score criteria that are important to you. This allows us to objectively rank student loan lenders and products. To learn more, read our methodology below.

Methodology

To determine the best student loan refinance lenders, Credible collected more than 1,000 points of data on 16 companies and evaluated them on several different categories: repayment options, eligibility, interest rates, loan terms, and customer support. We assigned a score out of five stars to each lender based on our findings. Below are the weightings assigned to the general categories for the best student loan companies — which comprise individual criteria that are also weighted:

• Repayment options: 25%
• Eligibility: 25%
• Interest rates: 20%
• Loan terms: 20%
• Customer support: 10%

While the best lender for you will depend on your unique needs and financial circumstances, these findings should help answer your questions and assist you in your search for the best student loan.

Learn more about our methodology.

Can low-income earners refinance student loans?

Refinancing student loans involves securing a new loan and using the money from that loan to pay off existing federal or private student debt. Only private lenders offer refinancing — therefore, this option is best for borrowers with private loans, because refinancing federal student debt means giving up borrower benefits like access to loan forgiveness.

Each private lender has its own eligibility requirements that you must meet. This can present a challenge for those without high earnings, since many lenders have a minimum income requirement.

Minimum income requirements can be hard to meet

“Refinancing any loan can be hard for low-income earners,” explains Domenick D'Andrea, a financial adviser and co-founder of DanDarah Wealth Management. “Most lenders have minimum income requirements, but this number will vary depending on the lender.” These minimums create challenges if your income is too low.

Lenders not only look at how much you earn, but at your debt relative to your income. “Debt-to-income ratio tells the lender if you have the money to pay the loan — that's the critical piece that many people forget,” says Jack Wang, a wealth adviser specializing in student loan repayment with Innovative Advisory Group.

Lenders take all your debt into account too. This includes not only your student loans, but also factors like any credit card debt you may have. So, if you have a lot of other debt, that makes refinancing even more challenging.

D'Andrea says that lenders will also look at your employment history to make sure your income is stable, which could be a problem if you've only recently found work or if you work as a freelancer.

Your credit history also matters

Income is one key component that private lenders look at when deciding if you can refinance. Credit is another.

“Credit score tells the lender if you pay your bills on time,” Wang says. Unfortunately, if you have more limited income, it can be easier to fall behind on payments and find yourself with a low credit score, which also makes qualifying harder.

D'Andrea notes that you usually need a good credit score to refinance. Typically, this means a FICO credit score of at least 670. However, it's important to shop around if you have imperfect credit, as some lenders are more willing to provide loans than others.

“All of these are guidelines and vary lender to lender, so do your research and find the lender that best matches your need,” says D'Andrea.

Strategies to qualify for refinancing with a low income

There are strategies for refinancing even with a limited income. Some options include:

• Use a cosigner to get approved or get better terms: Private student loan lenders often allow you to add a cosigner to your application. This is a person who agrees to share responsibility for your debt. If you can find someone with a higher income and solid credit to cosign, you may get approved with more lenders at better rates.
• Improve your credit score: Since lenders look at both credit and income, a better score makes you a less risky borrower. Lenders may be more willing to overlook your low income if you have excellent credit.
• Reduce other debts: Paying down other debts helps you to lower your debt-to-income ratio, which makes qualifying easier.

Benefits of refinancing student loans for low-income earners

If you can find the right lender for your situation, there are significant benefits to refinancing student loans. These include:

• Lower your monthly payments: Refinancing your loans can lower your monthly payment if you extend your repayment term. A lower monthly payment provides more wiggle room in your budget.
• Reduce your interest rate for long-term savings: You can potentially get a lower interest rate when you refinance, which makes your cost of borrowing cheaper. This can also help you pay off your loan faster.
• Make repayment more manageable: When you refinance, you combine multiple loans into one new loan. This makes it easier to keep track of payments, since you only have a single student loan and one monthly payment.

Drawbacks of refinancing for low-income earners

There can be some downsides to refinancing as well. Some disadvantages include:

• Lose federal borrower benefits: If you have federal student loans, you have access to income-driven repayment plans, loan deferment and forbearance, and loan forgiveness. You give up these benefits if you refinance federal loans. Most low-income borrowers are better off using an income-driven plan to keep payments at a set percentage of their income and eventually qualify for loan forgiveness.
• Potentially higher overall costs with longer repayment term: If you extend your payment term when refinancing, you'll pay more in interest and be in debt for longer, making accomplishing other financial goals more challenging.

Tips for managing student loans on a low income

If you have a limited income, there are ways to manage your student loans that don't involve refinancing. These include:

• Budget to allocate funds toward repayment: Create a detailed budget to save money. Prioritize student loan payoff in your budget by making cuts to things like entertainment or eating out.
• Explore income-driven repayment plans: If you have federal loans, look into income-driven repayment options. You can limit monthly payments to no more than 5% to 20% of your discretionary income, which could mean payments as low as $0.
• Communicate with your lender about financial challenges: Lenders prefer to work with you on your student loan payment issues rather than have you default, so ask your lender what your options are.

How to choose a student loan refinance lender if you have a low income

If you're refinancing student loans with a low income, some key features to look for when choosing a private student loan lender include:

• Lower income thresholds
• Affordable interest rates and flexible repayment timelines so you can select the loan that's right for you
• Timely cosigner release, which will allow you to apply with a cosigner and then remove the cosigner after you make a certain number of on-time payments
• Autopay discounts for making payments on time, which can reduce borrowing costs

How to apply for student loan refinancing with low income

To apply for a refinance loan with a low income:

• Shop around with different lenders: Check each lender's minimum income and credit score requirements to see if you qualify and to find out which offers the best rates.
• Find a cosigner if possible: If you can find a cosigner with a higher income and strong credit, you'll have a better chance of loan approval.
• Gather your documents: You'll need personal information, financial information, and details about the loans you're refinancing. This means you may need documents like W-2s or pay stubs. You'll also need to provide this information for your cosigner.
• Submit an online application: Once you've chosen a lender, apply for a loan on the lender's website. Be ready with your own details and your cosigner's information.