How To Refinance Student Loans With Bad Credit

Student loan refinancing involves taking out a new private loan to pay off your existing one. Because this process involves private lenders, your credit plays a significant role. Lenders review your credit history and financial profile to assess how likely you are to repay what you borrow.

A strong credit score shows lenders that you’re a reliable borrower, which can help you qualify for better rates and terms. But if you have poor credit — or a FICO score below 580 — refinancing may be more challenging. 

This guide explains how to refinance student loans with bad credit, and what steps you can take to improve your chances of approval.

Current student loan refinance rates

Can you refinance student loans with bad credit?

Your credit score plays an important role in qualifying for a refinance loan, but that doesn’t mean it’s impossible to refinance if your credit isn’t perfect. A lot depends on the lender you choose.

“Different lenders will have different criteria for underwriting," explains Jack Wang, a wealth adviser specializing in college financial aid at Innovative Advisory Group. “Generally, a borrower needs a higher credit score to be approved, but some lenders will consider a lower credit score, especially if the borrower has a really good, low, debt-to-income ratio.”

What credit score do I need to refinance student loans?

You typically need good credit to qualify for student loan refinancing. A good credit score is generally considered 670 or higher on the FICO scale, though each lender sets its own standards.

“Most lenders want you to have a credit score in the mid-600s or higher,” says Domenick D'Andrea, financial adviser and founder of DanDarah Wealth Management.

You may still qualify with a lower credit score, but you likely won't receive a better rate than you currently have.

“It's important to remember that your new rate could be higher than the original loan rate,” warns Steve Azoury, chartered financial consultant (ChFC) and owner of Azoury Financial.

If you can't qualify for a loan with a lower interest rate than your current debt, it's typically not worth refinancing, as doing so would make your loan more expensive.

Learn More: What Credit Score Is Needed To Refinance Student Loans?

How to qualify for refinancing with bad credit

The most effective way to qualify for student loan refinancing with bad credit is to apply with a cosigner who has strong credit. A cosigner's financial history can help you meet a lender's requirements and qualify for a lower interest rate.

If you don't have a cosigner, look for lenders that allow refinancing without a cosigner, even for applicants with low credit. These lenders often review your overall financial picture, not just your credit score.

“Lenders also will look at your employment history and income,” explains D'Andrea. “They will use these factors to see if they believe that you are a good credit risk. Lenders may also look at your savings accounts to see if you have an emergency fund to cover any unexpected expenses in the hope that you don't miss any payments.”

You can also work on improving your credit before applying. Pay down existing debt to lower your credit utilization ratio, make payments on time to build a positive history, ask creditors to remove negative marks as a goodwill adjustment, and avoid opening multiple new credit accounts at once.

Lenders that may work with low-credit borrowers

When you're shopping around for student loans with bad credit, you may have fewer options. Prequalifying with multiple lenders can help you see where you stand. This process lets you check your eligibility and potential rates without submitting a formal loan application or affecting your credit score. 

You can start by using a tool like Credible to compare loan offers from multiple lenders at once. This can make it easier to identify which lenders are more flexible with lower credit scores and which ones may offer the best rates for your situation. 

Alternatives if you're denied refinancing

If you're denied a student loan refinance, there are still other ways to help manage your debt:

• Apply for a Direct Consolidation Loan: If you have federal student loans, consolidation could be a better option than refinancing, as you'll retain access to federal borrower benefits. Depending on your loan balance, you may be able to extend your repayment term and lower your monthly payments.
• Switch to an income-driven repayment (IDR) plan: IDR plans adjust your federal student loan payments to a percentage of your income, making them more affordable. They can also lead to loan forgiveness after a set period of repayment.
• Consider a home equity loan: If you own a home, you may be able to borrow against your equity to pay off student debt. Because these loans are secured by your home, they can be easier to qualify for, but they carry a risk of foreclosure if you fall behind on payments.
• Contact your lender if you're struggling to afford payments: Some lenders offer forbearance options, or may be willing to work with you to find other solutions for temporary financial hardship. However, keep in mind that pausing payments can make your loans more expensive over time as interest keeps accruing.
• Work on improving your credit: If none of these options fit, you may need to work on building your credit before applying for student loan refinancing.