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It's difficult to refinance student loans with bad credit unless you apply with a co-signer.
You — or your co-signer — generally need a credit score at least in the high 600s to qualify for student loan refinancing. Lenders’ minimum credit score requirements range from 650 to 680.
If you have bad or no credit, you may still be able to refinance student loans by using one of these strategies.
Refinance student loans with a co-signer
The simplest way to refinance student loans with bad credit is to enlist a co-signer with a stronger financial situation. Most lenders will let you bolster your application by adding a co-signer, though Earnest is an exception among leading student loan refinance companies — it doesn’t allow borrowers to apply with a co-signer.
The refinanced loan will appear on your co-signer’s credit report, and lenders will consider it part of the co-signer's overall debt load. Any payment you miss will reflect negatively on a co-signer’s score, and he or she will be required to pay if you can’t.
Some refinance lenders offer a co-signer release. This gives you the option to remove the co-signer if your credit has improved and you have made a certain number of on-time payments.
Improve your credit
If you don't have a co-signer, work on your credit before applying. Pay every bill on time and stay well below your credit limits.
To see where you stand, get your credit score and check your credit reports. You can get a free copy of your report from each of the three major credit bureaus once per year at annualcreditreport.com. If you notice any errors on your report, dispute them to get them erased.
Boost your cash flow
Bad credit isn’t the only reason you could be denied for student loan refinancing. Lenders also look closely at cash flow, or the money left over after you cover regular monthly expenses such as rent and car payments.
From the lenders’ view, the more cash available, the more likely you are to repay a refinanced loan. To improve your cash flow, increase your income or reduce your expenses.
Consider paying off an outstanding credit card balance or adding to your income with a side gig, such as consulting, freelancing or taking advantage of the many “sharing economy” apps to improve your debt-to-income ratio.
Student loan refinance alternatives
Sometimes refinancing isn’t the best move. Even if a co-signer helps you refinance student loans with bad credit, your monthly payments could remain unaffordable if your loan balance vastly exceeds your income.
Instead, consider one of these options, depending on your goals and financial situation.
To make payments more affordable: Signing up for an income-driven repayment plan is the best solution if you have federal student loans and can’t comfortably afford monthly payments. You’ll receive a smaller monthly bill that’s tied to your income and repay the debt over 20 or 25 years. You won’t save on interest, but your balance will be forgiven at the end of the repayment term.
To simplify your finances with a single monthly payment: Federal student loan consolidation can help streamline repayment by combining multiple loans into one. Unlike refinancing with a private lender, it won’t lower your interest rate. But it can lower your monthly payment by extending your loan term.