Apr 11, 2017 08:59 AM EDT
Finance 101: What To Do When Student Loans Can't Be Refinanced [Video]
Today, there are ways to help graduates lower the interest rates of their student loans and save money on the total cost. This method is called refinancing.
However, there are times that graduates are not eligible yet for refinancing or their student loans just can't be refinanced. There are still ways to go about lowering the cost through other ways.
According to Nerdwallet, refinancing happens when a private lender pays off a graduate's existing loans and replaces them with a new one, which comes with a lower interest rate. There are times, though, when applicants are not qualified for this program.
The publication shared two major strategies for graduates to be able to lower the cost of their student loans. One is about strengthening their refinance application and the second is to consider other student loan repayment options.
Strengthen one's refinance application
To increase the likelihood of one's refinance application being approved, one has to have a good credit score first. This means that graduates should be faithful in loan payments and never miss one since this can affect one's credit score.
Boosting one's cash flow can help as well since lenders also examine a graduate's cash flow or the money left over after covering regular monthly expenses like rent or car payments. For lenders, the more cash is available, the more capable an applicant is to repay a refinanced loan.
Asking one's parents, spouse or other trusted friend to co-sign a refinanced student loan can also strengthen one's application. Make sure, though, that the risks are clear since the loan will appear on the co-signer's credit report and lenders will consider it a part of their overall debt load.
Consider other repayment options
There are times that refinancing is not the best move to make. This happens when one's student loan balance is bigger than one's income. Some also talk with their current private lenders about short- and long-term loan modification options.
Furthermore, there are income-driven repayment plans which can give students more time to repay their loans based on their income. Two of the income-driven plans by the federal government are the Income-Based Repayment Plan (IBR) and the Revised Pay As You Earn Repayment Plan (REPAYE).
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