Earning a college degree can be challenging, and it can take longer than you may think. According to the National Center for Education Statistics (NCES), only 64% of students completed their degrees within six years of entering college.
If you’re still in school or left college before graduating and have student loan debt, you may wonder if it’s possible to refinance student loans without a degree. Although it can be done, waiting to refinance your debt or exploring other options may be a good idea.
Refinancing Your Student Loans Without a Degree
Student loan refinancing can be an excellent way to save money and secure a lower interest rate. But refinancing student loans without a degree can be challenging.
Most lenders, including ELFI, require borrowers to have completed a bachelor’s degree from a Title-IV college or university before they’re eligible for refinancing. Even parents looking to refinance loans they took out to pay for a child’s college education will need to meet lenders’ degree requirements.
Some companies will approve borrowers who are still in school or dropped out of college, but they are fairly rare. And borrowers must meet other eligibility criteria, such as meeting lenders’ minimum income and credit score requirements.
5 Benefits of Waiting Until After Graduation to Refinance
Although it is possible to refinance student loans without a degree, it may not be the best idea. If you’re still in school and working toward your degree, waiting until after graduation to refinance your loans could be a good idea. Why? Waiting to refinance until you have a degree provides the following benefits:
You’ll Keep Your Current Deferment and Grace Periods
Depending on the type of loans you have and your lender, you can defer your payments while you’re in school and for several months after graduation. For example, federal student loans typically have a six-month grace period; you have six months after graduating or dropping below half-time status to get a job and settle before your payments begin.
If you refinance your loans, your loans will likely enter repayment immediately, so you’ll have to make payments covering a portion of the principal and accrued interest every month. As a college student on a tight budget, affording those payments may be difficult, so it may be wise to postpone refinancing until after you graduate and your current loan’s grace period ends.
Your Interest Charges May Be Covered
If you have federal direct subsidized loans, the government pays the interest that accrues on your loan while you’re in college and during your grace period. But if you refinance your debt, your loans will transfer to a private lender, and interest will accrue on the whole amount while you’re in school. Refinancing subsidized loans before earning a degree could be a costly mistake in this scenario.
You May Have a Higher Income Once You Have a Degree
Lenders generally require borrowers to have an income of $35,000 or more. As a college student, you are unlikely to meet that requirement by yourself, so you’ll need a co-signer with a full-time income to qualify for student loan refinancing.
According to the NCES, the median salary for those with some college education — but no degree — was $41,000. But the median salary for those with a bachelor’s degree was $61,600 — 50% more than those who didn’t finish their degrees. With higher earnings, you’re more likely to qualify for student loan refinancing on your own if you wait until after you earn your bachelor’s degree.
You’ll Have More Time to Establish Your Credit
You usually need good to excellent credit to refinance your loans, meaning a credit score of 670 or better.
However, college students often have much lower credit scores, or they may have no credit history. Since they’re young, they may not have credit cards or loans in their names, and they need more time to establish a positive payment history or practice good credit habits.
By waiting to refinance your debt until after graduation, you have more time to build your credit. You can take advantage of student credit cards or secured cards, and if you make payments toward your student loans, begin building your credit history.
Once you’ve earned your degree and started working, you’ll have better credit and will be more likely to qualify for competitive interest rates.
You’ll Be Better Prepared to Manage Your Money
Managing money in college can be challenging. It may be the first time you’re paying bills alone, and with a limited income, money can run out quickly. A 2022 study from the Trellis Company found that 20% of students ran out of money eight or more times per year.
Refinancing your loans can be risky if you have little cash handy and minimal experience sticking to a budget. You may need to prepare for the payments and can default on your loans, which can have severe and long-lasting consequences.
Putting off refinancing your debt until graduation gives you time to create a budget, track your spending, and gain more experience managing your money. By the time you graduate and are ready to refinance, you’ll be able to handle your payments more comfortably.
Alternatives to Refinancing If You Didn’t Graduate
Waiting to refinance your loans until after you complete your degree can be a smart idea. But what if you left school? Consider these alternative options to refinancing student loans without a degree:
Direct Loan Consolidation
You may be eligible for federal loan consolidation if you have left school with federal student loans and cannot afford the payments. With this strategy, you consolidate your debt with a federal Direct Consolidation Loan and combine your existing federal loans into one.
Direct Consolidation Loans can have longer terms — as long as 30 years — and you may be eligible for additional repayment plans that could reduce your payments.
Income-Driven Repayment (IDR)
IDR plans are repayment plans for federal student loan borrowers. These plans have longer loan terms — some as long as 25 years — and base your payment amount on a percentage of your discretionary income. Depending on your income and household size, you could be eligible for a payment as low as $0. And if you haven’t paid off your loans in full by the end of your repayment term, the government will discharge the remainder.
Use the federal student loan simulator tool to determine your payments under the different IDR plans.
Forbearance or Deferment
Contact your loan servicer if you have federal or private student loans and can’t keep up with your payments due to an illness or job loss. You may be eligible for a deferment or forbearance program that allows you to postpone your payments for a few weeks or even months so you can get your finances under control.
Refinancing Your Loans With ELFI
Can you refinance student loans without a degree? Although you can, there are caveats: not all lenders allow it, and waiting may be wiser. Refinancing after you earn a degree could improve your chances of qualifying for a loan without a co-signer and securing a competitive interest rate.
When you’re ready to refinance your student loans, contact ELFI. You can refinance undergraduate, graduate, and parent student loans with variable or fixed-rate loans. Depending on your loan type, you could qualify for a loan term as long as 20 years.
Contact ELFI via phone, email, or secure message to talk to a student loan advisor about your refinancing options.
