When understanding student loans or any part of the finance industry
for that matter, you’ll notice similarities. One significant similarity is that all requested borrowers of a loan will have their information reviewed by an underwriter. It sounds complicated, but in reality, the guidelines of a loan underwriter’s job are relatively simple. In fact, you could say that the entire application process works like that of a dating app and the underwriter is the Tinder® that will get you there.
On a dating app, you’re not going to swipe right on everybody. Well, we hope that you have some standards for yourself! Similarly, when applying to refinance student loans, you’ll find different criteria or standards for companies. In a dating app, it’s usually pretty superficial first. The same can be said for student loan refinancing data. You see, student loan refinance lenders will have mandatory requirements like minimum student debt
, minimum credit score
, and others like institution attended.
The guidelines are pretty straightforward at this point to determine if you could be a good fit for the lender. If you are not, at this time a good fit for a lender, keep trying! Work on that credit score, assuming it’s something that can be fixed. If someone swipes left, that’s okay. It’s better to determine it now, than have it not work out later after you’ve invested significant time, energy, and emotion.
Dating and financial stability are relatively comparable. Both take a long time to build and can be destroyed with one simple mistake. To gain back stability, it could take years, but that shouldn’t stop you from living your life and doing what’s best for yourself. Though it can be daunting, there are times when you’ll hit it off! If you “matched” with the lender you’ll move on to your application process or the case of a dating app slide on into the DMs.
Getting That “Match”
Congrats, you’ve now moved on to the next level! You’ve received your notification and will start getting to really know one another. In the case of a lending institution, it can be a bit more formal. You’ll likely be submitting required documents
at the time of your application. These documents differ based on the lender. Documents that are typically requested include, W-2, pay stubs, and government-issued ID.
Once you’ve worked your way through the application form or direct messages, it’s time for the date. Yes, the date! Here’s where your underwriter really comes into play. An underwriter is someone that is hired by a financial institution to evaluate requested borrowers. An underwriter reviews the information that a requested borrower submits and determines if they are a good fit. Consider the underwriter your dating app, it allows you to get to know someone and learn more about them.
In some cases, an underwriter may feel that they do not have adequate information and may request that additional information be provided. This can be common in the case of adding a cosigner, being recently employed
, or other circumstances. Don’t be thrown off if additional information is requested. Just like when you’re messaging, and your match throws you a curve ball. If you see it through both things could work out well for you.
If your date worked out well for you, it’s likely you may want to go on another one. Fortunate for you, when it comes to student loan refinancing
you can always continue to refinance your student loans
through other vendors to get the best interest rate available. Once you’ve completed the application process and worked with an underwriter if needed, you’ll either receive an acceptance or a notification with details as to why your loan was not approved. When you’re dating well, there could be many possibilities. One of those possibilities could include getting ghosted. Regardless, we hope that it’s the beginning of a long and happy relationship for you both!
This is the third part of our Simplest Guide to Refinancing. If you’re interested in student loan refinancing and want to know everything there is to know—in simple terms—about refinancing, check out part 1
and part 2
. We’ve talked about the benefits of refinancing and process to refinance your student loans, so let’s take a look at what prospective lenders will be reviewing when looking to refinance your student loan debt
Refinancing After Claiming Bankruptcy
Bankruptcy is a challenge when it comes to refinancing. Many people may find it challenging to refinance student loans after a bankruptcy for some time. It could even take as long as ten years for a bankruptcy to clear from your credit report entirely. Bankruptcy doesn’t clear student loan debt
unless an exception is made, therefore it’s best to look into refinancing before a bankruptcy. If it’s too late for that as an option, that’s okay it may just be harder to qualify for student loan refinancing after bankruptcy. Check with lenders to see what they can offer.
Debt-to-income ratio or DTI is the amount of money you owe versus the amount of money you make. This equation gives lenders an idea of what you should be able to afford as far as payments and additional debt amounts.
What’s a good DTI? Some sources note 36% or less as the acceptable debt-to-income ratio. It varies based on a lender’s underwriting criteria, but having less debt and more income will qualify you as lower risk for lending. You’ll be considered a lower risk because you have a more disposable income to dedicate to your debts.
Credit Score and History
Traditionally a “good” credit score
is about 680 or higher. Most lenders won’t qualify you for refinancing if your credit score is below 660, but that’s not always the case. If you have a low credit score don’t hesitate to refinance, but be aware that the better your credit score the better rates you’ll receive from lenders. If you didn’t know, your credit score is impacted by your credit history. So what is your credit history? Well, it’s exactly that, a history of your credit. Credit history keeps track of how long you’ve had credit and if you’re a responsible lender. Obviously the longer you’ve had credit history the better, but we can’t all have credit as children - unless your parents added you as an authorized user to a credit card when you were born. Even if you don’t have perfect credit
and a long credit history, it’s worth checking to see if refinancing might be right for you.
There are a few things to consider regarding employment as you refinance your student loan debt. Lenders will likely look at your income
from your job, the length of time you’ve worked there, and job history. If you have a job offer or promotion, you can get a job offer letter to submit that might help the lender understand your employment situation. People with long job history (and one with few gaps), higher income, and good earning potential are less risky for lenders. If you don’t hit all of these criteria, you might still be able to refinance. Without using a cosigner it’s in your best interest as a borrower to be employed to qualify for student loan refinancing
Millennials have been accused of killing everything from napkins to mail, but we still get a lot of mail! Mixed in among the pizza coupons and carpet cleaning flyers (who has carpet anymore?), you’ll usually find banks advertising for refinancing or consolidation services. What is that? If you’ve ever puzzled at the adverts or banners popping up asking you to refinance your student loan debt, we can shed some light on the subject. Why do banks want to refinance your student loan? Here are five reasons!
Business for the Bank
Banks make money off of the upfront costs of refinancing. You usually have fees associated with the process of refinancing, from administrative fees to application fees and so on. This pays the bank to employ people who work on your accounts. Basically, it pays the bills! So they make money from customers new or old setting up new accounts or new loans. It’s simple: refinancing pays the bank to provide a service
that, in turn, helps them keep the lights on.
They Want You to Stick Around
It’s an attractive deal for some borrowers to reduce their monthly payments. Some people will happily jump on a good deal to refinance for longer terms to get lower payments because that puts more of your monthly income back in your pocket. Sure, this keeps you as a customer longer, but it’s beneficial to the bank to have you as a customer for a longer term even if you’re paying less each month. And if you’re happy and making payments no problem, they’re very happy.
You’re a Good Borrower (On Paper!)
If you’ve got a good credit score
and income, you look good on paper. A bank will want you to stay with them or change to them instead of shopping around where they may be one of countless competitors vying for your business. Banks know that web-savvy searchers like yourself can hop on the ol’ internets and get quotes for new financial products in a matter of minutes. If you look good on paper and have all the markers of a responsible borrower, they want to offer services to you that keep you as a customer. It’s worth their advertising dollars to attract and retain good loaners
They’re Making Your Debt Easy to Sell
Banks regularly sell debt
to other institutions. If you have a mortgage or student loan for several years, you may have seen this at least once already. You get a notice in the mail saying something is changing with your servicers because your debt has been acquired by another company. It’s beneficial for both financial institutions and it doesn’t mean that you did or didn’t do anything in particular—you might be one of many people your bank has targeted as a current customer whose debt would be easier to sell if it were refinanced.
Those are the main reasons that you might be seeing advertising for your bank or any other bank trying to get you to refinance your loans. If you start thinking about refinancing your student loans, check out the help we can offer navigating the process.