Without a degree, you may refinance student debts, but it may be difficult. This is because lenders often demand borrowers who refinance student loans to graduate.
While you may get offers for student loan refinancing that do not need a degree, the conditions may not be better than what you already have, particularly if you have federal student loans. Here’s how to obtain the greatest deal on student loans without a college degree, as well as several alternatives to refinancing.
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What Is a Student Loan Refinance?
A student loan refinancing consolidates some or all of your student loans into a single loan, providing you with a single payment and, hopefully, a lower interest rate, a lower monthly payment, or both.
Private student loans may be refinanced via private lenders, while federal student loans can be rolled into a federal direct consolidation loan. It is also possible to refinance federal student loans into private student loans, but this is typically not a smart choice since you would lose the perks and protections associated with federal loans.
A significant one is the extension until May 1, 2022, of the COVID-19 loan payment suspension for qualified federal loans. The relief plan suspends loan payments, freezes interest rates, and halts collection efforts on delinquent loans.
Without a degree, is it possible to refinance student loans?
“Yes, without a degree, you may refinance student debt,” says Robert Farrington, a student loan specialist and publisher of the personal finance site The College Investor.
Some private lenders, but not all, may refinance student loans for borrowers who have not graduated, but the conditions will likely be less favorable, Farrington says.
While you may not have a multitude of lenders to select from, Jan Miller, owner of Miller Student Loan Consulting, says it never hurts to shop around for the best rates.
“Always research your alternatives,” Miller advises. “However, before you pull the trigger, ensure that it will not put you in a worse situation or cause you to lose your government safety net.”
What Are the Eligibility Requirements for This Loan Type?
Refinancing student debts without a degree might have stringent eligibility requirements, Farrington notes. For instance, the lender may want proof of 12 months of on-time payments after graduation or may require a co-signer.
Private lenders will generally evaluate your income, credit history, debt commitments, and other variables, such as degree completion, to decide whether you are a good credit risk.
When you did not graduate, you may qualify for a refinancing with a private lender provided you meet the following criteria:
A credit score of around 670.
Employment and a consistent income must be established. Certain lenders need a certain level of yearly revenue.
Maximum debt-to-income ratio is 43%, however lower is usually preferable. The debt-to-income ratio (DTI) is the proportion of gross monthly income that goes toward debt payments.
Consolidating federal student loans does not need good credit, and the majority of federal student loans are eligible.
Choosing a Refinance Offer for Student Loans
Accepting a loan offer without doing due diligence is one of the most common errors consumers make when refinancing student loans, Miller explains. However, how can you know when you find a decent student loan refinancing offer?
Here are a few pointers:
Monthly payment: Is your new monthly payment now and in the foreseeable future compatible with your budget? “Ensure that your financial situation is steady enough that you can afford this payment for the remainder of the term,” Miller advises. “Do not do it if you have any concerns.”
Interest rate: Look for the loan that will cost you the least in interest over time, although Miller advises against being entirely motivated by interest rates. A lower interest rate does not always translate into a cheaper monthly payment, he points out. You may be switching from a 25-year repayment term to a 10-year repayment term, which would increase your monthly payment even though your interest rate is lower overall. A bigger payment may push you beyond your financial means.
Consumer protections: Inquire about the safety nets included with your new loan, such as deferral, forbearance, and discharge possibilities. If you’re considering switching from federal to private student loans, ensure that you’re OK with the prospect of giving up government safeguards and perks.
After comparing offers, pick the loan that is most suitable for you. But don’t stop there: Be prepared to refinance your private student loan shortly, since conditions change often and a better bargain may become available.
Set a calendar reminder to monitor student loan rates every six months, Farrington advises. Student loans normally do not have prepayment penalties or origination costs, so shopping for a cheaper rate should cost you nothing except time.
Alternatives to Student Loan Refinancing Without a Degree
If you did not graduate, refinancing your student debt is not always the best option. After doing research on loan offers, you may discover that a student loan refinancing does not make financial sense for you.
Several other alternatives include the following:
Change the terms of your federal student loans. Retain the safeguards afforded by federal student loans, but modify the conditions of repayment. You might choose for an income-driven repayment plan or prolong your payback period from ten to twenty-five years.
Solicit flexibility from your lender. Your lender may be able to provide temporary help in the form of forbearance, a reduced interest rate, interest-only payments, or other flexible conditions, particularly if you can show financial difficulty.
According to popular Debt Help, Submit an application for forgiveness or a discharge program. You may be qualified for a release from a closed institution or Public Service Loan Forgiveness, neither of which requires a degree.
Employer-sponsored student debt repayment programs may be used. In general, you may take advantage of them regardless of your graduation status, Farrington notes.
Pay off the debt with the highest interest rate first. Pursue forbearance or other aid to reduce your federal student loan payments and redirect more of your money toward paying off higher-interest private loans, Miller advises.
Consider returning to school. If you enroll at least half-time, you may postpone your debts and earn more money by completing your degree. Simply ensure that the expense is reasonable in comparison to the result, Farrington advises.
Consult a professional. You may need assistance beyond what a lender’s customer support representative can provide. A student loan adviser can assist you in comprehending your possibilities.