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Selling a house to pay off student loans may not make the most sense for most borrowers. If you’re thinking about selling your home to pay off your mortgage debt and then buying another home after you pay off your student loans, it’s important to remember that no matter what, you’ll still have to pay back debt. Due to certain characteristics of both student loans and mortgages, it might not be advantageous to you as a borrower.

Read on to learn about mortgage debt vs. student loan debt, the challenges of selling your house to pay off student loans, and alternative options to selling your house to pay off student loans.

Paying Off Student Loans

It’s understandable that some borrowers may want to leverage the sale of a house to sweep away student loan debt. After all, student loan borrowers in the United States collectively owe about $1.6 trillion, up from $250 billion in 2004, according to Brookings and the U.S. Department of Education. Student loans take up the second largest portion of household debt after mortgages.

However, there are specific repayment plans that could help you put a plan in place to tackle the process of paying off your student loans. Here are several repayment plans available to federal student loan borrowers:

•   Standard Repayment Plan: The most common repayment option for federal student loans is the Standard Repayment Plan, which means you pay a fixed amount each month. You must make payments of at least $50 per month over a 10-year period in order to repay the loan in full.

•   Extended Repayment Plan: The federal fixed or graduated Extended Repayment Plan allows you to take up to 25 years to pay off your student loans in full. You must owe more than $30,000 to qualify under the Direct Loan or a Federal Family Education Loan (FFEL) program.

•   Graduated Repayment Plan: You can start out with a lower monthly payment and increase your payment amount every two years with the federal Graduated Repayment Plan. You’ll still pay your loans off in 10 years but the graduated repayment plan theoretically allows for your student loan payments to grow along with your salary.

•   Income-Driven Repayment Plan: The Income-Driven Repayment Plans set your monthly payments based on your income and family size. It can take up to 25 years to pay off your loan using four different options: the Revised Pay As You Earn Repayment Plan (REPAYE Plan), Pay As You Earn Repayment Plan (PAYE Plan), Income-Based Repayment Plan (IBR Plan), and Income-Contingent Repayment Plan (ICR Plan). You may even be able to cancel your remaining balance after you meet certain requirements.

These plans give you opportunities to pay off your student loan debt with a goal in mind as an alternative to selling your home.

The repayment plans available for private student loans will vary based on the lender’s policy.

Mortgage vs. Student Loan Debt

Whether you choose mortgage and student loan debt, the fact of the matter is that you’ll still have debt.

One of the first things you may look into when you’re trying to decide whether to sell your house and pay off your student loan debt may be your interest rate. The interest rate is the amount you pay per month as a portion of the loan you receive from your lender. The higher your interest rate, the more you’ll pay over the life of the loan.

Mortgage lenders set interest rates based on the action on secondary markets, where bundles of loans are bought and sold as well as the amount of risk you present to a lender. Rates fluctuate depending on the 10-year Treasury yield. Mortgage lenders will also evaluate factors like your personal credit score, the type of mortgage, and loan terms, your down payment, and more when determining your mortgage interest rate.

The U.S. Department of Education also sets interest rates for federal student loans based on the 10-year Treasury note. Private student loan lenders use market factors and information they gather about you, the borrower, and your cosigner (if applicable). Private lenders also use a benchmark index rate to determine interest rates called the Secured Overnight Financing Rate (SOFR).

Student loan interest rates may be higher or lower than mortgage rates, depending on the type of mortgage loan you choose. If your student loan interest rate is higher than your mortgage, you may want to consider keeping your mortgage and refinancing your student loans to a lower interest rate.

However, the interest rate isn’t the only thing you’ll want to consider before you make your decisions about how to pay off student loans. In the next section, we’ll discuss several other important considerations before you make the big decision about whether to sell your house to pay off debt.

Challenges of Selling Your House to Pay Off Student Loans

Why may you want to avoid selling your house to pay off student loans? Let’s walk through a few reasons why you might want to consider other options.

Your Home Serves as Collateral

A mortgage is a home loan secured by the property you finance. In other words, when you get a mortgage, you put your home up as collateral. This means that when you borrow money, you agree to put an asset up to back the loan or as backing for that loan. If you fail to make your payments, your lender could take away your home through foreclosure.

Student loans are not backed by any collateral. You can’t lose your home if you’re having trouble making your student loan payments — there are benefits to having student loans!

You Lose Out on Certain Tax Benefits

If you’re not paying interest on student loans, you can’t claim the student loan interest deduction, which allows you to deduct up to $2,500 of the interest paid for student loans on Form 1040. You may deduct $2,500 or the amount of interest you actually paid during the year, whichever is less.

It’s true that you can also take advantage of the mortgage interest deduction, which is a tax deduction on the mortgage interest paid on your mortgage debt. You can deduct interest on the first $750,000 of your mortgage as long as you itemize your tax return.

However, if you’re asking, “Should I sell my house to pay off student loans?” — it may be a better idea to keep your student loan and your mortgage and get the tax benefits of both the student loan and mortgage interest deductions.

Alternatives to Selling Your House to Pay Off Student Loans

What alternatives are available if you’re thinking, “I don’t know if I want to sell my house to pay off student debt?” Let’s go over a few options.

Consolidating Student Loans

If you have multiple federal student loans from different loan servicers, you may be able to combine them into one loan with a fixed interest rate by choosing student loan consolidation. You can also change your loan term when you consolidate and also adjust the repayment terms on your loans without paying extra fees. Though it’s worth noting that it’s possible to change your repayment plan for federal student loans at any time.

You must complete the Federal Direct Consolidation Loan Application to consolidate your loans but you can only use this option for federal student loans, not private student loans. You may consider refinancing your private student loans if you are interested in changing the rates or terms on them — continue reading for additional details on student loan refinancing.

Student Loan Forgiveness

It’s important to note that most student loan forgiveness programs don’t offer complete loan cancellation right away. As mentioned earlier in the article, with an income-driven repayment plan it could take 25 years to qualify for complete forgiveness.

One of the most common types of forgiveness, Public Service Loan Forgiveness (PSLF), means you no longer have to pay your remaining federal student loan debt after you make a specified number of monthly payments. You must satisfy all of the requirements before you get your loans forgiven or canceled. Note that the program only applies to federal direct student loans, including:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Parent PLUS Loans

•   Graduate PLUS Loans

•   Direct Consolidation Loans

Pursuing loan forgiveness through a program like PSLF requires a series of on-time, qualifying payments. The program requirements can be strict so be sure to read the details closely to be sure you are fulfilling them. If you have any questions about whether you qualify for loan forgiveness, contact your loan servicer.

Refinancing Student Loans

Refinancing your student loans essentially means you trade in your current loans to a private lender and exchange them for a new loan with a better interest rate and payment plan. The goal with refinancing is to save more money over time with a lower interest rate over a fewer number of years.

The Takeaway

Ultimately, you’ll have to consider a wide variety of factors before you decide whether it makes sense to sell your house to pay off student loans, including:

•   Interest rates

•   Loan term

•   Repayment options

•   Student loan consolidation options

•   Forgiveness options

•   Refinancing opportunities

•   Tax deductions

In some situations, it doesn’t make sense to sell your house to pay off your student loans. Selling your home may mean eliminating a mortgage, but it also requires you to find a new place to live. Before you decide to sell your house to pay off student loans or buy a house again after doing so, it’s also important to remember that your home is a great investment — a nest egg that you can build on throughout your loan term.

Check out SoFi’s student loan calculator to see how you can refinance student loans and potentially secure a lower interest rate. You’ll quickly learn your estimated savings over the life of your loan. SoFi might have the answer to handling your student loans — no need to sell your home.

FAQ

Should I move to pay off student debt?

Moving to pay off your student loans is a personal choice. However, if you can find a lower-cost home, it may be beneficial for you to be able to make lower mortgage payments because you may be able to devote more money per month toward your student loan payments. Weigh the pros and cons and also find out if you’ll owe money for paying off student loans early. Most lenders don’t charge a prepayment penalty, but it’s possible that your lender could charge one.

Is it wise to sell a house to pay off debt?

Selling your home to pay off debt can be one option for eliminating some of your debt, especially if you feel that you’re paying too much for your mortgage. Downsizing can be an effective way to expedite the repayment of other debts because you can use the excess money to make extra payments. The general rule of thumb is to spend 28% or less of your monthly gross income on your mortgage payment, which includes your principal, interest, taxes, and insurance. Before you sell your home to pay off debt, consider all the angles before you take the leap.

Is it better to pay off a house before selling?

You may think it’s a good idea to pay off a house before you sell it to make a clean, fresh start before buying a new home. However, you might end up owing more at closing because you might be subject to a prepayment penalty through your lender. Check your loan terms before you decide.

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Photo credit: iStock/Quils

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Since private student loans are held by a private bank or lender, you can’t refinance private student loans to federal loans.

The reverse, however, is true. You can refinance private and federal student loans into a new private student loan with a new, ideally lower, interest rate. When you refinance federal student loans, it’s important to understand you lose access to federal benefits and protections.

Here’s what to know about why you can’t convert private student loans to federal loans, how you can combine both into a new refinanced loan, and how to make the choice that’s right for you.

Transferring Private Student Loans to Federal Loans

It isn’t possible to refinance private student loans to federal loans since private loans can only be held and owned by private financial institutions. Your federal student loans, on the other hand, can be converted into a private loan.

Although private and federal loans serve the same purpose — to finance your education — they differ in significant ways. One of the biggest distinctions is that private loans are not eligible for federal programs and benefits.

For example, federal student loan mandates during the COVID-19 pandemic offered automatic protection for federal borrowers. All federal student loans were put on administrative forbearance so that loan payments were paused without penalty. Also, borrowers weren’t responsible for any interest that accrues during this time.

Similarly, there’s been some speculation around overarching loan forgiveness and legislative proposals by the current administration. Some reports suggest that up to $10,000 in federal student loans might be canceled in the near future.

So can you refinance private student loans to federal loans if this legislation passes?
Again, you can’t convert private student loans to federal loans. If you’ve already refinanced your federal loans into a private loan, you’ll no longer qualify to benefit from this legislation if it comes to pass.

Recommended: Types of Federal Student Loans

How to Combine Private and Federal Student Loans

While there’s no way you can refinance private student loans to federal loans, the reverse is true: You can convert a federal loan to a private loan to combine your federal and private student debt into a new private loan.

Refinancing

You can combine federal and private student debt by refinancing your federal student loans into a private loan. Refinancing is offered by a private lender and requires a credit check. This repayment option lets you refinance existing federal loans, private student loans, or a combination of both, into a new private student loan.

The new refinancing lender pays your original loan(s) in full, and creates one refinanced student loan for the total amount it paid on your behalf. Over time, you’ll repay your new lender your principal refinance amount, plus interest.

Overall, a student loan refinance can help you combine multiple loans into a single loan at a new rate and potentially better terms. It also results in one monthly payment, and depending on your credit score and other qualifying factors, it might help you access a lower interest rate.

Be aware that since a refinanced federal loan is no longer a part of the federal student loan system, you’re giving up federal benefits and protections.

Recommended: Guide to Student Loan Refinancing

Consolidating

Federal student loans can be combined, or consolidated, through the federal Direct Loan program. When you consolidate your federal loans, they are combined into a single new loan with a new interest rate that’s an average of all of your existing federal loan rates, rounded to the nearest eighth of a percent.

While you may end up paying more interest over time because your new interest rate is an average of your current rates, reasons to consolidate your federal loans include simplifying your payments and qualifying for federal student loan programs such as income-driven repayment plans or Public Service Loan Forgiveness (if your existing federal loans weren’t part of these programs to begin with).

Private loans are not eligible for federal loan consolidation. As mentioned earlier, you can only combine federal and private student loans together when you refinance your loans into a new private loan.

Benefits of Federal Student Loans

Although converting your federal student loans into a private loan might have its advantages, there are serious caveats to consider before moving forward. Ultimately, refinancing federal loans through a private lender means you’ll lose access to valuable federal benefits and protections.

Debt Forgiveness

A major benefit that federal student loans offer, compared to private student loans, is access to student debt forgiveness and cancellation. Depending on your personal situation, you might be able to have a large portion of your federal student debt forgiven.

Some programs offered for federal loans include:

•  Public Service Loan Forgiveness (PSLF). Borrowers who work full-time for a government entity or nonprofit organization might be eligible for loan forgiveness. While working for a qualified employer, you must enroll in an income-driven repayment plan and make 120 qualifying payments toward your federal loans. Afterward, your remaining federal loan balance is forgiven.

•  Teacher Loan Forgiveness (TLF). Under TLF, educators who work full-time at an approved low-income school or service agency can earn up to $17,500 in forgiveness. You must agree to a five-year service contract and meet other requirements.

•  Perkins Loan Cancellation. If you have eligible Perkins Loans, you might be eligible for loan cancellation or discharge, depending on your employment service or unique circumstances.

Income-Driven Repayment

Federal student loan borrowers who are struggling to afford their standard 10-year monthly payments can explore one of the Department of Education’s income-driven repayment (IDR) plans.

It offers four types of income-driven repayment:

•  Pay As You Earn

•  Revised Pay As You Earn

•  Income-Based Repayment

•  Income-Contingent Repayment

Each repayment plan calculates your monthly payment based on 10% to 20% of your discretionary income and your family size. Some borrowers under an IDR plan may qualify for a $0 per month payment. The plans offer a longer repayment period at 20 or 25 years. After completing your repayment term, your remaining eligible federal loan balance is forgiven.

Understanding how income-based repayment works can help you gauge whether you’re willing to relinquish federal loan benefits for a private refinance loan.

Guaranteed Postponement

You might suddenly be hit with financial hardship, like being temporarily unemployed or experiencing an accident that inhibits your ability to make payments. In this stressful situation, federal student loans provide the option to request payment deferment or forbearance.

These federal protections pause your federal student loan payment requirement without penalty. During this time, interest still accrues and is added to your principal balance.

You’re ultimately responsible for repaying it back, as well as any interest that capitalizes when payments resume. However, this guaranteed postponement offers financial relief during difficult times.

Some private loans may offer deferment or forbearance options during times of financial, but the options vary by lender.

How Private and Federal Student Loans Differ

To decide whether refinancing your federal loans into a private loan makes sense for you, it’s important to know how private student loans vs. federal student loans differ.

Federal Student Loans	Private Student Loans
Provided by the US government.	Provided by a private financial institution.
Most programs don’t require a credit check.	Good credit, or a cosigner, is generally required.
Fixed interest rates.	Fixed or variable rates offered.
Payments are deferred until you leave school or drop below half-time.	Payments might be due while you’re enrolled in school.
Income-driven repayment options available.	Repayment plans vary by lender.
Access to loan forgiveness or cancellation.	Generally doesn’t offer loan forgiveness.
Offers interest subsidies for borrowers with financial need.	Loan interest is typically not subsidized.
Offers extended deferment or forbearance.	Rules on postponing payments vary by lenders.

Recommended: Private vs. Federal Student Loans

Student Loan Refinancing With SoFi

If you have private student loans, refinancing can be advantageous if you qualify for a lower interest rate that reduces your overall education debt. Use a student loan refinancing calculator to estimate your savings.

Before refinancing a federal student loan, decide whether you might need to leverage government benefits, like income-driven repayment. You’ll lose lucrative benefits, especially if sweeping loan forgiveness becomes available later, by refinancing all of your federal loans.

At SoFi, however, you can lock in low-interest rates before rates rise while keeping some of your federal student loans within the federal system. This program option helps you take advantage of loan cancellation, in case broad loan forgiveness becomes a reality but also helps you take advantage of lower rates now. There are no refinancing fees, and the online application tells you if you’re pre-qualified quickly.

Learn more about student loan refinancing to see if it’s the right choice for you.

FAQ

Is it possible to change private student loans to federal?

No, there is no way to transfer private student loans to federal loans. However, you can refinance your private and federal loans together, ideally to qualify for a lower rate or better loan terms.

Is it possible to change federal student loans to private?

Yes, you can change a federal student loan to a private student loan through refinancing. A private refinance lender will pay off your original federal loan, and you’ll have to make payments to your new private lender for the principal balance, plus interest.

How can you combine private and federal student loans?

You can combine private student loans and federal student loans with a refinance student loan. Refinance student loans are provided by a private lender so any federal loans you refinance will become private and you’ll lose the government benefits and protections you had under the federal loan system.

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Photo credit: iStock/YayaErnst

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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As long as you meet lender requirements, it’s possible to refinance student loans without a cosigner. Refinancing means that a private lender bundles some or all of your loans, pays them off, and structures them into one new loan. A private lender can be a bank, school, credit union, or state agency. Federal student loans are funded by the federal government.

A cosigner is an individual with a good credit record who agrees to repay the loan if the primary borrower cannot. If you prefer to apply for a student loan without a cosigner, you may pay more for your loan over the long term through higher interest rates.

Keep reading for more information about student loan refinancing without a cosigner and what it involves.

What Is Student Loan Refinancing?

Student loan refinancing means that a private lender pays off your existing loans (which can be a mixture of private and federal student loans) and puts all of your loans under one roof. This means you don’t have to keep track of various loan payments.

Refinancing student loans allows you to lower your interest rates or extend your loan payoff. Your interest rate, which is a percentage of your principal amount borrowed, is the amount you pay to your lender in exchange for borrowing money. Extending your loan payoff means that you will increase the number of years you take to pay off your loan. It’s important to note that in this case, you will pay more over the life of your loan because you increase the number of years that you will pay for your loan.

You can refinance both federal and private student loans, but note that you must do so with a private lender. You cannot refinance any type of loan into a federal student loan. However, refinancing federal student loans means that you’ll lose access to federal protections such as federal loan forgiveness and income-driven repayment plans. Some lenders only refinance private student loans. Clearly, knowing if and when to refinance student loans is not a simple decision.

Benefits of Refinancing Student Loans Without a Cosigner

Take a look at the benefits of a student loan refinance with a cosigner and the drawbacks of refinancing student loans without a cosigner.

Pros of Refinancing With a Cosigner	Cons of Refinancing Without a Cosigner
Students may gain access to lower rates and terms.	Students may not get approved for a loan without a cosigner.
Students may have a better chance of getting approved for refinancing student loan debt with a cosigner.	Students may have to pay a higher interest rate without a cosigner on the loan.
Students may be able to build their credit in order to qualify for future loans and get a lower interest rate on other loans in the future.

Keep in mind that if the student stops making loan payments, cosigners may end up paying back the student loan. Not making payments can damage both the student’s and the cosigner’s credit score. Your credit score is a three-digit number that shows a lender how well you pay down debt.

If this happens, it can result in a strained relationship. A student loan refinance without a cosigner may be the best option for all parties involved.

Recommended: Guide to Student Loan Refinancing

How To Refinance Student Loans in 4 Steps

Refinancing student loans without a cosigner typically follows these four steps:

1. Prequalify

By submitting some personal information, you can compare the rates among lenders. Lenders will run a soft credit check which won’t hurt your credit. Lenders will ask for your name, address, school you attended, degree achieved, total student loan debt, income, credit score estimate, and more. The information you need to provide varies from lender to lender.

Recommended: What’s the Difference Between a Hard and Soft Credit Check?

2. Get Multiple Rate Estimates

Each lender will likely give you several offers with various term lengths as well as fixed interest rates (those that don’t change) and variable interest rates (those that change depending on market fluctuations).

3. Complete the Application

Once you’ve chosen a lender and a loan, you can submit documentation that supports the soft credit check and any other information the lender needs, such as personal identification, pay stubs, or other income verification. You’ll undergo a hard credit check at this point.

4. Sign the Final Documents

Learn your final costs, or take a look at a student loan refinance calculator, to get a sense of your all-in costs so you know what you’ll have to pay every month.

What Refinancing Without a Cosigner Involves

Refinancing student loans without a cosigner involves special considerations:

Qualifying With Your Own Credit

Qualifying for a refinance with your own credit means that you aim to get a refinance using your own credit score. The credit score you need to qualify for a refinance will depend on a wide variety of factors, including your income and other information.

It’s important to put forth as high a credit score as you possibly can. The FICO® score range from 300 to 850 — 300 is the lowest and 850 is the highest credit score possible.

In addition to your credit check, you may also need to meet some basic eligibility requirements:

•   The legal age, or “age of majority,” in your state (typically 18)

•   A U.S. citizen, permanent resident, or non-permanent resident alien

•   Employed or have sufficient income from other sources

•   Graduated with an associate’s degree or higher from a qualified institution

Recommended: What is a bad credit score?

Debt-to-Income Ratio

When you get a refinance, a lender will also look at your debt-to-income (DTI) ratio. This is a percentage that tells lenders how much of your money per month goes toward monthly debts versus how much money you have coming into your household.

You can figure out your DTI by adding up your monthly debts and dividing that figure by your gross monthly income (your income before taxes). The result is a percentage, and the lower the percentage, the less risk you present to lenders. Learn more about why debt-to-income ratio matters in student loan refinancing with cosigner and without a cosigner.

Employment Status

In many cases, you must be currently employed, earn income from other sources, or have an offer of employment to start within the next 90 days in order to get a refinance. However, various lenders may have different employment stipulations. Check with your lender to learn more.

Credit History

In order to qualify for a refinance, a lender will look at your credit history, which includes your current and past credit accounts, the amount you owe, and your payment history. Your credit history reveals how responsibly you repay your debts. Credit scores come from information on your credit reports.

What If You Can’t Get Approved Without a Cosigner?

If you can’t get approved without a cosigner, you may want to look for a lender with an alternative credit check. Lenders may offer an alternative process, including simply taking a look at your grade point average, field of study, graduation prospects, and estimated future earnings to determine your eligibility for a refinance or loan. Keep in mind that these alternative requirements may require you to pay a higher interest rate for your refinance.

You may also consider going ahead with a cosigner and then later applying for a student loan cosigner release. A cosigner release means that cosigner is released from a loan as long as you meet certain requirements, such as a minimum payment requirement. Once released, the cosigner is no longer obligated to take care of your debt if you cannot repay your loan.

Alternatives to Refinancing Without a Cosigner

One of the best ways to circumvent the need for a cosigner is to work on improving your credit score. You can do that by paying off debt — paying down credit cards, paying off loans that have gone into arrears — and not taking out too many other types of loans. Your credit score will increase over time as you make positive moves.

SoFi Student Loan Refinancing

It’s possible to refinance student loans without a cosigner, but you may end up with less desirable rates than if you did opt for a cosigner. However, consider the pros and cons of applying with and without a cosigner, including the potential for a strained relationship if you fail to make timely loan repayments. Another important factor to weigh is how likely you are to benefit from the current federal student loan forgiveness plan, as well as the protections that come with federal student loans.

If you think refinancing might make sense for your situation, consider refinancing your student loans with SoFi. You can refinance online and pay zero fees, whether you choose to refinance student loans with a cosigner or not.

Check out student loan refinance rates offered by SoFi.

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Photo credit: iStock/paulaphoto

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Generally, student loan borrowers with a FICO® score of 670 or higher stand a better chance at meeting a refinancing lender’s eligibility requirement. But according to an August 2020 report by the Federal Reserve Bank of New York, the average credit score across all student loan borrowers was at 656 — just a few points shy of what’s considered “good” credit.

The minimum credit score permitted to refinance varies between lenders. Whether you already have strong credit or currently don’t meet the credit score needed to refinance, there are ways to move forward with your student debt.

Credit Score Range Required for Student Loan Refinancing

You typically need what FICO calls a good credit score, which is from 670 to 739, to get approved for a competitive refinancing rate and terms. Another commonly used credit scoring model is called the VanatageScore® which sets its “good” credit range at 661 to 780.

Some lenders have more flexible credit score requirements than others and set their minimum credit score requirement at 650 which is considered “fair.”

However, higher is usually better when it comes to credit scores, regardless of the scoring model that’s used. If your credit score exceeds these ranges, and is considered “very good” or “excellent”, you may be more likely to qualify for student loan refinancing.

Recommended: What Is a FICO Score?

Why Is There a Minimum Credit Score?

Your credit score gives lenders an at-a-glance synopsis of your borrowing habits. It’s based on information from your credit report — which is a highly detailed record of activity on all of your credit accounts — and a single score tells lenders how well you’ve managed your credit and repayment thus far.

Refinance lenders establish the lowest eligible credit score they’re willing to approve and lend to better their chances of getting paid back.

Benefits of a Higher Credit Score When Refinancing

Meeting the minimum credit score requirement of your preferred refinancing lender can help you get through the door in terms of approval. However, a higher credit score improves your access to a lower interest rate and favorable terms.

Your lender’s lowest advertised refinancing rate, for example, is reserved for borrowers who’ve demonstrated excellent credit. If you don’t have established credit, some lenders let applicants apply with a cosigner.

Typically, a cosigner is someone who’s close to you like a spouse, parent, or grandparent, and has a strong credit profile. By agreeing to cosign your loan, they’re accepting financial liability to repay your loan if you fail to make payments.

Refinancing without a cosigner means that only the primary borrower is responsible for repaying the loan. Having another person who’s legally responsible for the debt is another way that lenders protect themselves from potential default. As the primary borrower, not only can a cosigner improve your chances of approval, their good credit can help you qualify for a lower interest rate.

Recommended: Guide to Establishing Credit

Tips That Can Help Improve Your Credit

If your credit isn’t high enough to meet a lender’s minimum credit score requirement, there are a few tips on how to build credit over time.

Make Timely Payments

Making full, on-time payments on your existing credit accounts is the most impactful way to improve your credit. This factor accounts for 35% of your FICO credit score calculation and is at the forefront of what lenders look at when evaluating your eligibility.

Lower Your Credit Utilization Ratio

This is the ratio of how much outstanding debt you owe, compared to your available credit. Credit utilization ratio accounts for 30% of your FICO score. Keeping your credit utilization low can be an indicator that — although you have access to credit — you’re not overspending.

Maintain Your Credit History

A factor that’s moderately important when it comes to your FICO score calculation is the age of your active accounts. Keeping older accounts active and in good standing shows that you’re a steady borrower.

Keep a Balanced Credit Mix Without Too Many New Accounts

Having revolving accounts such as credit cards, and installment credit like student loans or a car loan shows you can handle different types of credit. This factor affects 10% of your credit score calculation which isn’t as huge as your payment history but a factor nonetheless.

Additionally, although a mix of credit can help your score, opening too many new accounts in a short period can adversely affect your credit score by 10%.

Other Eligibility Requirements for Student Loan Refinancing

Lenders want to ensure that their borrowers have the ability to repay the loan, based on the loan agreement. However, your credit score isn’t the only factor that determines your ability to make payments.

Other eligibility requirements that lenders consider might include your:

•   Age

•   Status in the country (e.g. US citizen, permanent resident, etc.)

•   Employment status

•   Income

•   School that you graduated from

•   Existing debt obligations

•   Loan amount

If your situation and credit score meets the lender’s requirements, you might be approved for a student loan refinance. Before refinancing your student loans, however, use a student loan refinance calculator to understand how much refinancing can save you.

Your Options if You Don’t Meet the Credit Requirements

If your credit isn’t eligible for student loan refinancing, you still have a few options to choose from.

•   Apply with a creditworthy cosigner. As mentioned above, securing a trusted cosigner who has strong credit can potentially help you with your refinancing goal. Keep in mind that any late payments on your loan may impact your credit and your cosigner’s.

•   Request an income-driven repayment plan. You can reduce your federal loan monthly payment by requesting to be put on an IDR plan. Depending on your plan, your term will be extended to 20 or 25 years, and your payment is calculated based on a percentage of your discretionary income and your family size. This option results in paying more interest overall.

•   Ask about forbearance. If you’re experiencing a short-term financial hardship, like a job loss or sudden financial expense that’s making it hard to manage your student loan payment, forbearance might help. It pauses your payments for a temporary period, during which time interest still accrues. Ask your servicer about how to request forbearance, or contact your private lender to see if it offers this option.

Applying for Student Loan Refinancing With SoFi

Your credit score is just one factor that lenders consider when applying for a student loan refinance, but it’s an important one. Increasing your credit score before refinancing, or finding a willing cosigner with strong credit, can help you reduce your interest rate and lower your total education-related costs.

Refinancing a private student loan is advantageous if you qualify for a lower interest rate. However, determining if you should refinance your federal student loans needs more consideration. Refinanced federal loans are converted into private loans rendering you ineligible for federal benefits and programs. For example, you’ll no longer have access to programs like Public Service Loan Forgiveness or income-driven repayment plan options that help reduce your monthly payment.

If you’re still convinced that refinancing is right for you, consider a SoFi student loan refinance. SoFi offers low-interest rates and significant savings for those who qualify. Checking your rate only takes only two minutes online.

Get started today.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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It’s possible to refinance your student loans with bad credit, but you may face challenges getting approved with a low credit score. Your credit score is a three-digit number that shows how well you currently and have paid back debt in the past.

“Having bad credit” simply means that your credit reports, which are records of how well you’ve paid off debt, reveal negative credit actions that you’ve had in the past.

When you refinance your student loans, a private lender will take a look at your credit score to evaluate how well you’ve paid off debt in the past. A higher credit score may improve your chances of approval and could help you secure a more competitive interest rate. But, your credit score isn’t the only factor lenders review. Lenders typically also take a look at factors including your income, current employment situation, and financial history.

Read on for strategies to refinance student loans with bad credit.

What Is Student Loan Refinancing?

Refinancing student loans means that you take some or all of your student loans and replace them with one new loan to achieve a repayment advantage. For example, you may refinance in order to get a lower interest rate and as a result, pay less over the life of your loan. You may also refinance to extend your loan term, which will lower your monthly payments (but doing so will also result in more loan payments over time).

You can refinance both private and federal student loans. As you are deciding when to refinance student loans it’s important to understand that if you refinance federal student loans, you lose certain benefits with your loan, such as deferment and public service-based loan forgiveness.

What Is Considered Bad Credit?

What is a bad credit score? The definition of “bad credit” varies slightly depending on the credit scoring model used. A credit scoring model is a statistical analysis used by credit bureaus to evaluate your creditworthiness.

According to FICO®, one of the most popular scoring models, a bad credit score is one below 670. Another popular scoring model, VantageScore, considers a bad credit score as one below 661. To put it in perspective, a credit score ranges from 300 to 850.

Some lenders may have a minimum credit score to refinance student loans. Requirements may vary by lender so check in with the lenders you are considering to understand their minimum requirements. And, keep in mind that lenders will evaluate factors beyond just your credit score when making lending decisions.

Strategies for Refinancing a Student Loan With Bad Credit

If you plan on refinancing student loans with bad credit, you may want to consider backtracking and checking your credit reports or purchase your credit scores directly from one of the credit bureaus. There may be a mistake on your credit reports which can hurt your credit score. For example, you may have already paid off a particular loan but your credit report may show that you haven’t yet paid off that particular loan.

You can obtain a free copy of your credit report at annualcreditreport.com from each of the three major credit bureaus — Equifax, Experian, and TransUnion — which track your credit.

There are other strategies you can consider as well, including refinancing with a cosigner, improving your credit score or debt-to-income (DTI) ratio, look into credit unions, consider non-profit debt consolidation, check into secured loans or look for lenders with lower credit requirements. Let’s take a look at each alternative option for student loan refinance for bad credit.

Refinancing With a Cosigner

If you have a relatively low credit score, applying with a cosigner may increase your chances of getting approved for a student loan refinance.

Refinancing student debt with a cosigner means that you ask someone else to agree to help you repay a loan along with you. Cosigners are equally obligated to repay a student loan and are liable if you fail to repay your loan. Any missed payments will affect both you and your cosigner’s credit history.

Improving Your Credit Score

Improving your credit score is another way to fix any credit issues. You can improve your credit score by making payments on time to your creditors, catching up on accounts for which you still owe money, and limiting credit applications. Let’s take a look at all of these student loan refinance need to know opportunities to improve your credit score:

•   Make on-time payments: Making all payments on time is one of the best ways to improve your credit score. You may want to consider setting up auto pay to avoid missing or making late payments.

•   Pay off delinquent or defaulted accounts: If you have accounts for which you still owe money, pay them off. Pulling all accounts up to “paid” status can help your credit score. If you think you need help organizing and prioritizing, you may want to reach out to a credit counselor for assistance. It’s also a good idea to get current on revolving credit balances (such as credit cards and other lines of credit) because paying late or skipping payments can hurt your credit as well.

•   Limit credit applications: Continually applying for credit can hurt your credit score because every time a lender does a hard credit check, it takes a hit on your credit. All of these credit checks can build and detract from your ability to improve your credit score.

Building credit by doing things like making on-time payments is one of the best ways to improve your credit score. Consider using a credit card diligently and paying off the balance each month, get a secured credit card, or become an authorized user on another individual’s credit card.

Improving Your Debt-to-Income Ratio

What is the debt-to-income (DTI) ratio? DTI refers to your monthly debt payments divided by your gross monthly income — the amount of money you have coming into your household.

The best way to reduce your DTI is to reduce your debt payments each month or add more income to your household each month. There are several ways to make this happen, such as paying off your debt (including credit cards, personal loans, auto loans, and/or other types of debt), adding a second or side job to your already-existing income or negotiating a raise at work, working overtime, or applying for a higher-paying job.

Recommended: Why Your Debt to Income Ratio Matters

Check Credit Union Requirements

In addition to banks, online lenders, and other types of lenders, credit unions also offer student loan refinancing opportunities. A credit union is a non-profit financial services cooperative that exists to serve its members. You must be a member of a credit union in order to borrow money from it.

If you already belong to a credit union, consider finding out the credit qualifications necessary for refinancing student loans with that credit union. Shop around among credit unions or other alternative banking solutions to learn more about interest rates, overall payoff amounts, repayment flexibility, and how well each institution treats its customers.

Non-Profit Debt Consolidation

Nonprofit debt consolidation can help you put all of your debts into one manageable payment. It offers a two-pronged advantage: You lower your monthly payment and eventually eliminate unsecured debt, which is debt that isn’t backed by collateral.

Credit card debt is a good example of a debt not backed by collateral. A mortgage, on the other hand, is backed by collateral — the collateral is the home that you borrowed money to purchase. A student loan is a type of unsecured debt because it is not backed by collateral.

Why tap into a nonprofit credit counseling agency for help? They must act in your best interest, though you will have to pay fees for the service. Trained debt counselors can help you come up with a debt payment plan, debt settlement plan, debt consolidation loan, or, if absolutely necessary, declare bankruptcy.

It’s important to note that only unsecured debt is eligible for consolidation.

Secured Loans

Secured loans are backed by collateral, such as a car (in the case of an auto loan) or a house (in the case of a mortgage). If you stop making your payments, the lender can take the collateral backing your loan (the auto or home) to satisfy the debt.

Generally, personal loans are unsecured and can be used for almost any expense. However, some personal loans may be secured by some form of collateral. When evaluating a secured vs. unsecured personal loan, look at things like the interest rate and the type of collateral required to back the loan. Keep in mind that collateral can be seized by the lender if there are issues with repayment.

However, you can use a secured loan to pay for a student loan refinance if you find better terms through a secured loan. For example, you could choose to get a second mortgage to pay for educational expenses.

Unsecured debt is usually considered riskier by lenders (because it isn’t backed by collateral) and may come with a higher interest rate, which is why secured debt may seem more appealing.

Looking for Lenders With Lower Credit Requirements

Think you’re ready to pursue a student loan refinance with lower credit requirements? Let’s take a look at the pros and cons of doing so.

Pros of Using a Lender with a Lower Credit Limit	Cons of Using a Lender with a Lower Credit Limit
Can help with debt management by consolidating all loans into one loan	May have trouble qualifying for a refinance due to bad credit
May save money by qualifying for a lower interest rate, which often reduces the amount of money you pay toward your loans over time	May pay more for your loan due to higher interest rates for those with bad credit
Can transfer Parent PLUS Loans (a federal loan that parents can take out to finance the cost of college) to the student instead of keeping it in the parents’ name	Will lose access to federal benefits if you refinance federal student loans

In order to get the best rates and terms, you may want to consider beefing up your credit score before you apply for a refinance. Consider taking a look at a calculator for student loan refinancing to help you learn about the costs.

Alternatives to Refinancing Student Loans

Refinancing your student loans isn’t your only option. Keep in mind that refinancing federal loans eliminates them from federal programs and protection like income-driven repayment plans. You may also want to consider a few alternatives, including consolidation, forgiveness, deferment, or forbearance options (for federal student loans), or talk to your lender about your options.

•   Consolidation: Consolidation allows you to combine all of your federal student loans into one monthly payment with one servicer. Consolidation won’t lower your interest rate — the new rate is the weighted average of your existing interest rates. You cannot consolidate private student loans — you may only refinance them.

•   Forgiveness: If you have federal student loans, you may want to consider looking into student loan forgiveness options, which means that you do not have to repay your loans in part or full if you meet specific requirements. For example, you may be able to tap into teacher loan forgiveness, Public Service Loan Forgiveness (PSLF), income-driven repayment plans, military service, AmeriCorps, or other options.

•   Deferment or forbearance: Deferment and forbearance allow you to temporarily postpone or reduce your payments. Borrowers with federal loans may qualify to defer repayment due to cancer treatment, economic hardship, graduate school, military service and post-active student duty, rehabilitation training, unemployment, and more. Private lenders may have their own programs for forbearance. Check-in with your private lender directly.

•   Talk to your lender or loan servicer: You can also talk through all your payment options with your loan servicer. If you’re having trouble making your payments, explain how and why (and be prepared to show proof).

The Takeaway

Borrowers with a low credit score (a bad credit score is defined as a FICO score below 670 or a VantageScore below 661), may find it challenging to get a student loan refinance with bad credit without a cosigner.

However, there are other avenues you can take for student loan refinancing with bad credit, including improving your credit score, improving your DTI, researching options with a credit union, non-profit debt consolidation, or getting a secured loan. You may also want to consider alternatives to refinancing private student loans with bad credit if you have federal student loans, through consolidation, forgiveness, deferment, or forbearance. You may also try talking to your lender or loan servicer for all your options, asking them about alternative options to refinance a student loan with bad credit.

When you refinance student loans with SoFi, the application is completed entirely online and there are zero fees. Qualifying borrowers can secure competitive interest rates.

Get prequalified in just a few minutes.

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Photo credit: iStock/Vladimir Vladimirov

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s
website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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