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Here’s How People With Bad Credit Are Refinancing Their Student Loans

Ben Luthi

Refinancing your student loans can have a significant impact on your debt payoff strategy — including giving you more flexibility and the chance to save money on interest.

But refinancing student loans with bad credit can be challenging.

Here’s why you should still consider it, and what you can do to improve your chances of getting approved for a student loan refinance.

Why you should consider student loan refinancing


Student loan refinancing is the process of combining one or more federal or private student loans into one new loan with a private lender. While refinancing isn’t for everyone, there are some major benefits you may be able to take advantage of if you qualify:

  • Savings: Depending on the interest rates on your current loans, refinancing could allow you to get a loan with a lower rate, which would save you money as you pay down your debt and could also lower your monthly payment.
  • Flexibility: Private lenders can typically offer repayment terms ranging from five to 20 years, giving you some control over how fast you pay off your debt. A shorter repayment term would increase your monthly payments, but it would also save you money on interest and help you become debt-free faster. On the flip side, a longer repayment term would cost you more in interest, but it could help you reduce your monthly payment to a more manageable level. The important thing is that you get to choose.
  • Simplicity: Replacing multiple student loans with just one new loan can simplify your repayment plan. Instead of keeping track of several monthly payments, you just have to make one.

Keep in mind, though, that if you’re refinancing federal student loans, you will lose certain benefits that the U.S. Department of Education provides to borrowers including student loan forgiveness programs, income-driven repayment plans, generous forbearance and deferment options, and more.

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Why refinancing student loans with bad credit is hard

The federal student loan program is set up so that borrowers don’t need to undergo a credit check to get approved for a loan. This arrangement works well for college students, who typically haven’t yet had the chance to establish a credit history.

If you’re hoping to refinance, though, you can expect a credit check from a private lender. And, unfortunately, many private lenders require good or excellent credit plus a solid income to qualify. Even then, you may not be eligible for a lender’s lowest interest rate.


As a result, it’s incredibly difficult to get approved for student loan refinancing on your own if you have bad credit. That said, it’s not impossible if you have the right approach.

How to refinance student loans with bad credit


If your credit isn’t in great shape, but you still want to try to refinance, your best option is refinancing student loans with a cosigner. This cosigner acts as a co-applicant to effectively guarantee payment to the lender if you can’t keep up with your monthly payments.

If you have a loved one with great credit and income who is willing to cosign, it can improve your chances of getting approved for the loan and offered the lowest rates to help you save significant money.

Also, some lenders offer cosigner release, which allows you to remove your cosigner after you’ve made a certain number of payments and meet the lender’s credit requirements on your own. So if you have bad credit but are in the process of improving your credit score, you may be able to apply for cosigner release down the road.

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Spousal student loan consolidation is another option to consider. PenFed Credit Union, for instance, allows spouses to refinance their student loans together into one account between the two of them. This process can be beneficial if one spouse has no income or hasn’t had a chance to establish a good credit history.

Keep in mind, though, that cosigners are equally responsible for making payments on the new loan. So if you default, they will be legally required to make payments on your behalf. Also, the loan will show up on their credit report. That means missed payments can hurt both your and their credit history — and depending on how much you’re borrowing, it can impact their ability to get credit on their own.

Also, if you do spousal student loan consolidation, your separate debts will become combined debt. This could cause problems if you get divorced down the road. So make sure to consider both the pros and cons of these options before you move forward.

Comparing student loan refinance rates and lenders

Now that you know how to refinance student loans with bad credit, the next step is to determine if it’s the right fit for you. If you have a cosigner or your spouse is willing to refinance loans together, take some time to shop around and compare rates and other loan terms from several lenders.

To speed up that process, use Purefy’s Compare Rates tool, which can give you rate quotes from several lenders in one place with no impact on your credit.

With this information, you can easily compare offers from several lenders, then compare those offers with what you’re currently paying. If you find a lender that offers a lower interest rate than what you’re paying now, refinancing could save you money.

In addition to the rates, also consider other features. For example, if you’re working toward Public Service Loan Forgiveness or student loan repayment assistance through a government agency, you may need to hold onto your federal loans to qualify. Also, refinancing can potentially lower your monthly payment, but most private lenders don’t offer income-driven repayment plans, which can come in handy if you experience financial hardship.

As you consider all these factors, the most important thing is to ensure you’re making the right decision financially, both in the short term and in the long term. Also, make sure to communicate with your cosigner or spouse to ensure you’re on the same page, and you don’t run into potential problems down the line.

As you carefully consider your options, you’ll be in a better position to make the right decision for your financial needs.

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ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 11-21-2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 2.24% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.24% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 3.49% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 3.94% to 8.48% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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