Refinance Student Loans When Self Employed - Here's How You Can Do It

Self employment is rising but the borrowers who are self employed face difficulty in refinancing their loans. Here is an in dept study regarding the lenders available, interest rates, credit scores and ways a self employed individual can boost their application.

Updated by Jason Joy Manoj on 28th February 2020


“ Turning your passion into a job is easier than finding a job that matches your passion”.

In this day and age getting a job at a big 4 or Microsoft isn’t as fulfilling as doing something you love. These groups of people have found a niche for themselves and are able to get paid for their service are self-employed. This kind of workforce takes up to 10.1% of the American workforce. In fact one out of every nine US workers is self-employed.

The workforce of self-employed workers is from various backgrounds. Some would have educational qualifications of up to high school while some would have completed a doctorate degree before starting their own business. 

You need to meet certain eligibility requirements to get your loan refinanced. Will those who are self-employed have it easier or harder to get their loans refinanced? Let’s find out.

Table of contents 

Refinancing student loans for borrowers who are self-employed 

If you are self-employed you can still refinance your student loans, here are a few factors you will have to keep in close consideration while refinancing 

1) Proof of income - While those who are employed in a company can show their tax returns as proof of income. It becomes more complicated for a person who is self-employed. They can show their returns but that is not necessarily an indication of income. 

Most borrowers take advantage of write-offs to help lower their tax burden. This shows a lower income but this can work against your favor as with a lower income your chances of getting approved for refinancing will be lower. 

The borrowers with a lot of time on their hands are advised not to avoid any write-offs. Stay away from write-offs for at least two years before applying for refinancing. If the borrower can show growth from one year to another then that’s proof that the business is growing. 

2) Effects of one time large payments - You will have to reach out to your lender and explain what the large deductions spent on one time supplies. This can be explained with the help of an example. If a factory owner spends a large amount on particular equipment, this purchase will last him for a number of years. But at the same time, it is a huge purchase and cuts into the gross income. 

Some of the refinancing lenders will understand why such a huge investment is necessary and that such an investment will not carry over for any of the following years. It is important for the borrower to reach out to a number of lenders because there are chances of a lender not agreeing with the borrower's reasons for purchase. Not all lenders are understanding. 

3) Credit scores - When applying to refinance credit scores play a vital role in deciding the interest rate for the new loan got from refinancing. The average credit score for those who get approved for refinancing is 757, but there are cases where a person with a credit score of only 560 got approved for refinancing. Borrowers should try and get their credit scores higher.

4) Co-signer -  When a borrower who is self-employed gets a co-signer, he should make sure that the co-signer is someone who has a traditional job to help his chances of getting approved. Usually, creditworthy parents and spouses are excellent co-signers to get on board and strengthen the application for the self-employed people. 

What are the lenders that refinance student loans for self-employed borrowers?

For those with a regular job and salary, it is a relatively straightforward process to refinance your student loans.  But as a self-employed individual your income each month will differ each month. Most refinancing lenders do not work with self-employed individuals at all as they believe they are not creditworthy. 

There are certain exceptions to this, lenders like Earnest, CommonBond and Citizens Bank provide flexible terms and conditions and evaluate all the borrowers on a case to case basis.

Earnest believes that they can work with financially responsible borrowers irrespective of their case of employability.

They aim to help get these financially responsible borrowers out of debt and making their debt more manageable. They emphasize on checking the data which includes the income, savings, payment history and much more to get an overall picture of the borrower. 

Looking to refinance your student loans? Find the best companies that refinance your student loans.

Self-employment and interest rate for refinancing 

Mortgages and other types of loan applications depend on the type of job the borrower currently has as that shows his potential flow of income. Being self-employed can hurt your chances of getting approved for refinancing.

But in the case of student loans, you do have lenders like citizen bank that overlook the type of employment the borrower is currently with and will not decide the borrower's interest rates based on his income alone. They pay close attention to the borrower's finances and credit scores instead. 

Self-employment and credit scores 

The average credit score in America is 700, as per a survey conducted by FICO. Self-employed individuals usually have more debt on their hands and this isn’t because of the student loans. They need to take out loans for their businesses, heavier the debt more are the chances of your credit scores getting hurt. Lower the score the lesser are your chances for getting approved for refinancing. 

To tackle this you need to boost your credit score. Pay all your bills on time and reduce any form of debt you currently have. A lender will always consider the overall financial picture of a borrower. This will include both the income and also the credit score. If you can show that your business is successful or has the potential to be then you are more likely to get a loan.

How a self-employed borrower can boost an application 

If you still haven’t got approval for refinancing because of your income or credit score. You will require some extra help, here is how you can improve your chances for approval

1) Getting a co-signer on board - Make sure you pick someone with a good credit score and who can genuinely help you. Your co-signer is someone who will also be responsible for the debt in case you fall behind. Even with a co-signer, it is important to make sure that you can meet the monthly payments on time. It is advised to ask a relative or a friend with a good credit score.

2) Increase your credit score - If you have time on your hands, a few months to go before you decide to refinance. You take steps to improve your credit score, you can do this by making payments on time and also diversifying all your credit lines to help pay down any existing debt.

3) Create an extra source of income - Most of the lenders will consider this extra source of income for your loan application. With a higher income, you increase your chances of qualifying for refinancing. 

Refinancing your student loans can be harder when you are self-employed but don’t discard it as an option to manage your debt better. You should try and get better rates on your loans so that your chances of default are less.