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

Borrowers who are self-employed face difficulty in refinancing their loans. Here is an in-depth review to Refinance student loans when self-employed, interest rates, credit scores, ways self-employees can boost their application.

Updated by Jason Joy Manoj on 12th October 2020

“ Turning your passion into a job is easier than finding a job that matches your passion,” as said by Seth Godin. 

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 can 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 before starting their own business. 

You need to meet certain eligibility requirements to refinance student loans when self-employed. 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 self-employed borrowers 

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 self-employed person. 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 are spent on one-time supplies. This could be explained with the help of an example like it follows. If a factory owner spends a large amount on particular equipment, this purchase will last him for several 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. The borrower needs to reach out to several 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

Credit scores, cosigner, and income of the borrower is an eligibility factor that most private student loan lender takes into consideration. 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. A building a good credit score is extremely essential as that is the most important factor that any lender would consider or important to apply for any financial aid. 

4) Co-signer 

When a self-employed borrower 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. Once you have a cosigner with a traditional job and a fixed income arriving every month, your private loan lender would be reassured to receive the loan money. Usually, creditworthy parents and spouses are excellent co-signers to get on board and strengthen the application for the self-employed people. So having a cosigner with a good credit score can help you refinance your student loans, sometimes even for lesser interest rates and lesser monthly payments.  

                                                Worried about your college tuition? Learn more about best student loans 

Lenders, who 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 student loan refinance provide flexible terms and conditions and evaluate all the borrowers on a case to case basis.

Below is a table providing information regarding refinancing interest rates for each private student loan lender

Lenders Interest Rates
Earnest Variable -1.99 % ; Fixed 2. 98%
Common bond Variable $ fixed - 3.36%
Citizens Bank Variable 1.99% ; Fixed 2.99%

Earnest student loan refinance 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 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 student loan refinance lenders

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. Occasionally, your cosigner's credit history is also taken into consideration for approving and setting an interest amount during the refinancing process. 

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. The 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 

It can be challenging to refinance your student loans if you are self-employed. 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.  

Other blogs you may be interested in

Loan Repayment Guide for Freelancers/Self-Employed

Refinance Student Loans With A Cosigner

Private Student Loan Refinancing

Frequently Asked Questions

  • 1.Can self-employed borrowers refinance their student loans?  

    Yes, they can refinance their loans if they satisfy certain requirements. They should show proof of income, a good credit score, and a cosigner with stable income helps self-employed in refinancing their loans faster.  

  • 2.Are there any lenders who refinance student loans of self-employed?

      Yes, few lenders refinance the loans of self-employed like Citizen Bank, Earnest, and CommonBond. Most of the lenders show no interest to refinance loans of self-employed workers as they feel that they are not creditworthy.