Refinance Student Loans With Bad Credit

Student loan borrowers with bad credit can also have refinancing options if they fail to repay their loan. Learn more on why credit is important, how can they refinance with bad credit, what if they declared bankruptcy, will a cosigner helpful and much more.

Updated by Chandni Agarwal on 28th February 2020

While trying to tackle the rise in tuition costs you need to first explore the free financial aid options available. If you still have additional costs to cover or you don’t qualify for scholarships then you can start exploring other options such as student loans. Now comes the next big question - Which are the best student loans for me? In order to do that you have to explore all the available options. It is important to understand that the best student loan is not just the one that covers the costs incurred but also the one that is easy to manage. If your student loans are hard to manage you should consider refinancing your student loans, this is a great way to make your student loans more manageable.

Refinancing student loans with bad credit are also provided by some lenders. The borrower should have a fair knowledge about all these things before taking any apt decision.

Table of contents

The reason why credit is important in student loan refinancing?

When the money is borrowed to receive a service when you are in need of it or purchase something from banks or any other financial institution, it is commonly called credit. You can also give a check with credit unions. 

The borrowed money is paid back to the respective institution or banks over an agreed amount of time with a certain interest charge fixed with it. The amount of debt you have taken, the amount of debt you have compared to income, how well you are repaying your loan, these things will decide how bad or good your credit is.

Student loan refinancing will become next to impossible if you have bad credit. And even if you are qualified, refinancing your loan with bad credit will become very overpriced. Whether the borrower is creditworthy or not is decided by the lenders while they perform credit checks and they overview all the different financial variables. 

Your credit score is not important when you receive your first financial aid while you have federal student loans. Lenders will consider your financial status as the main norm for approving someone for refinancing, as soon as the financial aids become older along with life. What do lenders look at when there are determining if you are creditworthy?

Credit score

Five main factors are considered to check your credit score. They are Credit mix (10 percent), new credit (10 percent), length of credit history (15 percent), credit utilization (30 percent), payment history (35 percent). 

The FICO score scale ranges from low credit score minimums like 300 to the top tier credit rating which is 850. Any score under 550 is considered as bad credit by most lenders. If you have a credit score which is above that then you can refinance your student loans. Be it anything like setting terms and interest rates for your loan, or approving the refinanced loan as unsecured or secured, your credit score is considered as the main criteria by lenders.


When you have bad credit, how much you are earning and where you are employed will be a second big factor for whether you qualify for student loan refinancing. Whether you will be able to pay for your loan payment on time or not is a major concern for the lenders. For lenders, a higher-paying career will be a better option.

Debt to income ratio

When you add all your monthly expenses like credit card debt, student loan debt, and car payments as well as your expected monthly mortgage payment and then dividing that number by your gross monthly income, in this way your DTI can be calculated. For example, your debt-to-income ratio will be 40%, if you have a monthly income of $15,000 and monthly expenses from debt $6,000. When you want to refinance your student loans DTI will help you with better interest rates.

How does a bad credit or good credit look like?

You should first understand what caused you to have such bad credit then only you will be able to improve your credit. When you take too much debt or the debt more than you can afford, your bad credit will be increased as the debt starts to become hard to manage. Any late payments or missed payments will have a huge effect on how the lender will think of you as a potential borrower and your payment history is also a very important factor in the credit score.

You don’t get a high paying job which you expected to have and you land up with a high amount of student loan debt after you graduate. It can be that you don’t have any credit at all? If you have never signed up and your credit card is approved, don’t have any card payments, have no rental apartment or any mortgage, then other than your student loan debt, you don’t have established credit.

Lenders will have a check on that you are borrowing money and have always paid it back on time. Your major goal should be to improve your credit, although if you end up refinancing student loan debt or not.

Can you refinance student loans with bad debt?

When you compare income-based repayment options to student loan refinancing with bad credit, the type of student loan you have opted for will decide which one is best suited for you. Refinancing will be the best option in every scenario when you have private student loans. Over the period of time of your student loans, you may save a lot in interest charges, with refinancing which has a very good chance for a low-interest rate.

REPAYE an income-based repayment option offered by the government may be a better option for you if you will consolidate federal student loans with bad credit. With REPAYE you have eligibility for a student loan for forgiveness after 25 years and it also subsidizes student loan interest for some participants (those with Direct Subsidized Loans, Direct Unsubsidized Loans, Direct GradPLUS loans, Direct Consolidation loans except Parent Plus loans).

You can have a low monthly payment with REPAYE, which is like 10% of your income over 150% of the poverty line, from your monthly payment. This means your payment will be zero dollars if your monthly payment is 10% of the income. You should remember that you will not qualify for loan forgiveness and federal IBR plans if you continue student loan refinancing your loans become private.

Can you consolidate Federal student loans with refinancing?

Student loan consolidation can also be considered as an option if you have bad credit. Even if you consolidate your student loans the interest charge won’t be saved, but by making one monthly payment, you can manage your student loan debt in an easy way.  

A Direct Consolidation Loan is supported by the govt if you have opted for a federal student loan. The weighted average of all the loans you have consolidated (round up to the nearest ⅛ of a percent) will be received as an interest rate by you, with a direct consolidation loan. 

Having bad credit is not an issue in consolidation, as there is no credit check and maybe your monthly payments will also be lowered. You can certainly qualify for some IDR plans with direct consolidation loans.

What lenders refinance student loans for people with bad credit

The qualification criteria for the borrowers are very strict by the lenders which makes it impossible for the borrower with the bad credit to refinance student loans. There are high chances of rejection, or other options will be you will end up having high-interest rates or you will need a co-signer with very good credit.   

Once you improve your credit score, you can always apply for refinancing again, as the high-interest rate is not ideal. And with some specified number of on-time payments in a row, you can have a co-signer release which is provided by some lenders.

For people with bad credits, they also have some lenders in their options. 


Earnest can be said as one of the most consumer-friendly lenders. They don’t have any set income requirements, which is beneficial for people with bad credits, even if the minimum credit score requirement is 650. No application fees, origination fees, prepayment fees are charged by Earnest. You should have a consistent income or a signed job offer for employment starting within six months.   

Unemployment protection is also provided by Earnest, the only offer it doesn’t provide is the option to get a cosigner. Earnest is not available in every state, so you have to visit their website and confirm whether you are eligible or not. 


For people with bad credit, another very good option for refinancing is LendKey. A minimum credit score of 660 and an income of $24,000 (or $12,000 with a cosigner) is required by LendKey. No application fees, prepayment fees, or origination fees are charged by LendKey. They also provided unemployment protection. 

To be qualified for refinancing student loans, you should be a graduate with at least an associate degree. A cosigner and a cosigner release are allowed by LendKey.


Credible is also another refinancing lender for people with bad credit. Unlike other lenders, Credible is more of a third party online loan marketplace. Like you can simply fill out a form on Credible’s website and they will send you estimates from multiple lenders that use their platform.

No minimum credit score or income requirements are set by Credible’s as they represent multiple lenders. It can also be one of the best options for people with bad credit because they often find refinancing options for people who have been turned away by other lenders.

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

What if you have declared Bankruptcy?

Yes, you are still eligible to refinance student loans even if you have declared bankruptcy. Unlike in most of the situations with bankruptcy, you will have to wait for a lengthy period of time and work yourself back into the better financial standing to be eligible.

For example, if don’t have accounts recently in collections you can get qualify for refinancing with Earnest. You may also have to wait until after the bankruptcy comes off your credit report. If you have declared bankruptcy in the past, then you should do thorough research and should thin whether refinancing your student loans will make any sense.

What if you didn’t graduate?

Yes, you can refinance your student loan debt through some lenders, even if you don’t finish your school, or whether you planned to go back or not. But will it be a good idea? The very first step you should do is to make sure your loans are not in default if you left your school early and have any student loan debt.

Make sure you know all your repayment options to avoid defaulting on your student loans. Many times to avoid paying back their loans immediately, students or the borrowers who leave school turn to forbearance or deferment. By doing this they don’t realize that the situation is not improving as the interest rate is still growing on their account. 

If possible you should try to change the repayment options which could be the best option. Like you can opt for an income-driven repayment program like REPAYE if you have federal student loan debt.

How to improve your credit

You will not get an interest rate which you desired when you thought for refinancing your student loan debt if you have bad credit. After your credit is improved you can refinance your loan again, as the bad credit is fixable. The following ways will help you improve your credit:

Lower your debt-to-income ratio

As discussed above, your debt-to-income ratio is nothing but the revolving debt amount compared to your monthly income. Your DTI can be improved in two ways: by your increased income, lowering the amount of debt you have.  

If you have any expenses like credit card debt or monthly payments like a car, work very hard to pay off the debt, you should get rid of that money as soon as possible. Through this, it will be helpful for you to get a part-time job. It will be helpful to lower your debt-to-income. 

Pay your bills on time

Many people just don’t pay their credit, they miss the payment or making late payments? Even after you opt for automatic payments or do something like setting a reminder regarding the payment, your credit score will be massively impacted if you pay all your bills on time.

Use less of your available credit

In order to improve your credit, you can have one more step which is to use it less. At the time of applying refinancing for your student loan, it is considered by lenders, that how well you are utilizing your credit. Focus on to use as little as possible like less than 30 percent of your available credit line, even less than that if possible. 

Will a Co-signer help?

If a cosigner with a very good credit history is added with your application their are high chances that the lender will approve the application. Earnest, unlike the other lenders, don’t allow the borrowers to apply with a cosigner. 

Once the loan gets refinanced it will appear in the credit report of your cosigner. It will be treated as a part of cosigner’s debt load by the borrower. Your cosigner’s score will be shown as negative if you miss any payment and if you will not be able to pay, then it will be paid by your cosigner.

Co-signer release is offered by some of the lenders. If your credit gets approved and you successfully pay a certain number of payments without any fail then you can remove the co-signer. 

Will a boost in my cash flow help?

For student loan refinancing the only reason for rejection cannot be bad credit. The cash flow is also closely monitored by the lenders, or in other words, the money left after you cover all your regular monthly expenses such as rent and car payments.

As per the lender’s view, the more cash the borrower has, it is a sign of confidence for the lender, as to repay the refinanced loan will be easy for the borrower as there will be enough money. So to improve the cash flow of the borrower should increase the income and reduce the expenses. 

Think of paying off an outstanding card balance or adding to your income with a side job such as consulting, freelancing or taking advantage of the many “sharing economy” apps.

Alternatives to student loan refinancing

Refinancing may not be the best move, occasionally. Even if refinancing student loans with bad credit are done with the help of the co-signer if your income is less than your loan balance, then your monthly payments could remain unaffordable.

Depending on your financial situation and the goal you want, consider one of the following options.

1) To make payments more affordable: if you can’t pay your monthly payments easily and you have a federal student loan then signing up for an income-driven repayment plan could the best option. You can repay the loan in over 20-25 years and you will receive a small bill according to your income. Your balance can be forgiven at the end of the repayment term, but you won’t be saving on interest.

2) To simplify your finances with a single monthly payment: by combining multiple loans with one loan, which can be done with Federal student loan consolidation can help you distribute your repayment. Dissimilar, when you refinance with a private lender, your interest rate won’t be lower, but your monthly payment can be lowered by extending your loan term.