Debt-to-Income Ratio

Lenders calculate your debt-to-income ratio by dividing your gross monthly income by the sum of your monthly loan payments and other financial commitments. If you want to refinance your student loans, you will typically need a DTI lower than 50%. The more manageable your debt-to-income ratio is the higher your chances of qualifying for a loan with a manageable interest rate.

Are Student Loans Counted In Your Debt-To-Income Ratio?

When determining your debt-to-income ratio, lenders will often consider the amount you are currently paying toward your student loans. They will also consider any payments you owe and responsibilities such as child support and your housing payment, which they will do even if you rent.

You may get an approximation of your debt-to-income ratio using the calculator provided below. Consider registering for student loan refinancing pre-qualification to see whether or not you will fulfill a lender's other eligibility requirements. This should be done regardless of your DTI. The pre-qualification process won't negatively impact your credit score and will provide you with an estimate of your particular interest rate.

Can You Get A Refinancing Loan If You Have A High Debt-To-Income Ratio?

If you have a high debt ratio to income, you can refinance your student loans if you increase your income, pay down some of your debt, or do both. You can satisfy the lender's criteria by refinancing your loan with the aid of a co-signer if the other choices are not feasible.

A high ratio of debt to income indicates that a significant income of your earnings is being used to pay off debt. A DTI that is more than or equal to 40% is seen as an indicator of financial strain by the Federal Reserve. If your debt-to-income ratio is modest (less than 20%), you have some wiggle space in your budget.

Refinancing may decrease your debt-to-income ratio by reducing the amount you have to pay each month toward your student loans. You could find this useful if you're looking to secure a mortgage to purchase a house.

Consider enrolling in an income-driven repayment plan as an alternative to refinancing your student loans if you cannot qualify with a traditional lender due to your debt-to-income ratio (DTI). That may result in a lower monthly cost for you.

Debt-To-Income Ratio Requirements

To refinance your student loans, the lender's criteria regarding your DTI must be met. The DTI criteria are often not disclosed to the public; however, the following lenders make this information available:

Your debt-to-income ratio (DTI) is one of the factors that lenders that refinance student loans take into account when making their decision, but it is not the only one. When determining whether or not you are eligible for student loan refinancing, other essential considerations besides your credit history and scores include your work situation and funds.

How to Raise Your DTI Before Refinancing Your Mortgage

Consider implementing any of these suggestions to reduce your DTI before applying for student loan refinancing if your DTI is too high for most lenders.

Enroll in an IDR Plan

If you've federal student loans, you may be eligible for income-driven repayment programs, which may cut your monthly payments while improving your debt-to-income ratio (DTI). Your new payment under an IDR plan will be based on a longer loan period (anywhere from 20 to 25 years) and percentage of discretionary income, which will be determined depending on the number of people in your household and your income.

Pay Off Some of Your Debts

In addition to student loans, you can be responsible for other kinds of debt, such as balances on credit cards or medical bills to be paid. If this is the case, one way to lower your DTI is to pay off the account that has the smallest amount. If you pay off the obligation, it will bring down your total debt and get rid of a monthly payment, which will improve your debt-to-income ratio. You can also settle the debt by making the minimum payment possible each month. Your debt-to-income ratio (DTI) will drop the most due to this move since it will relieve you of the most significant monthly financial obligation.

Increase Your Income

If you can, boosting your income will allow you to reduce your DTI percentage. Lenders will consider any consistent sources of income in determining your debt-to-income ratio (DTI), including pay raises from employment, pay increases received by transferring jobs, receiving pay increases by picking up a second job or side hustle, etc. For illustration's sake, let's imagine that each month you bring in $3,000 after tax and have the following monthly payment obligations:

• Credit card: $200
• Auto loan: $350
• Student loan: $600

You have a total of $1,150 worth of monthly commitments and expenses. Your debt-to-income ratio (DTI) is 38% if you divide the amount by your income, which is $3,000. Your overall income would rise to $3.5 thousand, and your debt-to-income ratio would fall to only 32.8% if you started a side business delivering groceries and made an extra $500 per month. This would be a substantial improvement.