Having to leave school before finishing your degree is common. Especially during the coronavirus pandemic, more students may have left school to help their families or to start working and earning money.
Your student loans stay with you even if you leave school, and your loans will enter repayment. While they can’t be erased, student loan refinancing can be one option for better managing your debt.
Refinancing Student Loans Without a Degree
When you refinance your loans, you apply for a loan from a lender for the amount of your existing debt. The new loan has different terms, including interest rate, minimum monthly payment and repayment term. By refinancing, you could lower your payment and interest rate, making your loans more manageable. The impact of refinancing your student loans can be significant. Consider this example:
John dropped out of college during his junior year. He had $30,000 in student loans at 5% interest and a 10-year repayment term. With his current rate and repayment term, he would pay $8,184 in interest charges.
If John refinanced his loans and qualified for an eight-year loan at 3% interest, he’d pay just $3,781 in interest charges—a savings of $4,402—and be out of debt two years earlier.
|Original Student Loan||Refinanced Loan|
|Loan Term||10 Years||8 Years|
|Minimum Monthly Payment||$318||$352|
|Total Interest Paid||$8,184||$3,781|
|Total Amount Repaid||$38,184||$33,781|
|Total Savings: $4,403|
If you dropped out of college, student loan refinancing to make loan payments more affordable can be especially beneficial. According to the U.S. Department of Education, students who drop out of college before earning a degree are three times more likely to default on their student loans than borrowers who graduated.
You can use a student loan refinance calculator to estimate how much you can save by refinancing your loans.
When to Refinance if You Didn’t Graduate
Currently, federal loan payments are suspended due to Covid-19 relief, and interest rates are set at 0% through at least September 30, 2021, as first made possible under the CARES Act. If you refinance your federal loans, they will become private loans, and you will no longer be eligible for the CARES Act’s protections, future loan forgiveness or other federal benefits.
Refinancing student loans if you didn’t finish your degree or if you’re still in school can be a good decision in the following scenarios:
1. Interest Rates Have Dropped Since You Applied for Loans
Depending on when you took out your loans and the type of loans you have, you could have very high interest rates.
For example, some federal loans issued in 2018 and 2019 had interest rates as high as 7.6%, while private student loan rates could be as high as 12.45%, according to The Institute for College Access & Success.
With such expensive debt, refinancing can be a powerful tool that allows you to take advantage of historically low rates. As of April 26, 2021, student loan refinancing variable interest rates were as low as 1.89%, and fixed-interest rates were as low as 2.55%.
By refinancing your student loans, you could save a significant amount of money over the length of your repayment term.
2. Your Credit Score Has Improved
While most federal student loans don’t consider your credit score when determining your eligibility, private lenders do perform credit checks. As an incoming college student, your credit score may not have been stellar, or perhaps you used a co-signer whose credit score was good but not excellent.
If your credit score has improved since you originally took out your loans, you might qualify for a lower interest rate when you refinance.
3. You Have a Co-signer Willing to Refinance With You
If you’re still in school or dropped out and are just starting your career, you may not have enough income to meet student loan refinancing lenders’ requirements.
However, you may be able to qualify for a loan—and get a lower interest rate than you’d get on your own—if you have a co-signer apply with you.
A co-signer is typically a parent, relative or trusted friend with excellent credit and a steady job. When they co-sign your loan application, they agree to share responsibility for its repayment. Applicants with co-signers are less of a risk to refinancing lenders, so they’re more likely to get approved for a loan.
What Refinancing Lenders Work With Borrowers Without Degrees?
A common question is: “Can I refinance my student loans if I didn’t graduate?” The answer is yes, but it can be more difficult than if you had a degree.
Finding a lender can be tricky. Most student loan refinancing lenders require applicants to have finished their degrees to qualify for a loan, but there are a few exceptions.
Here are some lenders that offer student loan refinancing for applicants without degrees:
- Citizens Bank: To get approved for student loan refinancing without a degree, you need to make at least 12 on-time monthly payments on your existing loans before applying.
- EDvestinU: EDvestinU does not have any restrictions on applicants without degrees.
- INvestEd: INvestEd does not have any restrictions on applicants without degrees.
- Rhode Island Student Loan Authority (RISLA): Only loans used for Title IV schools are eligible for refinancing; if you used your loans to attend a for-profit school, you aren’t eligible for refinancing through RISLA.
- Massachusetts Educational Financing Authority (MEFA): MEFA does not have any restrictions on applicants without degrees.
How to Apply for Student Loan Refinancing
To refinance your student loans, follow these steps:
1. Review Your Credit
Lenders typically look for applicants with good to excellent credit, so review your credit report before applying. If your credit is less than perfect, consider asking a relative or friend to co-sign your loan application or work on improving your credit.
2. Gather the Necessary Documents
Lenders will ask for information about your employment, income and existing loans. To streamline the application process, collect the necessary documents—including loan statements and pay stubs—ahead of time.
3. Get Rate Quotes from Multiple Lenders
Rates and eligibility requirements can vary from lender to lender, so it’s a good idea to get rate quotes from multiple lenders before submitting your application. Many lenders allow you to get a rate quote with just a soft credit check, which has no impact on your credit score.
4. Select Your Loan Terms
When you get a quote, you can change your loan terms. You can select a longer loan term—some offer terms as long as 20 years—to get a lower payment, but you’ll pay more in interest over time.
In general, lenders reserve their lowest interest rates for borrowers who choose shorter loan terms. To get the best possible rate and save the most money, select a term of five to eight years.
5. Complete Your Application
Most lenders allow you to complete the application online, and you can often get a decision within minutes.
If you’re approved for a loan, continue making payments on your existing debt until you receive a notification that the loans have been paid off to avoid any late fees or missed payments.
Do I Need to Pay All My Student Loans if I Didn’t Graduate?
If you left school without a degree, you still have to repay your student loans. Even if you feel like your education wasn’t valuable or didn’t help you find a job, you’re still responsible for repaying your debt.
There are very few circumstances where student loans can be eliminated. The following discharge programs only apply to federal student loans:
Borrower Defense to Repayment Discharge
If you believe your school deliberately misled you or engaged in misconduct that violated state laws, you may be eligible for forgiveness through the borrower defense to repayment program. If you qualify, the government will forgive a portion of your outstanding loans.
Closed School Discharge
If your college closed while you were still enrolled or within 120 days of when you withdrew, up to 100% of your federal direct, Perkins, or Federal Family Education Loans might be discharged through closed school discharge.
False Certification Discharge
You might qualify for false certification discharge if your school falsely certified your eligibility for federal financial aid. For example, if you did not have a high school diploma or GED, but your school submitted information that said you were eligible for federal loans, your loans may be discharged.
For more information about your loan options, check out this list of 11 student loan forgiveness programs.