You would have to live under a rock to not have heard about the student loan crisis in America at this point. The student debt crisis has particularly hit millennial borrowers who are graduating with unprecedented levels of debt. In fact, in 2016 the average borrower had just under $29,000 in student debt.
That works out to over $1.35 trillion dollars in student loans in the U.S. shared by over 43.3 million borrowers. Many of those borrowers are facing challenges repaying their loans. In fact, 400,000 are in default on their loans.
This debt crisis has greatly impacted borrowers. It’s been widely reported that millennials encumbered by their student loans are having to delay important life milestones such as moving out on their own, getting married, and having children.
Student Loan Refinancing
Over the last few years, many of these student loan borrowers turn to refinancing to help them get their student loans under control.
Student loan refinancing offers them the opportunity to potentially pay less interest on their debt which will allow them to save money on their student loans and potentially repay their student loans faster since more of their monthly payments and any additional money they pay will go towards the principal of their loans instead of the interest.
Student loan borrowers are often given the advice to apply for student loan refinancing to see if they can save money on their loans, but how easy is it to actually qualify and how does it benefit the average borrower?
Here Is the Data
LendEDU, a student loan refinancing marketplace, decided to find out the answers to those questions and more to create a snapshot of the state of the student loan industry. Over the last year, they collected data from over 23,000 applicants that used their website to apply for student loan refinancing from companies like SoFi, Citizens Bank, College Ave, Earnest, LendKey, and CommonBond.
The Data Tells an Interesting Story
If you’re thinking about refinancing, you might have wondered what the average FICO score is for applicants that are approved to refinance their student loans. It turns out that it is fairly high at 757. But that doesn’t mean that you can’t qualify if your FICO score is below that – a score of 560 was usually sufficient.
The study also found that over 43% of applicants were not approved for student loan refinancing. Those that were approved qualified for an average interest rate of 4.83% – a rate which includes automatic payment discounts. Of those who were approved, only 33.36% went on to refinance their loans. They took an average of 28 days from when they were approved to when they refinanced their loans.
The dollar amount of the debt that they refinance might surprise some people. They refinanced an average of $53,892 over a term length of 10.4 years.
Think that a co-signer isn’t something you need when refinancing your loans? Think again. Around 32.24% of applicants refinanced their loans with the help of a co-signer. While that might have helped them get approved – it didn’t make a huge difference on their interest rates. Those with co-signers only saved 0.15% on their interest rates.
Finally, borrowers in California, New Jersey, Massachusetts, Illinois, Pennsylvania, and New York were more likely to apply to refinance their loans.
What This Data Means
One thing that’s interesting about the data is that it shows that student loan refinancing is still accessible to those with low FICO scores. While the average score is high, slightly lower scores do not seem to affect eligibility. This might be because some lenders like Earnest and SoFi are using alternative underwriting criteria to make up for the fact that many millennial borrowers have low credit scores, but are still good credit risks.
Another interesting thing to note is how much student debt is being refinanced. Despite the fact that the average student debt is just $29,000 – the average amount that people refinance is much higher. That might be because people who have large amounts of student debt are more likely to struggle with that debt and seek alternate solutions. It might also represent the fact that professionals like doctors and dentists are both more likely to get approved and have much higher loan balances.
Another thing that’s interesting is the fact that co-signers don’t have a huge impact on the interest rate.
Finally, the most important thing to note is the relatively low interest rate that borrowers qualify for. That means that many more people would benefit from student loan refinancing than might think they would, as most people are paying more than 4.83% in interest on their loans.