Refinancing for DACA Recipients

While DACA recipients are granted legal status to study and work in the United States, they do not have access to the same financial aid programs that U.S. citizens do. Furthermore, DACA students may have an extremely difficult time taking out loans to pay for school, since they are not citizens or permanent residents.

The relative inaccessibility of student loans and aid for DACA students leads many to take out loans with unfavorable terms, or even cover tuition with credit cards. The following article details the process of refinancing for DACA students, and how refinancing may benefit you.

What is Refinancing and How Does it Help Student Borrowers?

Refinancing is the process of taking out a new loan with different terms and rates than your original loans and using the funds from the new loan to pay off the old loans. This allows student borrowers to switch lenders, and find terms and rates that are more suitable for their current financial circumstances.

Rates on student loans are relatively high because students beginning college typically have limited income and credit history. However, after graduating the earning potential of these students increases, and many have accumulated some credit and employment history by then. When these graduates apply for refinancing, then, their finances will be assessed more favorably than with their first loans, and they will likely qualify for better rates.

How Refinancing Help DACA Recipients

Refinancing is beneficial to most students with substantial student loans since you can often lower your interest rate. DACA recipients, in particular, can benefit from refinancing. See the following section for details on how refinancing for DACA students can reduce your debt burden.

Refinancing Unfavorable Personal Loans

Since DACA students have limited loan options, they are often forced to go with whatever options are available to them. This can leave DACA recipients stuck with high interest rates and inflexible terms, which makes it much more difficult to pay off the loans. By refinancing, you can escape these terms and generate huge savings by obtaining a lower interest rate. Also, refinancing lets you choose a new lender, so if your current lender charges fees or penalties for prepayment, refinancing can be particularly beneficial.

Refinancing Credit Card Debt from Tuition

A more extreme option that some DACA students take when they are denied access to loans entirely is to pay their tuition and education costs with a credit card. Refinancing is extremely helpful for these students since the interest rate on credit cards is much higher than personal or student loans. By taking out a loan and paying off your credit card debt with it, you will escape the huge interest payments that come with credit card debt.

When to Refinance Your Debt

While there are numerous potential benefits to refinancing your loans, refinancing is not ideal for everyone, and not everyone will get a lower interest rate. There are a few factors that you should look for in your current loans and finances to determine if refinancing is suitable for you.

First, if your credit or income has improved since you took out your student loans, then you have an excellent chance of qualifying for a lower interest rate. The savings that you will get from lowering your interest rate alone will make refinancing worthwhile.

Also, student borrowers facing any of the following circumstances will benefit from refinancing:

• Your loans have high variable interest rates: Variable rates are expected to continue to rise in the coming years. Refinancing at a flat rate will generate huge savings over the course of your loans.
• You have private student loans: If you refinance private student loans, you won’t lose any federal protections.
• Your lender charges fees and penalties: By refinancing, you can avoid charges like prepayment penalties and earn more flexibility to repay your loans on your own schedule.

Why Most Lenders Won’t Refinance for DACA Recipients

While the financial situation of most DACA recipients is ideal for refinancing, many lenders refuse to refinance for DACA students. There are a number of reasons for this, including:

Lack of Credit History

Credit history is extremely useful to lenders because it details your ability to pay bills and meet financial obligations. Since DACA recipients typically have a limited credit history, their applications are often penalized by lenders.

Lack of a Cosigner

DACA students are immigrants brought to the U.S. at a young age by immigrant parents, which means they typically do not have access to a cosigner when applying for refinancing. A cosigner serves as the guarantor for the loan, and lacking a cosigner leads lenders to label you high-risk.

Temporary Resident Status

While DACA students have legal residence in the U.S., and the right to study and work, they are not permanent residents. This makes their stay in the U.S. inherently tenuous, and lenders fear that non-permanent residents may leave the country without repaying their loans.

Are There Lenders That Will Refinance for DACA  Students?

Yes, there are lenders that will disburse loans to immigrants without permanent resident status or citizenship. For some lenders, having a Social Security number is enough, while others aim their services entirely at the immigrant community. Stilt is a San Francisco-based online lender that has built their eligibility criteria to be inclusive of immigrants as possible.

To apply for refinancing with Stilt, you first complete an online application. You simply divulge some personal financial details, describe your refinancing needs, and authorize a soft credit-pull. Stilt’s eligibility requirements focus on peripheral factors like education and skill-set, rather than credit score. If your application meets the minimum requirements, then your application will be approved.

You will qualify for an interest rate and a range of loan terms that you can choose from. Once you agree to the terms of the loan, Stilt will pay off your student loans or credit card debt, and you will start making payments on your refinanced loan.

Conclusion

While DACA students face particular discrimination as noncitizens without a permanent residence, they can stand to gain a lot from refinancing their loans or debt. You should investigate a variety of lenders and see which lenders accept applicants who are not permanent residents. From there, try and get quotes for an idea of the rates you would get, and choose the lender with the most favorable overall terms.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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