U.S. Structured Finance Newsletter: Student Loan Refinance Sector — Not All Free Cash Flow is Created Equal
Monthly free cash flow is a relatively new data point utilized by student loan refinance lenders when assessing a prospective borrower’s ability to repay a loan. Unlike the more traditional debt-to-income ratio, which compares overall monthly debt obligations to monthly income and is expressed as a percentage, free cash flow calculates a borrower’s available cash after subtracting monthly expenses from monthly gross income. Typical components of free cash flow analysis include: gross income, income taxes, housing costs, installment loans and revolving credit.
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