Published On: Sat, May 16th, 2015

Student Loans: Refinance, Consolidate or Call For Help?




Student loan debt has reached a staggering $1.2 trillion. When student loans are issued, very few questions are asked. College students have not started their career, and they do not have a credit history. Federal and private lenders cannot look at income, employment or FICO scores because they don’t yet exist. So lenders issue big loans and hope that once you graduate, you will be able to pay back the loan. And to make sure you pay back, the government passed a law making it almost impossible to eliminate both federal and private student loan debt in bankruptcy.

When college students graduate, they begin to demonstrate their earning potential and build their credit scores. Although all students are treated the same by lenders when they are borrowing, they start to look very different once they enter the real world and get jobs. Some people start to realize that they can’t afford their student loan payments and panic. Other people, with big starting salaries, become increasingly annoyed by the high interest rate they are paying. In the last few years, good options have emerged for both groups to save a lot of money.

I Have A Good Job, And Want A Lower Interest Rate

Interest rates on student loan debt can be high. To solve this problem, a number of lenders have started offering opportunities for borrowers to refinance their student loan debt at much lower interest rates. In order to qualify for a refinance, most lenders have strict underwriting requirements. You need to have a job with a good salary and a good credit history. Many new lenders understand that recent college graduates are likely to have a thin file or no credit score, so they are willing to consider other indicators of your credit risk. For example, some lenders will look at your bank account to see the pattern of your cash flows and level of savings. Other lenders will consider where you studied and what degree you received. A computer science degree would be considered lower risk than an art history degree. All of these lenders are trying to find ways, beyond the traditional FICO score, of determining your credit risk.
The number of lenders offering student loan refinancing has expanded in recent years. A number of start-ups have been growing exponentially. SoFi is the leader in this space, having originated over $2 billion since launch. Credit unions have started expanding their student loan portfolios rapidly. Even large commercial banks are attracted to this space, with Citizens Bank leading the charge.

As you might imagine, the Silicon Valley start-ups tend to have the lowest interest rates. You can now find variable interest rates as low as 1.90%, and fixed rates as low as 3.50%. If you want to find a good rate, you should feel safe shopping around. According to FICO, you can apply for as many student loans as you want in a 30-day period, and it will only count as one inquiry. You can find a good list of student loan providers, ranked by interest rate, at MagnifyMoney.