It's been nearly a year since I did my first post on student loan refinancing. That page continues to be one of the most frequently visited on the blog. I remember being pretty excited to see anybody refinancing student loans at that point. Over the last year, a few other companies/banks have gotten in on the act. Hopefully this is a growing trend. There have been a lot of growing pains for the companies doing this as well, and many WCI readers served as guinea pigs trying to qualify for these loans. This post will provide an update on what has changed in the last year.
Are You Sure You Want To Refinance?
The first decision someone with student loans needs to make is whether they're going to pay their loans off themselves or whether they're going to try to qualify for some type of forgiveness such as PSLF-Public Service Loan forgiveness (tax-free forgiveness after 10 years of payments while working for a 501(c)3), PAYE-Pay As You Earn forgiveness (taxable forgiveness after 20 years of payments), IBR-Income Based Repayment forgiveness (taxable forgiveness after 25 years of payments), or an employer or other government agency provided loan payback program. For the federal forgiveness programs (PSLF, PAYE, IBR) if you refinance your loans with a private bank, they are no longer eligible for forgiveness. It's probably not very smart to spend a lot of money paying down loans that will be forgiven or paid off by someone else. For this reason, most physicians shouldn't refinance their loans until completion of residency when they know if they'll be taking a 501(c)3 job.
Can You Refinance?
Another reason most physicians shouldn't bother looking into refinancing before residency completion is that they won't qualify. These banks are not government agencies, they are private, profit-seeking companies and they're not stupid. They're not going to loan $400K to someone with a $50K resident income. In fact, they might not even loan $400K to an attending pediatrician. You actually have to qualify for these things with a decent credit score and debt to income ratios. Besides, there are no income-based payments after you refinance. You can kiss those $50 a month payments goodbye. Once refinanced, you have to make the real payments, you know, the ones that actually cover the interest and will pay off the principal eventually.
How To Pay Off Debt
Dave Ramsey is right when he states you don't pay off debt by taking on more debt. Refinancing your loans is merely an aid in the process. If you can afford to put $3K a month toward your $200K in student loans, if those loans are 8%, you'll be done in 7 years and 3 months). If you can get that rate down to 3%, you'll be done in 6 years and 1 month, saving 14 months of payments. If you live a bit more like a resident and put $4500 a month toward the loans, you'll be done in just 4 years and 4 months, and that's without refinancing at all. Add in a 3% refinance, and you can get that down to 3 years and 11 months. As you can see, refinancing helps, but living like a resident helps a lot more. Please don't refinance your loans into such a long time period that you would have been better off NOT refinancing.
Several of the companies listed here are either paid advertisers or I have an affiliate relationship with them (meaning if you close a loan with them, they send a check to The White Coat Investor, LLC. As you may recall, this website is for-profit. If that bothers you, well, there are a few options listed with whom I don't have a financial relationship yet, or you can call these guys up yourself and not mention that you learned about them here. Now, let's talk about currently available options.
I have an affiliate relationship with Social Finance, but it works out well for both you and me. If you apply via the links on this page, not only will I get paid if you close a loan, but you'll get paid too- $300. If you're smart, you'll just have them apply that to your loan balance, but I suppose you could use it to buy a frosty at Wendy's every day for 10 months too if you want. At the time of this writing (August 2014), they are offering the following rates:
- 5 year variable: 2.66-4.54%
- 10 year variable: 2.79-4.66%
- 15 year variable: 3.16-5.04%
- 5 year fixed: 3.63-5.49%
- 10 year fixed: 4.74-6.63%
- 15 year fixed: 5.63-7.49%
There are a few things to notice here. First, if you're going to refinance into a 15 year fixed loan, you'll probably lower your payments but you're not going to save much in interest compared to just standard repayment. Second, the lowest rates are on variable rate loans. The faster you pay your loans off, the less risky taking a variable rate is. If you can live like a resident for 2 or 3 years and be done with them, then I think refinancing into a 3% variable loan is a great move. Even if interest rates go up, you'll probably still come out ahead. Not only do rates have to rise substantially, but they have to do so very early in the loan for you to come out behind. Third, notice the range. The worse a bet you are for the bank, the worse the rate they'll offer you. Have a crappy credit score? Have a high debt to income ratio? Expect to be in the upper end of that range. You may also find that you are in the lower part of the range from one bank, but the upper part of the range at another bank. So if you're not getting the rate you think you deserve, might as well look around.
I have gotten lots of good feedback about SoFi this last year. One reader shared this experience with me:
I attempted to consolidate my private loan debt (about 45k) 8 months or so ago through DRB and the process was a little humiliating. Because my debt is high and my income is low, they looked at me as if I was a 16 year old kid trying to get a loan for a ferrari on a fast food job salary. I guess what I am getting at is that they claim to be advocates for student loan refinancing, but they really have no clue regarding the financial peculiarities of a physician in training. So, these last few weeks I made another attempt for consolidation but this time used my wife as a cosigner (another physician out of residency with a much better debt to income ratio). Even with all of my proof of documentation, income for my wife and I, etc.. DRB still made it very difficult. They kept rejecting my paperwork asking for things in different format causing many hours of stress and footwork to try to meet their specific requirements. Then I got a letter in the mail from SoFi just about the same time your post went out, so I thought I would give it a shot. Their process was very straightforward and they seem to have a better grasp on how to make this process proceed in a smooth and painless manner. I had attempted to get my loan approved for over a week with DRB before becoming frustrated with them and with SoFi it was about 48 hours to get it all approved.
But I also have received some negative feedback such as this:
[When I called] SoFi, the gentleman who answered was clueless. I tried to explain that I was a resident about to graduate; he had no idea what a resident was and that I should apply right now. I told him I can't afford full payments until I start my job as an attending. He said “in my mind, every doctor makes a good salary whatever level of training they're at.” While it is true that a resident does make a salary competitive with many Americans, I was quite disappointed that this was the level of knowledge for an individual working at a company that refinances big loans.
I've received similar feedback for SoFi's competitors, so I hope most of this was just growing pains and they've worked through these customer service issues by now. There are a few school-related eligibility issues, but they seem to be much less stringent than they were a year ago. They will refinance people in 42 states (sorry for those out of luck in North Dakota and Alabama among others.) Also, you can't get a variable loan in Minnesota or Tennessee. Based on the trend, I suspect the eligibility criteria will continue to expand over the next year. Attorneys- note you have to pass the bar and get licensed before you can refinance with SoFi. SoFi also offers an “unemployment program” where they'll put your loans into forebearance (interest still accrues) for 3-12 months if you become unemployed. They also promise to help you find a job, but I'm pretty skeptical about how good they are at finding physician jobs for you.
Ready to take the next step? Apply to refinance your loans with SoFi in just 10 minutes online!
Darien Rowayton Bank (DRB)
DRB is another big player in this market and has been advertising with The White Coat Investor for nearly a year. Although the ranges overlap significantly, the rates at DRB are currently lower than those available through SoFi. (Although that doesn't necessarily mean the rate you are offered will be lower.) They also offer a 20 year loan (please don't take it.) Here are the rates as of August 2014:
- 5 year variable: 2.63-3.68%
- 10 year variable: 2.63-3.88%
- 15 year variable: 2.98-3.98%
- 20 year variable: 3.98%
- 5 year fixed: 3.50-4.75%
- 10 year fixed: 4.50-5.75%
- 15 year fixed: 5.50-6.25%
- 20 year fixed: 6.25%
Like SoFi, DRB has had some happy customers from this website and some unhappy ones. Here's some positive feedback on DRB:
SoFi has been nothing but frustrating to deal with. After about a month of waiting for an application to be processed, I inquired as to the status and immediately got a denial with no contact to supplement the application or reason for the denial. Credit score is over 800 and I have a lot of income and no other debt. I understand they’re busy but they’re almost impossible to get on the phone and the service is really terrible. I am now refinancing the loans with Darien Rowayton who is so far much easier to deal with and it feels like they’re actually taking time to review my application. Hopefully I’ll have better luck this time. Now that DR has the same 9% max cap on the variable rate, there’s no reason to go with SoFi.
I also wanted to share my experience with both SoFi and DRB. I have to say the application process with DRB was easier because with SoFi it took them awhile to approve me and thus some of my documents (like paystubs) became stale. Both of these companies failed to inform me that they were missing some of documents so I had to keep calling them to ask them about my application process. I have about 87K in law school debt, and Sofi gave me 5.79 (with .25 reduction if I signed up for direct deposit) and DRB gave me 5.50 (with .25 reduction if I sign up with an account with them)
I’m a dentist who graduated in 2011 with about $300k in student loans. Interest ranged from 5-8.25%. I had been trying to do my best to pay things off and have $142,000 left which I just refinanced through DRB. I took the variable rate of 3.49%, with a minimum payment of $1,015/month. I plan to pay this off in less than 5 years. I was paying $3,000-5,000/month before, and will be able to save a good amount in interest, plus it gives me options to allocate some of the money towards retirement and other investments. The DRB application process took a while, maybe 4 weeks, but it was worth it in the end
And some negative feedback:
I was approved, submitted all my documentation, and was rejected outright with no cosigner option provided. Notably, my application was marked “no option to reapply.” Since reading these comments, I’ve learned that my rejection is likely due to the required $4,500-$5,000 extra post-expenses (though this was never explained to me, I was told my debt-income ratio was too high, which could perhaps also be true). I’m an attorney making $90K with $200K in loans, no other debt (but rent around $1,200), great credit score, etc. I don’t think I know anyone with grad school debt that has $5K extra around each month — if we had it, we’d be using it to pay down loans faster or purchasing homes!
As you can see, people have had some issues with both of these companies, but for most people, it has been worth fighting through a bit of hassle to save a lot of dough. My thoughts on the matter are best expressed by a comment posted on the blog by a couple who actually refinanced with both companies:
We had a great experience with both DRB and SOFI. My wife got a rate of 2.75% variable on 155k in loans from DRB. Admittedly her DRB experience took a while and setting up the autopay is a bit of a pain but I’d do it again in a heartbeat. I had her apply roughly 45 seconds after this blog originally went up. Her DRB application did take over a month to go through. I’m sure they are swamped with an overwhelming response of people desperate to dump loans at 6.8 % or worse. My experience with SOFI was smoother than hers with DRB and I ended up with a variable rate of 3.9%. If you can pay the loans off quickly like we are doing I would go with a variable rate especially if you could potentially throw emergency fund money or taxable investments toward the balance in the unlikely event of rapidly rising increasing interest rates. I referred my friend to DRB and he opted for the half and half as he can’t pay back the loans as fast so that’s a nice option to hedge your bets so to speak. If the rates really sky rocketed to 18% I think we’d all have a lot more to worry about than student loan payments. Love both companies. Wish they had been around 5 years ago but glad they’re here now!
If you would like to try your luck with some new folks on the scene, I would go next to Common Bond. They have a similar business model to SoFi (i.e. more of a Peer to Peer organization than a bank.) They emailed me a few months ago. I told them I could not in good conscience send them any of my readers because they didn't offer a 5 year loan product and I wanted most of my readers to be out of student loan debt within 5 years. They responded with a whole slew of loan products and I agreed to an affiliate agreement with them (meaning I get paid if you close a loan with them.) Here are their current rates:
- 5 year variable: 1.94-4.76%
- 10 year variable: 3.16-4.79%
- 15 year variable: 3.41-4.89%
- 5 year fixed: 3.74-5.89%
- 10 year fixed: 4.74-5.99%
- 15 year fixed: 5.09-6.24%
Don't be surprised that those rates look so familiar. These companies are competing with each other for your business, and the winner of that competition is you. Rates have definitely trended down over the last year. I haven't gotten a lot of feedback from WCI readers about Common Bond, so if you've worked with them, please post a comment below. I have managed to negotiate a special deal for WCI readers with Common Bond. Just like with SoFi, if you refinance with them through links on this page, they'll pay you $300. They also have a job-finding program like SoFi.
Ready to take the next step? Apply to Refinance with Common Bond in just 2 minutes and get your $300!
I tried to contact these guys and couldn't get anyone to get back with me. When they do, I'll update this post. But from their webpage, rates are variable only and range from 3.47-9.47%. I'm not sure how set up they are for doctors as they seem to limit their loans to just $175K total.
I'm not even sure if these guys are in business yet. When you sign up with them, they put you on a waiting list. It sounds like they're only planning a 10 year fixed option for now. They are physician-specific.
Rates start at around 3% variable and 5.24% fixed but be aware these are not available for federal loans, only private ones.
This one is completely new to me as I write this. They have weird options. All loans are for 25 years (please don't spend 25 years paying off your loans when you can get PAYE forgiveness at 20.) However, you get a lower rate by taking a variable rate after a certain number of years. If you take a variable after 1 year, you start with 4.99%. You can get 5 years fixed at 5.99% before it goes variable or ten years at 7.99% before it goes variable. In my view, these are pretty uncompetitive offers but hopefully they'll come up with something more reasonable soon, before they go out of business. I mean, what do they think people are refinancing from if they think 8% is a good deal?
If you're planning on paying your loans back, and you weren't lucky enough to refinance them at the super-low rates available before 2005, take a look at these refinancing options about the time you finish training and use the savings to get out of debt even sooner.
Have you refinanced (or tried to refinance) with one of these companies? Share your experience in the comments section!