Student loan refinancing can save you money but it’s a confusing process. Today we get some guidance from Mike Cagney, co-founder of SoFi.com.
SoFi started in 2011 by raising two million dollars from Stanford Graduate School of Business alums to loan to students. One hundred students were loaned $20,000 each. The idea being that the students would be more responsible with money borrowed from their own community and the lenders would have a vested interest in seeing students succeed from within that community.
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SoFi has evolved into a company that consolidates and refinances loans. They refinanced one hundred million dollars worth this June and save former students an average of $11,000 over the life of a loan. SoFi also help graduates who are unemployed by freezing their loans and helping them to find new jobs and help former students to start their own businesses by freezing loans and helping to raise capital.
SoFi can refinance loans with interest rates over 6% and can work with state, federal, and private loans. A big benefit of consolidating is that rather than dealing with several servicers, you’re dealing with one. If you have a job loss and need help, dealing with one servicer means things are much less likely to fall through the cracks. You can lose some protections that you have with federal loans like loan forgiveness after public service but SoFi does offer unemployment protection. State loans offer less protections more akin to private loans than federal.
SoFi offers five, ten, and fifteen year terms. If for instance you have six years left and opt for the five year term, your monthly payments will be higher but the interest rate will be lower.
Student loans are so confusing but Mike gives us some information on how to make them less so. First, before you borrow, understand the amount and why you’re borrowing. Take a look at your major and choice of university and see what the earnings are for graduates. If you take out $100,000 in loans for a field that pays $30,000, that’s not a good decision. While in school take out federal loans so that you are afforded the protections they offer. After graduating, consider consolidation so you are dealing with one entity rather than several. After consolidation, you can consider refinancing to lower your interest rate.
Mike’s final advice is that if you’re struggling, reach out to your servicer. It’s in no one’s interest for the borrower to default.
SoFi.com: SoFi has a great site that will help you decide if consolidation or refinancing are a smart choice for you.
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