Why so few banks refinance student loans
For people who are struggling to pay off their student loans, refinancing is an option that can provide relief. However, borrowers may also have difficulty finding a traditional bank willing to refinance their student loans. Regulations around private student loan lending can make it difficult for some banks to offer competitive loan rates.
What is the difference between refinancing with another bank or lender?
If you only have student loans from the federal government, you can consolidate those into one loan that requires a single monthly payment. This can often provide better rates for borrowers.
If you have a mix of federal and private loans, you can refinance those loans with a private lender. The result will be a single rate for all of your loans, which you can pay off in one monthly payment instead of multiple loans from different lenders. This usually leads to better terms, including lower interest rates and longer repayment times. However, borrowers can lose protections by consolidating federal loans from a private lender into a single refinanced loan. It usually also requires a good credit score or a co-signer.
Why don't many banks refinance student loans?
Student loan expert Mark Kantrowitz says many major banks no longer offer or refinance private student loans because it's a small part of their business and comes with additional regulations, such as disclosure requirements for private student loans.
Kantrowitz noted that after the FFEL federal student loan program ended in 2010, many major banks stopped offering private loans and refinanced student loans. This loan program had very high loan sizes and guaranteed returns, so removing it would have meant that there was little incentive to do so. Major banks will offer student loan refinancing products in such a limited market.
Some major banks also see auto loans as an easy way to reach recent college graduates, he says. Other banks with a large online presence may instead choose to focus on financial products with broader appeal, such as credit cards or personal loans.
However, a number of tech startups have filled the void in the student loan refinancing market, so there are a lot of companies competing in this space.
Caitlin Walsh Epstein, chief marketing officer of Laurel Road Student Loans, says more fintech companies are refinancing student loans, which reflects the companies' ability to offer exceptional digital banking services. “We expect fintechs to continue to grow in the space, especially those that have the potential to meet the needs of today's consumers.”
Should you refinance with a bank?
If you're looking to refinance your student loans through a traditional lender, you have to make sure you take the steps to get the very best deal possible. However, refinancing your student loans only makes sense if you're getting a lower interest rate, make affordable monthly payments or change the terms of your loan so that it's tailored to your needs.
The best way to find the best lender is to pre-qualify with several. Your rate will vary based on your creditworthiness, so checking each company's website for advertised rates isn't necessarily the best way to compare loan offers. Try pre-qualifying with a range of online banks and lenders.
In some cases, a traditional bank may offer you the cheapest loan, especially if the bank has a discount for existing customers and you already have a credit card or bank account with the company. Refinancing with a bank can also be easier if you have bank branches to ask around. However, there may be cases where online lenders offer more flexibility with your loan or unique benefits, which may make them a better choice.
Banks that refinance student loans
While many popular student loan refinance companies are digital only, there are some banks that will refinance student loans:
Citizen Bank: Citizen Bank is a good option for borrowers who already have a checking account, savings account, credit card, or other financial product with the company. Citizens Bank is providing a 0.25 percent discount to current clients in addition to the regular 0.5 percent auto-pay discount. Borrowers can pay off their loan over five to 20 years, although they must refinance a minimum of $10,000.
Discover: Discover offers fee-free student loan refinancing, waiving origination, application, and even late penalties. Borrowers have the freedom to refinance while they are in school, which is a rare option. Unfortunately, Discover limits the refinance amount to $150,000.
Education Loan Financing: A division of Southeast Bank, Education Loan Financing offers refinancing with low initial interest rates and extended repayment terms. All borrowers are assigned a student loan counselor to help with repayment questions, loan options, and more. If you apply with a co-signer, note that Education Loan Finance does not offer co-signer release on its refinance loans.
Laurel Road: The Laurel Road refinance product is not limited to bachelor's degree holders. It will also refinance loans to people with undergraduate degrees in healthcare fields. It also offers a 0.25 percent discount to borrowers who tie their student loans into a Laurel Road checking account, though borrowers who pay late or don't have enough funds incur steep fees.
PNC Bank: PNC Bank offers undergraduate and graduate degree holders a low interest rate and four payment terms, as well as a generous 0.5 percent discount for setting up an automatic payment. One of PNC's biggest draws is that it will refinance loans to people who don't have a degree, though it won't refinance more than $25,000 in student loans. maybe.
Bottom Line
Refinancing your student loans in one payment can provide relief to borrowers. This usually results in longer repayment periods, lower monthly payments, and better interest rates. However, it can be difficult to refinance both private and federal loans because some banks do not offer the ability to refinance student loans. Find a lender who will work with you and offer a rate that will fit your needs.
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