Student Loan Refinancing Guide: SoFi
With private student loan interest rates on the rise, and the high cost of college forcing many students and parents to take on debt to pay for college, student loan refinancing has emerged as an option for borrowers to reduce their interest rates (depending on their credit score) and save money on repayment.
What is Student Loan Refinancing?
Student loan refinancing involves consolidating your current student loans into one and obtaining a new student loan at a new interest rate.
Rather than having multiple loans with a variety of interest rates through different lenders, you can combine all of these loans into one loan with one interest rate and one monthly payment. Borrowers who only have one federal or private loan can also refinance it in order to obtain a lower rate.
Depending on the strength of your current credit score or cosigner’s credit score and other factors, you may find that refinancing your student loans saves you money–up to tens of thousands of dollars for some borrowers.
Several student loan refinancing companies have earned strong reputations helping combat the student debt crisis across the country. While student loan refinancing was once looked at with skepticism by financial aid officers and colleges, it’s now seen as a credible way for student loan borrowers to save money (and time) repaying their student loans.
Today, student loan refinancing can be a great option for borrowers who have have high student debt balances and high interest rates on their federal and/or private student loans.
Luckily, you can find out what your new interest rate and terms would be through these companies’ websites before deciding whether or not to refinance your loans. So there’s really no risk in checking them out to help determine if student loan refinancing is right for you.
Refinancing Federal & Private Student Loans
Even though federal student loan interest rates change yearly, borrowers who took out loans in the past cannot refinance them at lower rates through the federal government like they can with mortgages and other federal loans. Borrowers can, however, refinance their federal student loans, including Stafford Loans, Perkins Loans, and Parent PLUS Loans, through some student loan refinancing companies.
For some borrowers, refinancing federal student loans results in a lower overall interest rate than they were paying on these loans and saves them money on repayment. Being able to refinance federal student loans together with private loans is another benefit for borrowers who want only one monthly student loan payment.
For borrowers who already have low interest rates on their federal student loans, however, it may be better not to refinance these loans, since you give up some benefits (such as participation in federal student loan repayment programs) when you refinance federal student loans through a new lender.
If the borrower also has high-interest private loans, however, they can often find lower rates and better repayment terms through a student loan refinancing company, and can choose to only refinance these loans.
In order to refinance your student loans, you have to apply through a student loan refinancing company. Some, like LendKey, work with not-for-profit credit unions and will provide you with a refinancing loan through one of these organizations, while other companies offer loans through traditional banks and financing companies.
Student Loan Refinancing Companies
With so many student loan refinancing companies out there, it’s important for borrowers to be able to shop around for the best rates and compare their options so they can make the best decision for their situation. Interest rates can vary widely and will depend on the company as well as the borrower’s creditworthiness, income and other factors.
Our guide focuses on the most popular student loan refinancing companies, their benefits and what makes them unique, as well as their interest rates and possible downsides.
SoFi Student Loan Refinancing
The first post in our series focuses on SoFi, a company that lets borrowers refinance student loans through a network of private and institutional investors.
SoFi is one of the most well-known student loan refinancing companies. They have refinanced a total of $16 billion in loans and have worked with over 250,000 borrowers.
According to NerdWallet, SoFi offers loans of up to $100,000 to well-qualified borrowers, which is higher than most online lenders, as well as fixed and variable interest rates.
SoFi’s co-founder tells NerdWallet that the most important factors for borrowers who apply for student loan refinancing loans with SoFi are a history of making on-time payments, a high earning potential and the industry the borrower works in. Credit score comes after these factors, he says.
According to SoFi’s website, borrowers who refinance with SoFi save an average of $2882 a month, and $22,359 total.
SoFi’s variable student loan refinancing rates start from 2.365% APR to 6.290% APR (with AutoPay) and their fixed rates range from 3.375% APR to 6.740% APR (with AutoPay) as of March 12, 2017. The average rate for a three-year loan at SoFi is 8.5%, according to the company.
These rates are slightly higher than the lowest rates LendKey offers, which start from 2.27% APR for variable rate loans with AutoPay and 3.25% APR for fixed rate loans with AutoPay as of March 12, 2017.
Like LendKey, SoFi offers no origination fees and no prepayment penalties on their refinancing loans and are one of only a few lenders that allow borrowers to refinance private and federal student loans together, including graduate school loans.
They also offer unemployment protection, so if you lose your job during repayment SoFi will suspend your monthly loan payments and provide job placement assistance during this forbearance period.
One unique thing about SoFi is that they offer memberships to borrowers with several perks, including career strategy services, customer support seven days a week, invites to SoFi events, wealth counseling and more.
SoFi also lets parent borrowers refinance their Parent PLUS loans, which is something that not many student loan refinancing companies do. Parent PLUS interest rates have historically been much higher than undergraduate student loans.
Depending on when you took out your Parent PLUS loan, your interest rate could be 8% or higher. Therefore, some parents who refinance through SoFi may find that they can get a lower rate and save money on these loans.
Requirements, Fees and Loan Terms for SoFi Student Loans
According to NerdWallet, SoFi is a good fit for student loan borrowers who:
- Have excellent credit scores. SoFi’s minimum credit score is 660, but borrowers generally have scores above 700.
- Have high incomes. The median annual income of a SoFi borrower is $106,000, according to the company, and earning potential is a bigger factor in your approval than a high credit score.
- Are new to credit. There is no minimum requirement for years of credit history.
- Want support and networking opportunities. SoFi’s unique membership benefits may be attractive for many borrowers.
SoFi’s lending terms are as follows (as of March 12, 2017):
- Variable rate loans APR: 2.365% APR to 6.290% APR (with AutoPay)
- Fixed rate loans APR: 3.375% APR to 6.740% APR (with AutoPay)
- Minimum loan amount: $5,000
- Maximum loan amount: Up to loan balance
- Minimum loan duration: 3 years
- Maximum loan duration: 20 years
- Time to receive funds: 10 days
- Autopay discount: 0.25%
Here are SoFi’s fees and penalties to keep in mind:
- Origination fee: None
- Prepayment fee: None
- Late fees: 4% of payment due or $5, whichever is lower, after 15-day grace period
- Personal-check processing fees: None
SoFi Reviews & Customer Experiences
SoFi has very positive reviews across the board from student loan borrowers and publications. They are rated 4.9 out of 5 stars on Credit Karma, 5/5 on NerdWallet and 4.5/5 on Student Loan Sherpa. They also have an A+ rating on the Better Business Bureau website and are rated 3.92 out of 5 stars based on their BBB rating and customer reviews.
There are, however, several negative reviews on the website, and most are related to the difficulty of being approved for a SoFi refinancing loan, especially one with a lower rate and favorable loan terms.
Student Loan Sherpa summarizes: “SoFi approval can be a pain in the neck, but if you have the credit score and income to get approved, SoFi is a great option.”
While we don’t have firsthand experience with our clients using SoFi to refinance their student loans, from our research we’ve seen that even though it can be difficult to get approved for a SoFi loan, the company offers may great benefits.
If you’re applying for student loan refinancing through SoFi, we recommend applying through other companies as well in case you aren’t approved or are approved for a higher rate than you’d prefer. You may find that LendKey or one of the many other student loan refinancing companies is a better fit for your situation.
If you need help repaying your student loans and are interested in working one-on-one with our student loan experts, call us at 1-888-234-3907 or send us a message.