Student loan refinancing is the (somewhat elusive) process by which a borrower can obtain a lower interest rate on their student loans, often by taking out a new student loan from a different lender. If this new loan comes with a lower interest rate and more favorable repayment terms, the borrower may save a good deal of money, both on a monthly basis and in total over the course of repayment.
Right now, there’s unfortunately no way to refinance federal student loans within the federal student loan system, which is troublesome for many borrowers who have high-interest federal student loans. Private student loan refinancing largely dried up during and after the financial crisis of 2007-2009. However, in the past few years, new and somewhat unique private student loan refinancing companies have begun offering some options to borrowers. Because these companies and their programs are relatively new, and student loans generally must be repaid over a long period of time, we don’t yet know enough about these companies to say with certainty whether they provide viable long-term solutions for borrowers. What we do know is that these programs tend to be geared towards borrowers with excellent credit and good earning potential, which effectively locks out many borrowers who need the most relief.
One of these new student loan refinancing companies is called SoFi (short for “Social Finance”). SoFi offers student loan borrowers with various refinancing options through a unique investor-based funding mechanism. It’s one of the leaders in this nascent industry.
I recently had the opportunity to sit down with a borrower (we’ll call him “Aaron” to protect his privacy) who refinanced his student loans through SoFi. Aaron agreed to share his experience with me, and he even let me review his loan contract with SoFi. As a student loan attorney, this was an exciting opportunity for me to get an inside look at a new type of student loan.Read More