The second in a three-part series on refinancing student loans.
Part I: Should I Refinance My Student Loans?
Part II: Choosing a Student Loan Refinancer
Part III: Application Tips and Post-Refi
Yesterday we broached the topic of student loan refinance by asking whether it’s right for you. If you answered yes, then it’s time to move on to selecting a refinance provider. Three general notes: first, while we’re listing our favorites, you should definitely shop around for the best deal as each provider values application criteria differently. Second, just a reminder that the Fed is widely believed to be raising interest rates this week [Update: the Fed raised rates 0.25% March 15], so I’d suggest swift, decisive action to avoid unnecessarily paying an extra quarter-point of interest. Third, and most importantly, remember that this is a financial decision. While we highlight some of the restrictions and features of various refinancers’ programs, we generally encourage you to follow the money and get the lowest interest rate possible. If you’re deciding between a lower rate with no features and higher rate with great features, you can use our handy refi calculator to compare the two and see how much those features cost.
Without further ado, here’s a rundown of Y2C’s favorite student loan refinancers, noting pros, cons, rate ranges, considerations, and of course, referral links for you to get free money with your application.
- First Republic Bank
- Takeaway: lowest rates by a longshot, but also the most restrictions by far.
- Rates: 2.35% (5-year fixed)/2.38% (5-year variable)
- Min./Max. Loan: $60,000/$300,000
- First, you have to live near an FRB branch (don’t worry, you don’t have to do anything in person). Basically this boils down to Boston, New York, Palm Beach, the Bay Area, and Southern California. FRB is strict about this one, so if it’s not you, skip ahead to #2.
- Second, FRB lists a credit score of 750+ and 2 years work experience in your current industry as requirements. I’ve been told that these are not hard requirements, and that FRB will generally consider someone with a credit score in the 700’s (especially for younger borrowers) and career commitment, as evidenced by work experience, internships, or significant schooling. FRB also has a hard liquidity requirement (calculated based on savings and checking accounts, and excluding retirement accounts) of approximately 10% of the student loan burden. Generally, FRB is looking for “debt-averse savers” (i.e., $10,000 in credit card debt is a major red flag).
- Third, the application process is a little more involved than the tech-driven non-bank refinancers. You first have to call a banker who will walk through certain financial metrics to see if you’re eligible. He’ll then send you an application link that you fill out and submit. It ends up taking a little longer than applying with Earnest or Sofi, but at least you have to only do it once? Also, the account website is clunky and has issues processing prepayments within a week or two of your payment due date.
- Fourth, you have to keep $3,500 in a no-interest checking account. We’ve gone ahead and added a tab to our refinance calculator that lets you total up the savings from FRB’s low-low rates with the lost income from not parking this $3,500 in, say, a savings account. Just surf on over to the “FRB” tab and edit the blue numbers to adjust your assumptions.
- Fifth, FRB requires you to set up direct deposit to your FRB checking account and auto-pay.
- Finally, FRB recharacterizes your loan as a personal loan rather than an educational loan. I’m confused by how or why they do this since education loans are unsecured in the first place, but the upshot seems to be that 1) it may difficult to subsequently refinance your loans once you’ve switched to FRB, and 2) your student loan interest is no longer tax deductible. The tax deduction is probably not a very high value item for FRB’s clientele, but just in case, we’ve added a “Deduction” tab to our refinance calculator so you can see how much this deduction is worth to you.
- Benefits: as if the jaw-droppingly low rates weren’t enough, FRB also offers a 2% rebate if you pay your loan off within 4 years. You also have a dedicated private banker if you’re looking to build a relationship and pursue other banking products.
- Referral: $200. Email Patrick Gogan and tell him Your Two Cents sent you.
- Takeaway: high-tech with reasonable rates and no notable restrictions; an excellent option if you don’t live in FRB territory or are scared off by their manifold conditions.
- Rates: 2.55% (5-year variable)/3.75% (5-year fixed)
- Min./Max. Loan: $5,000/$500,000
- Considerations: Earnest allows you to speedily complete your application by linking your LinkedIn profile and various financial accounts (or filling out the application manually and providing bank statements to corroborate your assets). Earnest claims that all this information allows them to make better underwriting decisions, but some people are uncomfortable with the level of disclosure asked by Earnest (and FRB and Sofi, for that matter).
- Benefits: In addition to having a sleek, intuitive user interface, Earnest lets borrowers customize their interest rates and repayment terms to the month. Once you’re in, it’s easy to tweak the term or automatically make payments twice per month from your linked bank account. Overall, Earnest grades highly for ease of use.
- Referral: $200 using a referral link to be provided (feel free to email us in the meantime).
- Takeaway: the original tech-driven refinancing pioneer; has possibly lapped Earnest on the rate front, but be wary of teaser rates.
- Rates: 2.365% (5-year variable)/3.375% (5-year fixed)
- Min./Max. Loan: $5,000/no max.
- Considerations: I’ve gotten the lowest quoted rate from every other student loan refinancer I’ve used, but for some reason, not Sofi. In addition to being baffled by this experience, I’m still miffed by the bait-and-switch I felt like Sofi pulled the first time I applied to refinance: I applied, was quoted one preliminary rate, submitted my paperwork confirming everything in my application, and was quote a final rate 0.50% higher. That’s just my experience: you may qualify for Sofi’s best rates, so I wouldn’t let it deter you from applying. Also, much like FRB and Earnest, they rely on a data-heavy approach, so expect to provide paystubs, bank statements, etc.
- Benefits: In addition to the sweet signing bonus you may get when inking your loans with Sofi (I believe juices and pies were on the menu when I applied), Sofi brags about its community, which it seeks to leverage through events, job referrals, and other features. And of course, their base interest rates currently top the non-FRB market.
- Referral: $100 using this referral link.
- Citizens Bank
- Takeaway: competitive frontline rates, but inflexibly credit score-driven, with sharply escalating rates from there.
- Rates: 2.39%* (5-year variable)/3.74%* (5-year fixed)
- In addition to the 0.25% autopay discount that’s so standard that I don’t even mention it, Citizens’ rates also factor in a 0.25% loyalty discount for having a Citizens account, so make sure to open one before applying.
- Min./Max. Loan: $10,000/no max.
- Considerations: the big thing to bear in mind with Citizens is that their rates are 100% driven by credit score. To qualify for their lowest rate, you need 800 or above. If your credit score is in the 750-800 range, your rate will be about 1% higher. Income and assets are not really factors, so in many ways Citizens’ underwriting is like the anti-Earnest/Sofi.
- Benefits: Potentially favorable rates for excellent credit applicants with lower income/assets?
- Referral: None, Citizens does not currently offer any referral program.
- Darien Rowayton Bank
- Takeaway: uncompetitive rates and poor soft product, but (historically, at least) the least discriminating.
- Rates: 3.64% (5-year variable)/4.20% (5-year fixed)
- Min./Max. Loan: $5,000/no max.
- Considerations: high interest rates, requirement to open a DRB checking account (though no minimum balance like FRB), slow customer service.
- Benefits: DRB used to be one of the best options if you were a recently graduated. While Sofi emphasized work experience, DRB’s rates were so below market that it made up for their unresponsive customer service and clunky online portal. Now their interest rates are way above the rest of the market, but at least it looks like they’ve overhauled their notoriously awful application. It’s not clear whether DRB belongs on their list, but if you run into headwinds with the other refinancers, consider giving them a shot and seeing whether it’s worth refinancing with their rates.
- Referral: $200 via email.
Those are our favorite student loan refinancers here at Y2C. Did we miss anyone? Get anyone wrong? Feel free to let us know what you think of these suggestions, and best of luck with your applications! In our third installment of this three-part series, we’ll discuss application tips and general long-term student debt strategies.