A Review of SoFi’s Student Loan Consolidation Service
SoFi or Social Financial Inc. is without question the most unique loan consolidation operation we’ve ever seen. It was founded by a business student at Stanford University and was originally designed to help other business students. However, it has added more schools, more programs, and more options and is now nationwide. In fact, SoFi says it now has 550 participating schools.
There are several things that make this organization unique and one of them is the fact that it relies on what’s called peer-to-peer lending. This is where the loan comes not from a financial institution such as a bank or a private company but comes instead from another person or persons. In the case of SoFi the money comes from a participating school’s alumni.
SoFi’s website What we learned
We discovered that SoFi refinances loans and it claims it saves people an average of $11,783. Its other products include mortgage loans and personal loans. SoFi also offers unemployment protection meaning that if you were to become temporarily unemployed, SoFi will pause your payments and even help you find a new job. However, Department of “There is no such thing as a free lunch” – your interest would continue to accrue and it will be capitalized when you start repaying on your loan again. If you’re not familiar with capitalization, this is where the interest is added to your balance so that you end up paying interest on the interest.
Support besides money
Another thing that makes this organization unique is that it will help you with career support including resume review, interview coaching and networking tactics. We discovered that SoFi offers attractive interest rates with variable rates of 2.66% APR (with Auto Pay) to 5.29% APR (without Auto Pay). Its fixed rates are also on the attractive side as they range from 3.63% APR (with Auto Pay) to 7.74% APR (without Auto Pay).
SoFi says it has very low default rates because the money comes from alumni of the borrower’s school and that people feel very pressured to repay their loans under these circumstances. We agree but see this as more of a benefit to the lenders than borrowers.
Loans made by SoFi range from a minimum of $5000 to a maximum of $200,000. As of 18 months ago, the company says it had made $130 million in loans and provided them to students or alumni of around 79 schools. It charges no application fee so that you can get started without spending a dime and then cancel out if you find you don’t like the loan you’re offered.
Frequently Asked Questions
When you eventually get their refinance student loan page as we did, you will see that SoFi has a five-step process for getting refinanced and that it can happen in as few as 15 minutes. The steps are to get online preapproval, select a product, upload your documents, sign an acceptance package and set up auto pay. Under Select A Product, you are urged to compare all the plans available to you with their specific payments, rates, and terms and then choose the one that best fits your needs.
The fine print
There is an old saying that the big print giveth and the fine print taketh away. This is clearly true in the case of SoFi. We had to get to its page on Frequently Asked Questions to learn that to be eligible to get your loans refinanced, you must reside in one of the organization’s eligible states. In addition your eligibility will depend on several other factors including your credit score, your income and employment status. For example, you must have graduated from a title IV accredited university or graduate program, are employed or have a job offer with a start date within 90 days and a strong monthly cash flow.
Who should refinance through SoFi?
What all the fine print boils down to is that to be a good candidate to refinance through SoFi you should have high-interest, unsubsidized direct federal student loans, graduate PLUS loans and or private loans. In addition, your current loan should have high interest rates and your financial situation should have improved since you took out your loans. This is critical because having a high credit score and a good level of income are the keys to getting a low interest rate. And last but not least, you should not have a job in the public sector.
What you will give up
From our point of view, the biggest downside we found with refinancing through SoFi is that you would lose all the benefits that come with federal loans. You would have a fixed interest rate and a fixed term with no ability to change repayment programs. This is unlike federal loans where you could begin with 10-Your Standard Repayment but then switch to an Income-driven repayment plan such as Pay As You Earn. You would also lose the possibility of loan forgiveness along with hardship options such as loan deferment. So whereas you might end up with a loan with a lower interest rate, there are some very important benefits you would sacrifice.
There are some things we like very much about SoFi not the least of which is the low interest rates and its “social” benefits such as resume review. We also like the fact that it’s easy to sign up to get started, that there is no application fee and that it offers benefits such as career counseling. In fact, one woman who used SoFi said that when she became unemployed, the company called her to ask what they could do to help her find a new job. That is definitely not something you would get with a federal loan. However, we give this company only a B due to several factors. First, you have to be a student at or an alumnus of certain colleges and universities to be eligible.
You must have good earnings and a good credit score. We feel that if you have good earnings and a good credit score, why refinance your loans? There could be better alternatives such as snowballing your loans where you concentrate on paying off the loan with the smallest balance first balance first while continuing to make at least the minimum payments on your other loans. When you get that first loan paid off, you will have new money you could use to begin paying off the loan with the second lowest balance and so on.
But we felt the biggest downside of SoFi, as mentioned above, is losing the valuable benefits that come with federal loans. While you would get a low interest rate with SoFi, you would be totally locked in, probably for 10 years, with no ability to change repayment plans should you hit a rough patch. However, if you meet the eligibility criteria described above, you might give SoFi a try as it would cost you nothing to apply for the loan and to see what terms and conditions you’re offered.