Earnest Student Loan Refinance
Note: Just like all posts on this blog, this is NOT a sponsored post. I’m sharing my positive experience and offering a referral code.
Unlike most personal finance bloggers I know, I still have student loans on the books and I’m not in a rush to pay them off. I have cash on hand (and then some) to kill them, but I prefer to keep the cash on hand. Extra cash is going to our mortgage. I had my loans set at $225/month with a 4.25% interest rate (fixed at the time of consolidation in 2007). At that rate, They would have been paid off in 3.5 years, and I would have paid $682 in interest over the remainder of the loan. A couple hundred per a year in interest is in the noise of my overall financial picture, so I’m just not worried about it.
Enter Earnest. There is a slew of new loan companies on the scene offering competitive rates for competitive borrowers with non-traditional underwriting processes. SoFi and Earnest are the more heavily advertised ones, and I got a rate quote from each. Since Earnest let me choose my monthly payment amount & shorten my loan term, they were able to give me the best rate. Everything went quickly and smoothly in the process. It was very much a Silicon Valley company designed for millennial who can’t stand bad web design, inefficient processes, or too many phone calls. I got my rate quote within minutes, and the approval process was also very quick.
I now have a 2.15% variable rate loan for the next 5 years. If I continue with my $225/mo payments, they will be paid off in ~3.5 years with $320 in interest total. I chose a variable rate because if it ever gets undesirable, I can simply pay down the cash and clear the balance. The required payment is $150/mo, which would result in them being paid of in 5 years with $488 in interest. The savings is modest at this point, but there seemed like no reason NOT to do it.
$200 signing bonus: I followed a promo link to earn $200 cash back (which reduces my effective rate to about 1.3%). Are you interested in refinancing with Earnest and getting a $200 bonus? Follow my link! Note that you lose federal benefits if you refinance, so if you plan on taking advantage of them, Earnest is not for you. You also need to have good credit and generally be a low risk borrower, so they aren’t for everyone.
The future of student loans: A one-size-fits-all federal loan might make sense when we are 18 and in school, but I’m now a very low risk borrower. There is virtually no chance I’m not going to pay my loan, but I’m still not in a huge hurry to do it. It is nice that there are new options that recognize my low credit risk and reward it with a low rate.
The student loan system as it stands has major issues, and I applaud companies that are taking new approaches. Yet, knowing that the point of federal aid is to give more people access to college, and knowing that, for example, SoFi started by offering loans only to Stanford business school graduates, there is a small part of me that wonders what the overall effect of companies like this will be. If more privileged borrows get favorable rates, doesn’t that imply that the more risky borrows will end up with higher rates to balance? In the long run, will Earnest, Sofi, and similar companies skim off the high quality student loan borrowers, leaving more risky options to the government-backed programs? If the government wants to subsidized higher risks borrowers, they may have to do it in a more direct and transparent way.
Do you have student loans, or did you pay them off quickly? Would you consider an alternative lender for a refinance?