Here at The Student Loan Report, we aim to provide expert news and analysis surrounding the education finance industry. As part of our commitment to the more than 43 million Americans with student loan debt, we’ve decided to create a series of guides purposed to help borrowers better manage their debt. Today, graduates are leaving campus with more debt than ever before. In fact, the average college graduate is holding a diploma in one hand, and $30,000 in debt in the other. In America, educational debt is the second largest class of consumer debt. Unfortunately, our nation’s educational system, politicians, and students haven’t figured out a solution. At StudentLoans.net, we don’t claim to have a solution to this $1.2 trillion problem, but we are going to give it our best shot. We’ve created this guide to help borrowers better understand the emerging refinancing and consolidation industry.
Over the last few years, refinancing and consolidation has soared in popularity. For many borrowers, refinancing and consolidation has helped to reduce monthly payments, interest rates, and ultimately total loan cost. But is consolidation and refinancing for you? After reading this guide you should know the benefits, risks, and next steps to consider before consolidating student debt.
We estimate that it will take about 15 minutes to read this guide. If you have any questions, comments, or feedback, we would love to hear from you. At StudentLoans.net we strive to help every borrowers. Whether you have $10,000 in debt, or $200,000, we would love to help you better manage your debt and reach financial freedom.
What is Private Student Loan Consolidation & Refinancing?
Refinancing is the process of taking old debt, and restructuring that debt to a lower interest rate. For decades consumers have been able to refinance mortgage, credit card, and auto debts. However, it wasn’t until recently that consumers had the ability to refinance student loan debt. As of today, you can refinance old debt to as low as 1.90%. And, you can choose a new term length ranging from 5 to 25 years!
It all started in 2011. In 2011, a new financial institution named Social Finance was created by a few business students at Stanford University. These students had the incredible idea to create a system where students could obtain lower rates on student debt. Now SoFi wasn’t’ the first company to offer refinancing, but they did ignite the industry for borrowers. SoFi had the simple idea to make refinancing easy. Unlike traditional financial insitutions, SoFi decided to focus on simplicity, savings, and excellent customer service. Social Finance was eventually renamed SoFi, and since 2011 the company has refinanced over $6 billion in debt. As SoFi gained momentum, other began to take notice. Over the last few years, the number of companies consolidating educational debts has skyrocketed. Today, there are over 15 different companies offers private student loan consolidation to customers.
So how does consolidation and refinancing work? Great question!
First off, both federal and private loans can be refinanced and consolidated together. These include Stafford, Perkins, PLUS loans, and virtually all types of student debt. When you refinance and consolidate, you are effectively paying off your old debt, and creating one new loan.
During the consolidation process, your new lender will pay off your old debts and issue you one new loan. You can choose which loans you would like to consolidate…it isn’t an all or none deal. For example, you may choose to consolidate only your private debts, and not you federal debt. Alternatively, you may choose to refinance only your high interest debt.
During the application process you will be asked to provide information about your type of debt, your education, as well as your personal information. The lender reviewing your application will use this information to pull your credit file, and eventually pay off your old loans. Lender applications usually take about 20 minutes to complete. We recommend gathering your current student loan statements before you start to the application to save time. From end to end, the consolidation and refinancing process usually takes about 4-6 weeks to complete. It can take longer if your current servicing company is slowing down the process for your refinancing company.
Don’t worry! There are no fees charged for refinancing. All of the major consolidation companies charge zero application, pre-payment, and origination fees. What you see is what you get. Increasing competition between lenders over the last year has made refinancing a borrower’s market. Zero fees, low rates, and awesome benefits are offered by many lenders.
Companies that Consolidate Student Debt
You’ve made it this far into our new guide… we hope you are enjoying it so far. By now you should know the basics behind consolidation and refinancing. At this point in our guide, we would like to present unbiased descriptions of the eleven major companies offering to consolidate student debt. All of these companies have been vetted by the StudentLoans.net team for product quality, security, and customer experience. For more information about any one of these lenders, look for the link to our full review and analysis of the companies.
SoFi
As we mentioned earlier in the article, SoFi is the leading refinancing and consolidation lender in the industry. To date, SoFi has been able to help thousands of student loan borrowers lower their monthly payments and total loan cost. Since launching in 2011, SoFi has refinanced over $6 billion in outstanding debt, and on average their members save about $14,000!
How did SoFi cement itself as the leader in the industry? Excellent product offerings. As of this writing, SoFi currently offers refinancing rates as low as 2.13% for variable rates, and 3.50% for fixed rates. Members can choose from variable and fixed rates with term lengths ranging from 5 to 20 years. It costs nothing to become a SoFi member. By becoming a SoFi member, you will get access to extra benefits including unemployment protection, career support, interview coaching, and resume review. And if you are interested in becoming an entrepreneur, SoFi will support you through their entrepreneurial program. Entrepreneurial program benefits include delayed payments, and mentorship from successful entrepreneurs.
SoFi aims to save you money and push you forward. If you are planning to submit an application, block off at least 20 minutes of time to complete it. After you’ve been pre-approved online, you will be asked to select your new loan options. Then, you will be required to upload supporting documents online so that SoFi can verify your income and education. SoFi is known for having the quickest turnaround time in the industry. Other lenders can take months to complete the consolidation process. SoFi can complete the entire process from end to end in as little as a month.
If you are strapped for time, SoFi is the best place to start. And, if you refinance in January you can get an extra $200 cash bonus if you use this URL!
To read our full review of SoFi click here.
Citizens Bank
Citizens Bank is not your big traditional bank. That being said, you may notice that Citizens Bank is one of the only consolidation companies with actual branches! In fact, the company has over 1,100 branches.
Within just a couple years, Citizens Bank has vaulted itself to the number two spot in the refinancing industry. Through the company’s education finance division, Citizens Bank created the Education Refinance Loan. The Education Refinance Loan was created to help students and graduates better manage their student loan payments. In fact, Citizens Bank reports that their average customer saves $1,764 per year by refinancing! We don’t know about you, but we think that is a lot money for the average student loan borrower.
Like SoFi, Citizens Bank offers both variable and fixed interest rate products. Variable rates start at 2.17%, and fixed rates start at 4.74%. You can choose a new term length from 5 to 20 years. Both federal and private loans are eligible for refinancing and consolidation through Citizens Bank. And the company even offers an interest rate discount if you choose to make your payments via auto-pay.
As you would guess, Citizens Bank charges no application origination, disbursement, or pre-payment fees. For example, you would not be charged any fees for making extra principal payments each month.
You must be a U.S. Citizen, or permanent resident alien, to qualify for consolidation through Citizens Bank. Furthermore, you must have at least $10,000 in debt to refinance. And, you must have made at least three on-time monthly payments post-graduation.
Citizens Bank is one of the only companies that does not require you to have graduated in order to refinance. If you have not yet earned a bachelor’s degree, you can still qualify but you must have made at least 12 on-time monthly payments before applying. On-time payments are payments including both interest and principal.
To read our full review of Citizens Bank click here.
Earnest
Earnest is one of the newest and fastest growing student loan consolidation companies. Earnest has competitive product offerings, unique benefits, and a proprietary pricing model. The end result is that more people are getting approved for refinancing and creditworthy individuals are saving tons of money. Rates start at 1.90% for very qualified individuals! Customers of the company save a whopping $17,936 through refinancing! That is the highest average savings that we’ve seen across all of the lenders in the market.
Earnest has a very quick and efficient application process. In just about two minutes, you can get an estimated rate and a calculation of your total potential savings. Once approved, you can choose from 5 year, 10 year, 15 year, and 20 year term lengths. Both federal and private loans are eligible for refinancing through the company. And even, parents are eligible to refinance debt from their child’s education.
Earnest lets you set your exact monthly payment, and even change your payment amount at anytime. Earnest is the only lender who allows customers to elect bi-weekly payments, and even skip a payment! And as crazy as this sounds, Earnest gives its customers the ability to switch between fixed and variable rates at anytime for no charge. There isn’t any other student loan company on the planet that gives its customers this much flexibility. Earnest offers these benefits to promote repayment efficiency which leads to savings. It is no wonder why Earnest has gained so much traction over the last couple years.
If you’ve tried to qualify for refinancing in the past, but you haven’t qualified, you should look to Earnest as a viable option. Earnest has a unique underwriting model that accounts for more than just credit score. Earnest uses a proprietary model based in data science. Earnest uses hundreds of different data points from your financial history to underwrite your loan. Just because you have a low credit score, you may still be able to qualify at Earnest.
To qualify for Earnest, the company suggest that you should be:
Employed
Have enough savings to cover a couple months of normal expenses
Carry positive bank balances
Have a history of making on-time payments
Have enough income to support comfortable monthly payments
Based off customer feedback, we believe that Earnest has one of the fastest turnaround times in the industry. You can expect the entire consolidation process to be completed in about four to six weeks.
To read our full review of Earnest click here.
U-fi
You could say that U-fi is the new, and the old company on the block. U-fi launched in 2015 to help student loan borrowers save money on their student loan debt. While U-fi hasn’t even been in business for a year, the company’s parent has a long history in the student loan industry. NelNet, one of the largest servicing companies, launched U-fi through a partnership with Union Bank and Trust.
At first we were skeptical, we thought that U-fi might be getting into the market a little late. But boy, has U-fi proved us wrong. U-fi offers some great rates and terms. U-fi offers rates from 2.21%, and they have the longest available term lengths. Borrowers can select a term length from 5 to 25 years. As far as we know, U-fi is the only company to offer a 25 year term length as an option.
Differentiation in the now very competitive refinancing market isn’t easy. U-fi has differentiated itself from the rest of the market through unique borrower benefits. Unlike most lenders, U-fi offers cosigner release. This benefit could be very valuable for borrowers looking to gain approval with a cosigner, but who don’t want to keep a cosigner for the life of the loan. Moreover, U-fi offers a cash back benefits for borrowers who make their payments on-time.
U-fi’s interface and technology isn’t as user friendly as some of the other lenders. That being said, U-fi makes up for a sometimes clunky interface with awesome customer support.
To read our full review of U-fi click here.
LendKey
LendKey is a popular choice for student loan borrowers. LendKey works to match borrowers with not-for-profit credit unions offering educational debt refinancing and consolidation.
LendKey currently works with over 300 credit unions which means the that you can be matched with at least one lender, no matter where you live. Since inception, LendKey has helped over 40,000 borrowers find lower rates through refinancing. In 2015, LendKey expanded its products offerings dramatically. Today, LendKey offers both fixed and variable rates with term lengths ranging from 5 years to 15 years. On average, you will save about $12,500 by consolidating with LendKey. There are zero application, origination, disbursement, or pre-payment fees. LendKey even offers borrowers cosigner release as a benefit after 24 months of on-time principal and interest payments. For more information about LendKey’s cosigner release benefit, please read our full review.
LendKey has really improved its technology over the last two years. Today, the company’s application process is very easy and the interface is friendly. From end to end, most borrowers should expect the refinancing and consolidation process to be completed in about four to eight weeks. During the application process you will be required to provide evidence of a driver’s license, proof of graduation, and paystubs that verify your income. You must be a US citizen or resident alien to be eligible to apply. Moreover, you must have at least $7,500 in student loan debt to consolidate for acceptance.
To read our full review of LendKey click here.
DRB
Darien Rowayton Bank is one of the oldest and most experienced student loan refinancing companies in the industry. Abbreviated DRB, the company has long been praised for offering the lowest rates on approved application. DRB offers refinancing rates as low as 2.13% for variable loans, and 3.50% for fixed rate loans. DRB allows borrowers to refinance both federal and private debt. DRB offers term lengths from 5 to 20 years in both fixed and variable rates.
Getting approved at DRB is difficult. To qualify, you must have excellent income and credit. We suggest only applying to DRB if you are currently making over $75,000 per year, and have a credit score above 750.
If you do qualify, expect the refinancing process to take a little bit longer. On average, we’ve heard that DRB’s process takes about 8 weeks from end to end. If you apply in January you are eligible for a special $200 cash bonus if you apply though this URL!
To read our full review of DRB click here.
CommonBond
CommonBond has been a player in the private consolidation market for a few years now. Like SoFi, CommonBond was founded by students looking to make student loans better. CommonBond was started by three Wharton MBA students in 2011 as project to tackle the student loan problem in the United States. Since 2011, the company has come a very long way.
Initially, CommonBond very particular about who was eligible. At first, CommonBond only accepted students from select top schools and degree programs. But over the last year, CommonBond has dramatically expanded its eligible school and degree list. Today, most applicants will be eligible to apply to CommonBond.
CommonBond offers rates as low as 2.13%. the company’s average users saves about $14,000 through refinancing. CommonBond is on the short list of lenders who allow parents to refinance PLUS loans. CommonBond does not charge any application, origination, disbursement, or pre-payment fees. In addition, the company will pause your payments if you lose your job.
To read our full review of CommonBond click here.
CordiaGrad
CordiaGrad is one of the newest lenders to enter the student loan refinancing market. CordiaGrad was launched in 2015 by the Bank of Virginia.
Variable rates start at 2.75%, and fixed rates start at 3.95%. These rates include a 0.50% discount offered for making auto-pay student loan payments from an eligible CordiaGrad Checking Account. CordiaGrad is unique by the fact that they only offer 5 year, 8 year, and 12 year term lengths. Parents are eligible for refinancing too.
To be eligible for CordiaGrad, you must:
Be a US Citizen and at least 23 years of age
Have a strong credit history
Have at least $20,000 worth of debt to consolidate
Have a minimum of two years of employment
Have an annual income of at least $42,000 (or $25,000 with a cosigner)
The application is pretty easy to use. During the application process you will be asked to provide copies of your driver’s license, pay stubs, educational transcripts, and copies of your current account statements from your servicing company.
ElFI from SouthEast Bank
You’ve probably never heard of ElFI, and neither had we until recently. ElFI was actually just launched by SouthEast Bank in November of 2015. SouthEast Bank has a long history in the student loan industry. Throughout the company’s history, they’ve helped over one million families secure financing for higher education. Going back to its roots, SouthEast Bank decided that a refinancing and consolidation product could help a lot of its student loan borrowers payoff their debt.
ElFI’s products are very competitive. The company offers variable rates as low as 2.33%, and fixed rates as low as 3.49%. Be aware, at this time ElFI only offers 5 year, 10 year, and 15 year term length options. So, if you are looking for a 20 or 25 year term length you will need to look elsewhere.
It is too early to tell if borrowers will respond well to ElFI. If you’ve refinanced through ElFI already, we would love to hear from you! Over the next few months we plan to expand our ElFI review after we’ve collected additional feedback.
Simplefi
Simplefi launched its refinancing product in 2015. The company has been around for a few years now, but only recently has the company expanded into education finance. Simplefi’s website could be described as clunky from our first review.
With that in mind, Simplefi’s mission is clear. Simplefi was founded to help previously denied borrowers get approved for consolidation. Simplefi is a little more lenient when it comes to its underwriting criteria. As a result, the company’s product offerings aren’t quite as competitive. Simplefi offers only fixed rates, starting at 4.99%. The company offers term lengths from 5 to 20 years.
In addition, Simplefi offers unique benefits including financial counseling and free credit report analysis. Parents are eligible to refinance and consolidate student loan debt too! Both federal and private loans are eligible for Simplefi’s program.
Keep in mind, Simplefi has a very strict eligible schools and degree list. As of this writing, the vast majority of borrowers will not meet the eligibility criteria set forth by Simplefi. Furthermore, only borrowers in select States will be eligible for applying. Over time, we expect Simplefi will likely expand its eligibility list. More specific detail can be found in our full review.
Risks to Consider Before Refinancing
Before signing on the dotted line, you should consider the risks of refinancing and consolidating educational debt. The benefits of refinancing and consolidation educational debts are clear. However, you may not know that when you refinance federal Stafford, Perkins, and PLUS loans you are willingly giving up your federal benefits. The Department of Education offers a number of benefits to federal financial aid borrowers. Benefits include income-based repayment plans, forbearance, and even Public Service Loan Forgiveness.
If you lose your job, or are in financial turmoil, these benefits may be very valuable to you. Moreover, if you are currently working in a public service job, you may be better off waiting for forgiveness. Bear in mind, the vast majority of student loan borrowers will not qualify for forgiveness through the Public Service Loan Forgiveness program.
Each borrower is in a unique situation. If you don’t plan on needing any of the Department of Education’s offered benefits, then the risks of refinance are minimal.
Alternatives to Consider
As you may have seen in our brief lender descriptions, all lenders offer both federal and private consolidation. As an alternative, you may consider taking advantage of the Department of Education’s Direct Consolidation Loan Program. The Direct Consolidation Loan Program allows federal Stafford, Perkins, and PLUS borrowers to consolidate federal debts together. Keep in mind, you cannot lower your total loan cost or interest rate by consolidating through the Department of Education. Instead, you will be issued one new federal loan with a weighted average interest rate. Please see this diagram below for a visual explanation:
All borrowers are eligible for the Direct Consolidation Loan Program and there are no costs charged for submitting the application. If you are asked to pay for the Direct Consolidation Loan Program you are likely talking to an unreputable company. We recommend reporting the company to the Better Business Bureau or the Consumer Financial Protection Bureau. See this article on student loan scams for more information.
For more information on the Department of Education’s Direct Consolidation Loan Program click here! We hope you liked our guide! Please let us know if you have any recommendations or comments.