NEW YORK (MainStreet) — A Fed interest rate hike appears to be on the horizon this summer, and interest in student loan re-financing has begun to heat up. Community banks may become players.
Connecticut-based Darien Rowayton Bank (DRB), for example, who started offering graduate degree re-financings in 2013, is now making them for undergraduate degrees also.
DRB is also offering to refinance Federal Parent PLUS loans which the parent co-signs—provided their kids are gainfully employed with incomes that reach a certain threshold.
DRB says its rates are lower than those of most Parent PLUS loans, and parents who refinance with DRB can potentially be relieved of the responsibility for this debt if their son or daughter qualifies to consolidate and refinance Parent PLUS loans through DRB.
“At DRB, we’ve already helped many early career professionals with stable income and good credit save thousands of dollars by refinancing and consolidating their federal or private student loans,” said Gary Lieberman, Chairman of the Board at Darien Rowayton Bank. “Now young professionals who have entered the working world with only an undergraduate degree can enjoy the same opportunity to save money on their loans, and so can the parents who have supported them.”
Loan repayment terms are from five to 20 years with no origination fees. But applicants must meet DRB’s underwriting criteria, including credit score anddebt-to-income requirements.
Observers point out that a refinanced student loan from a community bank is still a private student loan. While the private loan market is growing again, they say, there are not many more safeguards in place now than there were before the 2008 financial crisis.
“A re-financed loan involves converting to a completely different product,” said Lauren Asher, president of The Institute for College Access and Success (TICAS), an Oakland-based higher ed policy institute. She emphasized that these re-fiancings could be especially risky for those with Federal loans. “If you’re re-financing with a private lender, you’re going to lose the benefits that come with a Federal loan, such as income-based repayment.”
Sources familiar with the market generally believe that the benefits of the income-based repayment (IBR) option available with federal loans out-weigh any benefits of a private loan which don’t offer an IBR.
The immovable object is the cost of college, which resists even the best laid plans not to borrow. “The cost structure for college has changed and there is concern from rising student debt,” said Asher. Refinancing is not a one-size-fits-all solution. “The costs of college has been shifted on to students and families as family income has stagnated,” she added. “Pell grants now cover one-third of public tuition. In the 1980s it covered half and before that more.” As cost rise, so does borrowing.
Student Loan Hero’s top five re-fi banks are SoFi, Darien Rowayton, CU Student Loans, Charter One Citizens and Common Bond.
Terms vary; all offer re-fis for private and federal loans, and except for Common Bond, all offer grad and undergrad refinancing. “In my opinion, parents are good candidates for refinancing,” says Andrew Josuweit, CEO ofStudent Loan Hero, an online platform that helps students manage their loans. “The chances of getting approved are pretty high.”
But an industry source says those chances are well nigh shot if you can’t ace the credit score, and trashed credit scores are a legacy of the Great Recession. “This isn’t a strategy for parents who are struggling to repay their PLUS loans,” said the source. “In that situation and many others, it’s really hard to get approved.”
Written by John Sandman
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