Is Refinancing Your Student Loans the Right Move? | White Coat Investor

[Editor’s Note: A big thank you to Splash Financial, one of our most important partners at WCI,  for sponsoring this year’s scholarship. As part of that sponsorship, each of the Platinum sponsors also gets to submit a sponsored post to the blog. Today’s sponsored post is all about refinancing student loans, Splash’s specialty. Hundreds of white coat investors have used Splash to refinance in the past, so if refinancing your loans is right for you, you can move forward with Splash with confidence.]

 

Q&A With Steve Muszynski, Founder and CEO of Splash Financial

 

What inspired you to start Splash Financial? Didn’t you start by wanting to help medical students save money on their student loans? 

Steve: A lot of my friends have student loans, including many doctors, doing their residencies. In those early days, I remember being out with one of those friends, and he was talking about how there weren’t any companies offering a product for residents and fellows  As a result, when we started the company, it really was for doctors. We were among the first companies to offer a product that allowed residents and fellows to defer their payments while they’re in training, and to help them lower their interest rates. We simply wanted to help as many doctors as we could save money on their student loans.

 

Any sense for how much you’ve helped people save on their student loans to date? 

Steve: We truly live and breathe our mission to help people save money on their student loans. We don’t track this metric as closely as we probably should – but it’s tens of millions of dollars in interest payments.

 

Maybe an obvious question, but is refinancing for everyone? 

Steve: Refinancing is definitely an option for everyone, but it’s not necessarily the best choice for everyone. A lot of these scenarios are very complex, and everyone’s situation is different, so it’s not a clear-cut “yes.”

You should definitely consider refinancing if you have private student loans. You don’t get government benefits and are unlikely to get some in the future, so it’s a more straightforward opportunity to lower your current rate.

The most important thing is to find a trusted financial advisor. Look at White Coat Investor to see which ones Jim and the team recommend. They will talk to you about options and help you determine the right path for your unique situation. A great financial advisor will look at building your holistic financial plan. Tackling your student loans is just one element of that plan.

 

What if somebody has already refinanced. Is there a limit to the number of times you can refinance? 

Steve: There is not a limit to the number of times you can refinance. A lot of people think “If I refinanced once, why do I need to do it again?”

Say you refinanced three years ago, and you went from 8% to 5% APR, that’s great. But you could go from 5% to 3%, then you could still save tens of thousands of dollars, depending on your loan balance.

Now might be a good time to take advantage since rates are at historic lows. It’s unclear how long that will last, and I don’t think rates are going to go much lower. We see a lot of doctors qualify for a 2.8% fixed APR. That rate is lower than what many people get for a mortgage, where you secure your house.

 

What should people look for when exploring different student loan marketplaces?  

Steve: Great question. Not all marketplaces are created equal. But let’s start by answering what is a marketplace, as I think there’s some confusion out there.

When you search online to check your rate, you have two groups: first, there are lenders, who could be making the loan; and second, you have companies that are called marketplaces, who shop on behalf of you with lenders. Marketplace companies source out information, submit to lenders, and find the best rate for you.

As a marketplace, we save people a ton of time otherwise spent individually shopping around all these different lenders, including a lot of places you wouldn’t have heard from: banks and credit unions who don’t have a ton of visibility and are able to offer incredibly low rates.

At the end of the day, see who can offer you the best rates and pay attention to the terms, though they are fairly standard. Also look for things like low rate guarantees. We’re on WCI offering a low-rate guarantee: if we don’t offer you the best rates, and you close with another lender, you could be eligible for a $250 gift card. We’re very confident in our ability to save people money.

 

Not everybody qualifies for the lowest rates. What do you look for in a borrower? 

Steve: True: not everyone qualifies for the lowest rates. It’s all dependent on the individual lenders, who often look at different things. Some just look at credit score; some look at credit score and debt levels. Others may look at all those things combined with what school you attended, your investments, etc.

 

Timely topic: What should people know about the CARES Act and the Executive Order? 

Steve: The CARES was originally set to expire on September 30, 2020. Through executive action, President Trump instructed the Education Department to extend the student loan benefits of the CARES Act, including to the majority of Federal student loans. As of right now, servicers have paused the payments, so you don’t have to make payments on Federal student loans and interest rates are temporarily at 0%.

On January 1, 2021, your interest rate will return to what it was, and your payment should resume – unless it’s extended again.

 

What would you do if you had a Federal student loan? 

Steve: I would compare what my interest rate is right now versus what rates I’m being offered. If I’m offered a 2.8% rate now, I’d ask myself: “are rates going to be this low six months later when I go back to the refi market?” I think that’s unlikely.

Then it comes down to how much am I saving right now by having a 0% interest rate versus how much can I save in the long run by locking in a 2.8% interest rate? Do I prefer to have that certainty now? I personally would strongly evaluate locking in that rate.

But here’s a secret: many lenders provide 30 to 60 days to lock in your rate, so you can drag out an application. So, maybe I start an application in October or November, and I drag my feet a little bit, lock in that low rate, but make sure the refi process takes a little bit longer. That could be a way to not only lock in a low rate, but also see if there are any new announcements about federal loans that would inform your ultimate decision.

 

Are there key considerations when moving from federal to private loans? 

Steve: Yes. The government offers very real, very legitimate benefits, like loan forgiveness and repayment programs to help people. But having the government drop your interest rate to 0%? That’s just never happened before. These are unprecedented times.

When moving from a Federal to a private loan, you’ll lose some benefits. If you’re going to lose Federal benefits, you better get the best deal.

Consider a scenario like this, for example: if I’m going from 5% interest with my Federal loan and the associated benefits, to 4.75% with private loan, it may not be worth it.

Now, if you were to drop from 5% to 4%, then the dollars start to get very real, depending on your loan balance. If you have a $300,000 loan, and your dropping by 1%, that’s $3,000 in savings in your first year. But it’s not always that black and white.

 

What about paperwork? Loan applications can be pretty intense. What type of documentation should people have ready? 

Steve: We are constantly innovating with our partners to streamline their application process, making sure it’s as easy as possible for people. There are some of our partners where you legitimately may not need to provide anything. There are others who will want driver’s license, pay statements, loan statements from your servicer, but so much of the process is automated now.

It’s always best to have your finances in order – namely income you can verify. Some people submit an income that can’t be substantiated, which causes frustration when the rate changes once a lower amount of income is verified. 

 

Saving per month or saving over duration of loan? Are most people in a month-to-month mindset or is focus on lifetime savings? 

Steve: It definitely varies. But I think the thing that excites people is that idea that they can be out of debt and having a plan that accomplishes that.

Doctors often refinance to a 5-year loan because they just want to get out of debt as fast as possible. Obviously, we offer many terms: 5, 7, 10, 15, up to 25 years. But most just want to put debt behind them and move forward. In a lot of those scenarios, your rate is lower, and while your monthly payment increases, the lifetime saving is bigger.

Jim has a saying to “live like a resident,” even when you’re an attending physician, and I think that’s great because that allows you to put a lot of money towards your student loans and other things.

But in the event you don’t want to live like a resident after you become an attending physician, after you’ve lived that life for so long, maybe you pay it off in 10 or 15 years. In that case, it’s more about monthly savings.

One thing that’s beneficial about refinancing is that sometimes it’s not just a dollars and cents decision. Sometimes it’s about peace of mind.

 

If you could give one piece of advice to our audience about student loan refinancing, what would it be? 

Steve: Give it a try. It’s free to refinance. There’s no cost. It’s easy to check your rate – it literally takes two minutes. Splash shops multiple lenders and can provide access to really low rates. We have a wide range of coverage, so more people can qualify on Splash than elsewhere. Take a look. It’s easy. It’s fast. See if you can save thousands.

 

What do you think? Have you refinanced with Splash? What rate did you get? How was your experience? Comment below!