Refinance student loan to Earnest?

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benevo
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Refinance student loan to Earnest?

Post by benevo »

Good morning Bogleheads!

I have about $32,000 left in my graduate student loans. That's the total of 3 loans, all federal through Navient. My current interest rate is 6.8%, with a 0.25% discount for autopay - so, my actual interest rate is 6.55%. My monthly payment is about $500.

I have approximately 7 years remaining on this. After running some numbers http://www.finaid.org/calculators/loanpayments.phtml - if I stick on the current path, I'll end up paying $7,454.32 in interest and $39,454.32 in total payments.

While Sofi gave me a slightly lower rate than Earnest, it was a variable rate - and I haven't been impressed with their customer service. I was just approved by Earnest the other day, and got a fixed rate of 4.89% for a 6-year loan or a 4.61% fixed rate for a 5-year loan (if longer, they go up - though not very high). If I choose the 5-year at 4.61% and pay the monthly minimum of $605, I'd end up paying $3,840.69 in interest and $35,840.69 total. And, if I can push it for five years - not 100% sure I can - and pay $1k/month, I'd end up with only $2,210.49 in interest and $34,210.49 overall.

I realize that the negative to refinancing with Earnest, Sofi, or any other private lender is losing protections such as forbearance - however, Earnest (as does Sofi) offers protections: https://help.earnest.com/hc/en-us/artic ... financing-.

My question: what do you Bogleheads think? Would you refinance with Earnest? (I work full-time, and also freelance on the side for extra income/savings).

Also, for anyone who's worked with Earnest before, are there opportunities to refinance within them again down the road for a lower rate? I have a pretty good credit score (780) and responsible debt history, and am a responsible repayer with a steady income - so I was a bit sad not to receive a lower rate, but c'est la vie!

Is there anything I'm not thinking of that I should consider before deciding?
spammagnet
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Re: Refinance student loan to Earnest?

Post by spammagnet »

I don't have experience with student loans but I assume they can be paid off early and there is a financial benefit for doing so. If true, and if the interest penalty for longer terms is small as you suggest, consider a longer term loan, not "pushing" to make payments on a shorter loan.

The reason I suggest that is for financial security and flexibility. While you're employed full-time now, bad things happen. A longer term loan allows you to push to pay it off at a faster rate of your choosing and to drop the payment if financial misfortune finds you. The interest premium is the cost of that flexibility.

Your decision to take a longer loan should be based on the interest penalty for doing so, and on your assessment of employment stability. But, nobody can tell the future.
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Taylor Larimore
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Re: Refinance student loan to Earnest?

Post by Taylor Larimore »

benevo:

What about closing costs; transfer fees, credit checks, etc..?

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
benevo
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Re: Refinance student loan to Earnest?

Post by benevo »

Taylor Larimore wrote:benevo:

What about closing costs; transfer fees, credit checks, etc..?

Best wishes.
Taylor
Good morning! These are student loans, not their mortgages. But, there are no transfer fees, no loan origination fees, no early payoff fees, etc. Thanks!
niners9088
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Re: Refinance student loan to Earnest?

Post by niners9088 »

I did the refinance a few years ago with Sofi on their variable rate and lost the protect you mentioned. At the time I went from 6.55% to something in the high 2's. I think I'm still ahead picking the variable rather than the fixed but in your case I would definitely go with the fixed. When I did mine I picked a shorter term than I originally had but not something that really pushed what I could afford. I then setup a reminder to pay the extra I could monthly. This gave me the flexibility but also to pay less interest.

Personally I'd go with the 6 year and don't see any reason you shouldn't do it.
blueman457
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Re: Refinance student loan to Earnest?

Post by blueman457 »

I refinanced with Sofi a couple of years ago - moved to 5y variable rate, started at 1.9%, which has gone up since then. Sofi had some small customer service issues, but nothing critical. Initially didn't get the lowest rate advertised, so I emailed them back and then got the lowest rate. Email Earnest back to see if why you didn't get the lowest rate.

If you're going to pay this off in 5 years anyways, what's the rate on a 5 year variable? It's usually lower. I'd keep your monthly payment of $XXX the same so you pay more towards principle.
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benevo
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Re: Refinance student loan to Earnest?

Post by benevo »

blueman457 wrote:I refinanced with Sofi a couple of years ago - moved to 5y variable rate, started at 1.9%, which has gone up since then. Sofi had some small customer service issues, but nothing critical. Initially didn't get the lowest rate advertised, so I emailed them back and then got the lowest rate. Email Earnest back to see if why you didn't get the lowest rate.

If you're going to pay this off in 5 years anyways, what's the rate on a 5 year variable? It's usually lower. I'd keep your monthly payment of $XXX the same so you pay more towards principle.
Thanks for your (and everyone else's) feedback.

5-year rate is at 4.61%. I did also ask them why I didn't get the lowest rate (specifically, I asked if they could match the lower rate that Sofi offered me) - the quick answer from them was, and I quote, "While you have an impressive financial profile and you're clearly a responsible borrower, we're very sorry we're unable to match SoFi's rates." I have followed-up by seeing if there's any way to meet their advertised lowest rate considering my "impressive and responsible background." Let's see what they say!
tanstaafl
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Re: Refinance student loan to Earnest?

Post by tanstaafl »

I used Earnest a year ago to refinance. I chose variable instead of fixed, but had smaller loans. Earnest at the time offered the chance to change from variable to fixed at any time during repayment. The process was a breeze, and an Earnest employee sent me a text with his personal contact info in case I had any questions. I've seen the rate tick up from low 2's to mid/upper 2's (about .5% total, in line with short term rate rises). I was and am still very satisfied with them.
NJDMD
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Re: Refinance student loan to Earnest?

Post by NJDMD »

I refinanced my dental school loans with Earnest in late 2015. Close to 200K at 6.5%, went down to 5.5% fixed. I had originally tried with SoFi but was DENIED because I had one late student loan payment 5 years ago -- I had moved and that particular loan company didn't get my updated address. So now the damn thing is stuck on my credit score.

Earnest had no problem with it and I found them to be ok. They sent me a check for refinancing with them, which was nice. But nothing was better than paying off the loan earlier this year and telling Earnest to kiss my rear (in my mind, of course).

Good luck.Whatever you decide to do, kill the loan quickly and move on with your financial life!
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Taylor Larimore
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Re: Refinance student loan to Earnest?

Post by Taylor Larimore »

benevo wrote:
Taylor Larimore wrote:benevo:

What about closing costs; transfer fees, credit checks, etc..?

Best wishes.
Taylor
Good morning! These are student loans, not their mortgages. But, there are no transfer fees, no loan origination fees, no early payoff fees, etc. Thanks!
benevo:

Thank you. I learn here like everyone else.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Finance-MD
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Re: Refinance student loan to Earnest?

Post by Finance-MD »

I have refinanced with sofi, link capital, and citizens bank. citizens has actually had the best rates if you have a citizens bank account in my 2 previous checks for refinancing. They don't advertise as much or give referral bonuses, so people hear less about them. I have 20 Yr fixed at like 5.2%. I qualified for their lowest rates.

I agree with the others regarding the 5 yr payment. You're not paying a huge penalty to have the longer term loan. You can still pay it off in 5 years or even faster if you want. That large minimum payment with a 5 year term will put a substantial hit on your debt to income ratio which may really hurt your 'credit' until it's paid off.

If you're not disciplined enough to save or invest the difference between the 5 and 20 year term, then maybe it's a better way to keep you motivated. But that large payment can be a huge liability if you don't have adequate emergency savings. Remember, the bigger your monthly payment, the larger your Emergency fund needs to be :)!

Edit: p.s. Earnest is the only bank i've refinanced with that actually services their own loan completely themselves, which is very nice; once you have the loan with them, you just log back in where you did before to set up payment, etc.
Finance-MD
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Re: Refinance student loan to Earnest?

Post by Finance-MD »

Taylor Larimore wrote:
benevo wrote:
Taylor Larimore wrote:benevo:

What about closing costs; transfer fees, credit checks, etc..?

Best wishes.
Taylor
Good morning! These are student loans, not their mortgages. But, there are no transfer fees, no loan origination fees, no early payoff fees, etc. Thanks!
benevo:

Thank you. I learn here like everyone else.

Best wishes.
Taylor
Yes, somehow the student loan refinancing industry hasn't tacked all those fees on yet as of now. Hopefully it stays this way. A lot of people refinance their loans once and forget about it forever.

I check in every 6 months or so to see what the lowest rates people are getting and will consider refinancing if it ever drops 0.25% or more (DW andI have a lot of student debt, so 0.25% is actually substantial and worth it without the transactional closing costs associated with other loan types). I minimize my credit pulls to keep my credit score high, but i keep it high so that i can refinance....
KT785
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Re: Refinance student loan to Earnest?

Post by KT785 »

I just wrapped up a refinance through PenFed after having looked at most of the others (SoFi, LendKey, Credible, Earnest, etc.) and PenFed (operating through Purefy) had the best rates for me--and the rates they quoted me initially were accurate to what I actually received once I applied. I ultimately chose an 8 year loan at 4.46% though I was also quoted 4.13% for a 5 year (there were 12 and 15 year options as well for higher rates).

From what I gather, PenFed is relatively new to student loan refinancing and accordingly, I hadn't found any reviews of the process, though I was familiar with the pretty positive reputation on Bogleheads that PenFed has garnered re: their various loan products.

For clarity, I wasn't a member of PenFed before starting the process--a membership application is part of the overall application which means I got my loans financed along with membership in PenFed for only one hard-pull credit inquiry (I'd been contemplating joining PenFed anyway so it's a win-win).

https://www.penfed.org/student-lending/
Loik098
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Re: Refinance student loan to Earnest?

Post by Loik098 »

My wife and I are currently with Earnest. And yes, I have switched from a variable to a fixed this past year. Earnest delayed funding of many loans (including mine, even though it was already with them) for a couple of months for reasons unknown, but I believe the reason for that has resolved. I have had no other issues with them and they are very responsive.

However, I would suggest you not think about this refinance as something that binds you to a particular company until your loan is finished. I would make it a point to look at rates with each of the lenders on at least a yearly basis, unless you aren't comfortable with hard inquiries. Student debt is only growing, and there may be new companies on the scene who can do better than your current servicer.

I encourage you to think of this refinance as you would your insurance rates, cable bill, or even mortgage. You should always be on the lookout for a better combination of rate + service.
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benevo
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Re: Refinance student loan to Earnest?

Post by benevo »

Thank you all for the great info! I have a lot to look through and consider. :)
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jimb_fromATL
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Re: Refinance student loan to Earnest?

Post by jimb_fromATL »

Here's something else to think about. To compare apples to apples, you should look at the difference for making the same payment on the old loan that you'd be making on the new loan(s).

For example:
  • If you are making payments of $500 on a balance of $32,000 at 6.55% it will be paid off 78.9 months (6.58 years). The total paid will be $39,474 with $7,474 interest

    If you refinance and make payments of $598 on a balance of $32,000 at 4.61% it will be paid off 60 months (5. years). The total paid will be $35,891 with $3,891 interest

    If you just make the payments of $598 on a balance of $32,000 at 6.55% it will be paid off 63.4 months (5.29 years). The total paid will be $37,945 with $5,945 interest

    So refinancing and being locked into the higher payment really only saves about $2,055 and 3.4 months of payments.
The faster you pay it off, the less you'll save by refinancing.
  • If you refinance and make payments of $1000 on a balance of $32,000 at 4.61% it will be paid off 34.2 months (2.85 years). The total paid will be $34,210 with $2,210 interest

    If you make the same payments of $1000 on a balance of $32,000 at 6.55% it will be paid off 35.3 months (2.94 years). The total paid will be $35,266 with $3,266 interest

    So refinancing and being locked into the higher payment really only saves about $1,055 and 1.1 months of payments.
jimb
spammagnet
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Re: Refinance student loan to Earnest?

Post by spammagnet »

Can student loans be refinanced at will? I was under the impression they can be refinanced and/or consolidated only once. It makes sense that you can only consolidate once but are there limits on refinance?
Goal33
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Re: Refinance student loan to Earnest?

Post by Goal33 »

I'd just put that amount on 0% interest credit cards. Barclay just offered me one at 1% transfer fee. Chase has offered me a bunch at 2%.
spammagnet
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Re: Refinance student loan to Earnest?

Post by spammagnet »

Goal33 wrote:I'd just put that amount on 0% interest credit cards. ...
If you can pay it off without risk before the discount expires, sure. But the OP describes a 5 year payoff as a stretch goal. I doubt the 0% lasts that long.
Loik098
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Re: Refinance student loan to Earnest?

Post by Loik098 »

spammagnet wrote:Can student loans be refinanced at will? I was under the impression they can be refinanced and/or consolidated only once. It makes sense that you can only consolidate once but are there limits on refinance?
While you can refinance a federal loan only once (to a private loan), there are no limits to how often you can refinance a private loan. Hence, as I stated above, I believe it to be in everyone's best interest to at least examine the possibility relatively often....with the following caveat:

It's probably most beneficial to those who start out with a relatively high interest rate, and/or are in the process of rebuilding a credit score, or for those who see a significant enough drop in market rates periodically over the life of the loan. There may be a point where refinancing again and again no longer makes financial sense. That point will come when one can no longer get a lower interest rate by refinancing, or when one extends the life of the loan and pays additional interest unnecessarily.
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benevo
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Re: Refinance student loan to Earnest?

Post by benevo »

Great additional thoughts, all. One thing I also learned, Earnest lets you adjust your time/rate as you will. So, I can start with a higher monthly payment and lower rate and at any* time, adjust so that I'm paying less minimum monthly - but the rate will go up a bit.

*https://help.earnest.com/hc/en-us/artic ... y-payment-
jimb_fromATL wrote:So refinancing and being locked into the higher payment really only saves about $2,055 and 3.4 months of payments.
Thanks - great thoughts!
2tall4economy
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Re: Refinance student loan to Earnest?

Post by 2tall4economy »

Hard to say specifically without a full picture of your debts and financial situation, but in a vacuum, the amount of interest you save refinancing won't be particularly substantial in the grand scheme, especially if you off a few years early.

I'm not sure why you can't "push" it, I'd guess you are fairly young and therefore not used to luxury and not tied to a family - you have the most flexible financial situation of your life right now - push hard and get it over with. I paid mine off 2 years afterward by putting every cent I had on it.
You can do anything you want in life. The rub is that there are consequences.
Pepper11
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Re: Refinance student loan to Earnest?

Post by Pepper11 »

Loik098 wrote:
spammagnet wrote:Can student loans be refinanced at will? I was under the impression they can be refinanced and/or consolidated only once. It makes sense that you can only consolidate once but are there limits on refinance?
While you can refinance a federal loan only once (to a private loan), there are no limits to how often you can refinance a private loan. Hence, as I stated above, I believe it to be in everyone's best interest to at least examine the possibility relatively often....with the following caveat:
Don't think this is correct. Once you refinance your Federal Student loans with a private company, they are no longer Federal and you can refinance them as many times as you want.
Loik098
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Re: Refinance student loan to Earnest?

Post by Loik098 »

Pepper11 wrote:
Loik098 wrote:
spammagnet wrote:Can student loans be refinanced at will? I was under the impression they can be refinanced and/or consolidated only once. It makes sense that you can only consolidate once but are there limits on refinance?
While you can refinance a federal loan only once (to a private loan), there are no limits to how often you can refinance a private loan. Hence, as I stated above, I believe it to be in everyone's best interest to at least examine the possibility relatively often....with the following caveat:
Don't think this is correct. Once you refinance your Federal Student loans with a private company, they are no longer Federal and you can refinance them as many times as you want.
We both said the same thing, just in different ways. Reference the bolded part of my statement.
Dirty Jacket
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Re: Refinance student loan to Earnest?

Post by Dirty Jacket »

I refinanced $273,532.67 of student loan debt with SoFi @ 4.615% fixed for 10 years with goals of paying off in 6 years.
I had the opposite experience, SoFi was very easy to work with and Earnest was exceedingly painful.
I've never refinanced out of SoFi, but plan on looking into it just to see if there's a better deal to be had.
I did also have a small rogue loan that was at 10.25% interest that helped us with moving expenses, and I paid it off in one lump sum with my signing bonus.
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