If you are in the market for student loan consolidation or student loan refinancing, one company worth investigating is Sofi.
The bottom line on this company is that they are offering some of the best interest rates and most flexible terms. The $300 promotion for new borrowers is unmatched, but even with that much cash up front, the quality of the deal will still come down to the interest rate and loan terms. Though some of SoFi’s financing options do present a little cause for concern, their innovative approach and great rates make SoFi a good option for many borrowers.
How does SoFi work?
Before you consider using SoFi, it is important to understand what makes SoFi different than traditional lenders. SoFi was actually created by a group of Stanford business students who wanted to help other business students. Alumni invested in the program, and the funds were used to help recent grads lower their interest rates. The program started out just at Stanford, expanded to some other schools, included some other programs, and eventually became a nationwide program. This approach is commonly referred to as crowd-sourcing or peer-to-peer lending.
One of SoFi’s goals is for former borrowers to go on to become lenders. Even if you have no interest in future investments, the fact that the company seeks an ongoing relationship with its customers is a huge positive. Most student loan borrowers know that the customer experience goes down hill quickly one the lender has your name on the dotted line. Working with a company that has an incentive to keep you happy is a major upgrade.
What loans does SoFi offer?
SoFi presently offers student loan consolidation and refinancing services. Borrowers specify the loans that they want consolidated or refinanced, SoFi pays them off, and then the borrower pays off their debt to SoFi. The objective behind consolidation and refinancing is to lower your monthly payments by qualifying for a lower interest rate or by spreading out the payments over a longer period of time. Doing both of these things can save you money over the short term and in the long run.
SoFi offers both fixed rate and variable interest rate loans. The fixed rate loans start at 3.625% and have a maximum possible rate of 7.49%. Borrowers can sign up for 5, 10, and 15 year repayment plans. The variable rate loans are presently as low as 2.66% to 5.035%, and they are tied to the LIBOR rate. The interest rate is capped at 8.95%.
SoFi, like most legit lenders, does not charge any application fee, origination fee, or prepayment penalties.
What is the cause for concern with SoFi?
SoFi offers a service that some lenders do not provide. They are willing to consolidate federal loans with private loans. Here at the Student Loan Sherpa, we often refer to mistake as breaking the Golden Rule of Student Loan Consolidation.
Though combining federal loans with private loans is a mistake for many, in some rare instances it is a good idea. The classic example would be people who are certain that they will be paying off all of their federal loans, have no doubt where the money will be coming from, have no fear of losing their job, and want to get a lower interest rate.
If you are considering applying for consolidation with SoFi and want to make sure that your federal loans are not included, go to the federal student loan database. There you will be able to pull up a full list of your federal loans. If the loan is not on the list, you can be assured that it is a private loan.
Who is SoFi best for?
Due to the fact that SoFi offers such low interest rates, most private loan borrowers could likely benefit from their services. For borrowers with a decent credit and a good income, SoFi could be an ideal option for student loan consolidation.[Update 8/17/14: SoFi is presently offering a $300 bonus for new applicants. To qualify, apply through this link]