Editor’s Note: This Review covers refinancing and consolidation services Discover provides. Borrowers currently with Discover who wish to refinance should read this article.
Discover is a well-known financial services company but one of the smaller lenders on the refinance marketplace.
Discover approaches things a bit differently. The result is that Discover could be a great option for some borrowers but a mistake for others.
Discover Student Loan Consolidation Basics
|Key Terms for Discover Student Loan Refinancing|
|Rates Offered:||3.49% - 8.99%|
|Rate Options:||Variable and Fixed|
|Amount Refinanced:||$5,000 - $150,000|
|Repayment Length:||10 or 20 Years|
|Loan Types Refinanced:||Federal and Private|
The first thing to point out on Discover interest rates is that they start on a 10-year loan. Most lenders start with a 5-year loan.
Discover handles all of its student loan servicing with US-based customer support teams. The Discover experience should be much better for borrowers who are used to working with Navient and FedLoan Servicing.
Discover is also unique in that they allow refinancing during school. Given that most students are not yet employed, it might be hard to qualify for an improved rate, but borrowers with a cosigner might have a shot at an early refinance.
Discover Refinancing and Cosigners
The bad news is that the cosigner will be on the loan until it is paid off. Most other lenders have a release option that typically becomes available after a year or two of repayment.
On the surface, this is a negative, but we actually applaud the honesty here. Many lenders require years of on-time payments and a future credit check of the borrower. If the borrower’s credit score and income are high enough, the lender may approve the cosigner release. The Consumer Financial Protection Bureau found that 90% of these applications were rejected. Discover should get credit being upfront to borrowers and cosigners. The cosigner will be legally responsible for the debt until it is paid off.
Discover draws attention to the benefit of refinancing without a consigner for borrowers who already have consigners on their existing loans. Borrowers who do this effectively release their existing cosigners. This is because the loans that the cosigners were legally responsible for will have been paid in full. The remaining loan would then be the sole responsibility of the borrower who refinanced independently. While this “benefit” is true of all student loan refinancing, it is always good to encourage borrowing without cosigners.
Is it Discover Refinance or Discover Consolidation?
Discover calls their loan a “private consolidation” loan. Most of the competition calls it a “refinance” loan.
There really isn’t a difference between the two terms. Some lenders use the terms interchangeably, while other try to draw a distinction between the two. The lenders trying to draw a distinction describe consolidation as a process that is only offered by the federal government through federal direct consolidation. They see refinancing as a service provided by private lenders. By this definition, what Discover is offering is a refinance, rather than consolidation.
Ultimately, the difference here doesn’t make a difference.
The important detail is that borrowers understand why refinancing or consolidating with a private lender can be a big mistake…
A Critical Warning
The advantage of refinancing is that the old loans are paid off, and a new loan is created. Ideally, the new loan will have better terms like a lower interest rate or smaller monthly payments.
However, borrowers must think twice before consolidating or refinancing their federal loans with a private lender. Going this route means that all of the federal protections that come with the loan will be gone. This means no income-driven repayment plans, and no student loan forgiveness.
Borrowers who won’t need these federal perks and just want a lower interest rate can safely move forward with the private refinance. Borrowers who worry about future income levels and their ability to pay would be wise to keep the loans with the federal government so that the federal perks stay in place.
A Quick Review of the Other Lenders to Consider
Discover is a lender worth investigating. However, borrowers should not limit their search to Discover. The only way to find the best refinance option is to shop around a bit. Most applications take 10 minutes or less, so the process is fast.
Final Thoughts on Discover Student Loan Refinance
Though Discover is a smaller player on the student loan refinance and consolidation marketplace, their existing reputation for customer service gives them a leg up on much of the competition.
Borrowers looking for 10-year or 20-year repayment plans on their student debt would be wise to consider Discover.