Taking a close look at the discover student loan refinance option.

Discover Private Student Loan Consolidation and Refinancing

Michael Lux Blog, Student Loan Consolidation Reviews 0 Comments

Discover joins a crowded marketplace of lenders offering student loan consolidation and refinancing services. Though the loans that Discover offers are not groundbreaking, they will appeal to a number of borrowers. Those most likely to be impressed will be consumers that like working with Discover and those that appreciate 100% US-based call centers for support.  We also like the Discover policy on cosigners. Unfortunately, Discover falls short in a couple key areas which we will explain below.  As a result, Discover just barely sneaks in to the top ten of our student loan refinance company rankings. Discover Student Loan Consolidation…

Discover Refinancing

Interest Rates
Co-Signer Release
Loan Terms
Repayment Length

Decent

Discover student loan refinancing is a decent option for many borrowers, but most will be able to find better interest rates elsewhere.

Discover joins a crowded marketplace of lenders offering student loan consolidation and refinancing services.

Though the loans that Discover offers are not groundbreaking, they will appeal to a number of borrowers.

Those most likely to be impressed will be consumers that like working with Discover and those that appreciate 100% US-based call centers for support.  We also like the Discover policy on cosigners.

Unfortunately, Discover falls short in a couple key areas which we will explain below.  As a result, Discover just barely sneaks in to the top ten of our student loan refinance company rankings.

Discover Student Loan Consolidation Basics

Key Terms for Discover Student Loan Refinancing
Rates Offered:4.74% - 8.49%
Rate Options:Variable and Fixed
Amount Refinanced:$5,000 - $150,000
Repayment Length:10 or 20 Years
Loan Types Refinanced:Federal and Private

The interest rates with Discover start at a respectable 4.74%.  While this rate is significantly higher than the other lenders that currently advertise rates starting at 2.50%, we note that Discover’s best rate is for a 10-year loan while most other lenders typically start with a 5-year loan.  When compared to other 10-year loans, Discover’s 4.74% isn’t too far behind the leaders that come in at 4.00%.  For borrowers looking for a rock bottom interest rate and planning to pay off the loan in five years or less, better options likely exist elsewhere.

Discover handles all of their student loan servicing with US based customer support teams.  For borrowers who are used to working with services like Navient and FedLoan Servicing, the Discover experience should be much better.

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 definitely 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 of 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.

For borrowers who already have cosigners on their existing loans, Discover draws attention to the benefit of refinancing without a cosigner.  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 on their own.  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 “consolidation” loan.  Most of the competition calls it a “refinance” loan.  Is there is a difference between a refinance loan and a consolidation 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 offered 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 borrowers get repay a new loan with new, and hopefully better terms like a lower interest rate or smaller monthly payments.

However, it is really important that borrowers 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

The two biggest flaws with Discover loans are the higher starting interest rates and the $150,000 total student loan borrowing cap.  Borrowers concerned with either of these two limitations do have other options.

Discover's Competition
ELFIELFI does not impose a limit on total borrowing and interest rates start below 3%. However, the minimum amount to borrow is $15,000 compared to Discover's $5,000.
SoFiLike ELFI, SoFi has no cap on total borrowing and interest rates starting below 3%. Like Discover, SoFi will also refinance loan balances as low as $5,000.
Laurel RoadLaurel Road matches SoFi's low rates and borrowing limits. Laurel Road also has special programs for medical professionals.

Final Thoughts

Though Discover is new to the student loan refinance and consolidation marketplace, their existing reputation for customer service gives them a leg up on much of the competition.

Borrowers who are looking for 10-year or 20-year repayment plans on their student debt would be wise to give Discover some serious consideration.