Surely, these student loan companies have to make money, how do they do it? Do they charge fees, make it back on the interest rate? I know they don’t work for free. No one talks about that part, but I’m sure they’re getting paid. How do they stay in business and have large staffs if they aren’t charging?
May 3, 2014
These lenders make their profits by picking low risk borrowers. If they are concerned about your ability to pay, you will either get denied or a huge interest rate.
Even with they low interest loans they can still turn a profit by being selective.
I’ve also noticed that some of these companies are branching into other services such as personal loans or mortgages. Having the existing student loan customer base is a great target audience for these other services.
But you are right about one thing… they sure are not doing it for free.
So, I’m a student and I’m looking to consolidate the 4 years of loans I have at different interest rates and I call say, SOFI. They are a lender, so they would have me fill out an application, pull my credit and determine if I’m approved. I wouldn’t pay them a fee for services, they would just increase my interest rate slightly to get ‘paid’ on the loan..right?
I just don’t want to get taken to the cleaners, when I’m trying to better my financial situation.
May 3, 2014
SoFi is a good example. The process of applying is free to you… and yes, they will pull your credit.
They want you to have a loan with them so that they can make money on the interest each month. It is the reason that they will pay you $150 to consolidate with them. In the long run they earn that $150 back plus a bunch more.
They get a new customer, you get lower interest rates and the company that loses out is the old lender with the higher rates.
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