Refinance Lender Transparency Review: Who is Offering the Best Covid-19 Advice?

Michael Lux Blog, Opinion 0 Comments

Editor’s Note: The initial lender reviews for this article took place on August 3rd, 2020. If a refinance company takes steps to provide better guidance to borrowers, its grade will be updated accordingly.

Businesses love to brag about how they do the right thing and put consumers first.

Sadly, this is often lip service. When the interests of a big company no longer align with their customers, it is often the customers who lose out.

Because the federal government set interest rates at 0% through September 30th, and possibly longer, many refinance lenders are in a difficult position. Do they warn customers that refinancing right now might not be a good idea? Or do they ignore this temporary federal perk and encourage all to refinance?

The reality of the situation is that it is probably a mistake for most borrowers to refinance during the federal interest rate freeze. Additionally, because there is a chance the rate freeze could continue, a premature refinancing of federal loans could prove to be costly to borrowers.

While some lenders may be reaching out and offering Covid-19 related advice over the phone, these reviews are based upon lender websites.

Splash Financial

Splash Financial starts strong by including a Covid-19 Update at the very top of the page.

The update doesn’t include any explicit warnings about federal loan interest rates, just that Covid-19 might mean something for student loan refinancing and a link to learn more.

Ideally, readers would be advised that federal interest rates were at 0% without having to click on a link, but Splash gets credit for the Coronavirus update being featured at the very top of the page.

Where Splash falls short is on the actual Covid-19 Update page.

The page starts with a letter from the Splash Financial CEO explaining how Splash will be there for borrowers. The letter talks about how Covid-19 has impacted operations and asks for patience for longer call wait times and email responses. At no point does the letter reference the federal interest rate freeze. Visitors to the Covid-19 may see the letter, conclude that the update was regarding Splash employees working from home, and move on.

Readers that scroll down will find a section on Common Questions Related to Covid-19. Within that section, Splash does explain the CARES Act federal interest rate freeze and provides a helpful analysis.

Grade C: Splash correctly acknowledges that many customers would be wise to hold off refinancing federal loans. While this information isn’t hidden away, it also isn’t prominently featured.

SoFi

SoFi immediately advises potential customers that now might not be the best time to refinance.

They include the following warning:

“NOTICE: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 9/30/20. Please carefully consider these changes before refinancing federally held loans with SoFi, as in doing so you will no longer qualify for these changes or other current or future benefits applicable to federally held loans.”

While there is an argument to be made that the font is a bit small and this language is fine print designed to be skipped over, it appears towards the top of the page and would be very hard to miss.

Additionally, SoFi takes the added step of having a section entitled, Is now the right time to refinance?

The link takes borrowers to a page that explains that now might not be the right time to refinance federal student loans. Potential customers are given the option to provide an email so that SoFi can reach out to them when refinancing federal loans makes sense again.

Grade A: SoFi doesn’t hide the fact that right now is a bad time to refinance federal loans. Additionally, they make the explanation easy to understand and hard to miss.

ELFI

As with other lenders, ELFI has a banner at the top of their page discussing Covid-19.

Like most other lenders, ELFI makes no explicit reference to the interest rate freeze. Instead, they focus on ELFI operations during Covid-19.

Those that click on the Learn More link are taken to a page that mostly focuses on existing customers. However, ELFI also includes a section dedicated to the CARES Act, including mentioning the interest rate freeze until September 30th.

One great aspect of the ELFI CARES Act section is that it includes a link to the Department of Education page explaining the CARES Act and the rate freeze. This is nice because it allows borrowers to educate themselves directly from a reputable source.

Grade C-: ELFI gets credit for pointing borrowers in the right direction for further information, but it would be better if they featured the 0% interest information more prominently and explicitly advised federal student loan holders that now isn’t the best time to refinance.

Laurel Road

As is industry standard, Laurel Road has a Covid-19 banner at the top of their page.

The Laurel Road Banner says the following:

For our updated response to COVID-19, including information on student loan rates and/or how to request a forbearance, please click here.

The linked page initially focuses on ways that customers can reach Laurel Road to have questions answered and to get help.

Scrolling down, there is a table explaining the difference between federal and private student loans. Within that table, there is a section on the CARES Act explaining that borrowers who refinance their federal loans will “lose federal benefits including the ability to defer payments and incur no interest through September 30, 2020, as offered under the CARES Act.”

While Laurel Road gets credit for mentioning the CARES Act, they don’t take the additional step of encouraging borrowers with federal student loans to wait to refinance.

Grade D: Laurel Road does the bare minimum. They acknowledge the CARES Act, but the information is not prominently displayed, and there doesn’t appear to be a sufficient warning to existing federal loan borrowers.

Earnest

Like many other lenders, Earnest has a message at the top of the page regarding Covid-19. The Earnest notice simply says, “Your Earnest Loans and Covid-19” and has a link for readers to Learn More.

Sadly, the Learn More page is focused entirely on current Earnest borrowers. No reference is made to the Cares Act, and the only mention of an interest rate freeze says that the interest rate waiver doesn’t apply to privately held loans.

In researching this article, I wasn’t able to find any warning on the Earnest website for potential refinance customers who currently hold federal student loans.

Grade F: While there is an argument to be made that federal borrowers know about the interest rate freeze and suspension of payments, refinance lenders would better serve their customers if they explained the implications of refinancing right now. Earnest provides no clear warning.

CommonBond

CommonBond has a solid Guide to Student Loan Relief. It explains how the 0% interest works and links borrowers to some helpful resources.

Unfortunately, the quality information provided by the Guide to Student loan Relief is somewhat buried on the CommonBond refinance page.

Consumers researching CommonBond as a refinance option are not given any immediate indication that federal loans have a 0% interest rate. The only mention of Covid-19 is found in a link that reads, “Learn more about what CommonBond is doing in response to COVID-19.”

By clicking the learn more link, borrowers are taken to a Frequently Asked Questions page that includes a ton of information. The first information provided pertains to current CommonBond borrowers who have been impacted by Coronavirus.

Readers need to scroll down to the fourth question before any reference is made to the CARES Act or the federal interest rate freeze.

Grade C+: The Guide to Student Loan Relief is a useful lender resource that could steer borrowers away from a refinance mistake. Unfortunately, this information may be too hidden to help many consumers.

Final Thoughts: Room for improvement for most lenders

Lenders mostly fell into three categories with their treatment of CARES Act information:

  • Category 1 is the lenders that appeared to actively encourage federal loan borrowers to wait to refinance. Sadly, SoFi was the only lender that fell into this category.
  • Category 2 would be the lenders that acknowledge the existence of the CARES Act. Most lenders fell into this category.
  • Category 3 lenders didn’t acknowledge the CARES Act. Not providing this information is a practice that is not very helpful to the consumer.

Because the interest rate freeze should be well known to all borrowers at this point, there is an argument to be made that these grades are asking a bit too much of the lenders. However, this is one area where what is best for the lender is dramatically different than what is best for the borrower. As a result, it provides a compelling opportunity to see how a student loan company weighs its self-interest against the interests of the borrower.

For comprehensive lender reviews, be sure to check out our Refinance Lender Reviews and Rankings.

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