Your credit scores often dictate your loan, credit card and mortgage rates. But federal student loan rates are determined by the year in which you take them and whether you’re borrowing for an undergraduate or graduate program. Many student borrowers don’t realize they can refinance their student loans to receive a better interest rate based on their credit scores. Yes, your student loans can be refinanced! Enter SoFi.
SoFi, or Social Finance Inc., is the largest provider of student loan refinancing — with nearly a billion dollars in loans so far. I spoke to Dan Macklin, cofounder and head of business development at SoFi, about the company and its borrowers. But before we dive into that, let’s answer the question we raised in the title …
Can a good credit score decrease my student loans?
Yes! A good credit score can help you qualify for a lower interest rate when you refinance your student loans. So the principal will stay the same, but you could save a significant amount of money in interest over the life of your loans.
Macklin told me that the average SoFi borrower refinances $70,000 in student loan debt and saves over $11,000 in interest. Imagine all the interesting things you could do with $11,000, if it wasn’t being funneled into the black hole known as “accrued interest payments.”
I’m thinking about refinancing — what factors will determine my interest rate?
Your FICO score is important in determining whether or not you’re creditworthy. The better your score, the better your interest rate. However, that’s not the only factor SoFi considers when determining your refinance rate. SoFi also looks at your income and monthly cash flow, the school you graduated from, and the number of years you’ve been out of school, Macklin said.
While there are a wide range of SoFi borrowers, the average customer is 30-31 years old, makes a six-figure salary and has some type of graduate degree. These qualifications aren’t required, but the acceptance rates are higher for borrowers with a similar profile.
Even if you don’t fit this profile, a SoFi loan may still be a smart move for you. Consider all the factors — your credit score, cash flow at the end of the month, and income in relation to debt. To get a good rate on a large loan, you’ll probably need a large income. However, those with smaller loan balances won’t necessarily need six-figure incomes to get approved at a favorable rate.
Is there anything else I need to know about refinancing with SoFi?
SoFi offers refinancing on federal and private loans. Keep in mind that if you refinance federal loans, you may not be able to take advantage of public service forgiveness or economic hardship programs. That said, Macklin was proud to say that SoFi has yet to see a default. This may be due, in part, to two programs the company offers to get you through transition periods — career services and the entrepreneur program.
Career services helps borrowers find new jobs — whether they’ve been laid off or simply want to switch industries or companies — and gives tailored career advice based on borrowers’ goals and experience. Also, if you do lose your job, SoFi will pause your payments while helping you look for a new job.
The entrepreneurship program defers the student loan payments of qualified borrowers interested in starting a business for six months. Accepted applicants will also receive access to SoFi accredited investors, professional mentorship and networking opportunities with other SoFi entrepreneurs. One SoFi customer, Benny Joseph, took advantage of this program and was able to start a tax forecast business called GoodApril and sell it to Intuit for a seven-figure sum.
Do I qualify for student loan refinancing through SoFi?
Student loan refinancing through SoFi is available to U.S. citizens or permanent residents over 18. Borrowers should be employed or have an employment offer that will begin within 90 days of applying for refinancing. Due to state regulations, SoFi offers refinancing in 42 states as of October 2014, but Macklin is confident that the company will eventually be able to service borrowers in all 50 states. The minimum student loan balance for refinancing is $10,000.
If you qualify, scroll to the bottom of this article for a special SoFi offer for NerdWallet readers.
Main takeaway: Regardless of whether or not you choose to refinance with SoFi, it’s nice to know that the option is out there. Your good credit score can help you get better student loan rates, which could trim thousands off your payments.
If you decide to refinance through SoFi, the company is extending NerdWallet readers a bonus of $300 from now until Nov. 17, 2014, and access to a special customer service representative, Jenna. You can spend the bonus on whatever you want — although we’d recommend using it to pay down your student loans or other debt. Follow this link to receive the special offer.
Graduation cap, diploma and money image via Shutterstock.