By Reyna Gobel
NEW YORK (Reuters) - Dana Friend was skeptical about all the offers flooding her inbox to refinance her student loan with a private company, but what sold her in the end was not the offer to cut her interest rate in half – it was the bonus of 50,000 JetBlue miles.
The 30-year-old psychologist from Boynton Beach, Florida dropped from paying 6.8 percent to 3.75 with lender SoFi, and also scored free trips to New York and Jamaica.
“When I got the email for refinancing directly from JetBlue, I figured they must be legit if a major airline is working with them,” said Friend.
SoFi and CommonBond, two startup private student loan refinancing companies, are getting increasingly aggressive with their signup bonuses to get new borrowers to refinance with them. Both companies offer cash referral programs – SoFi’s offer is $300 and Commonbond’s is $200. In addition, Credible.com, a student loan comparison site, offers between $250 and $1,000 per referral.
CommonBond and SoFi also both offer social programs, like happy hours and lectures, and career services. Unemployed borrowers who ask for help generally average three months to find a new job, said Phil DeGisi, a CommonBond spokesperson.
CommonBond also has a social impact program where for every person who borrows a new student loan, one child’s education is paid for in Ghana.
JetBlue is SoFi’s first outside partner, but over the next 15 months, the company plans on adding new opportunities, said Catesby Perrin, SoFi’s partnership manager.
“A lower payment isn’t enough anymore to encourage refinancing. Borrowers want to know the private lender cares about them,” said Perrin.
But no matter how low the interest rate is or services or bonuses, there are tradeoffs, said Thomas Harnisch, director of state relations and policy analysis at the American Association of State Colleges and Universities. “These plans generally do not have a strong safety net like federal student loans for borrowers that cannot make their payments.”
It is important to first check eligibility for income-driven repayment plans and public service loan forgiveness, programs where remaining balances can be forgiven after 10 years of payments and work deemed by the U.S. Department of Education to be of public service, said Harnisch.
Going private also means giving up guaranteed breaks from repayment that came with your federal student loan when you have an economic shortfall. CommonBond offers up to 24 months of forbearance, while SoFi offers a program of up to 12 months when unemployed. The repayment break timeframes should be in each lender’s contract.
Friend found refinancing through a private company well worth it. Cutting her interest rate in half means with the same payment, she will pay off her balance in 5 years rather than 10.