Top-rated student loan refinancing companies have made strides toward a better repayment experience for borrowers. Many have done away with prepayment penalties, increased repayment term options and upped their customer service game.
But banks, credit unions and online lenders can always find ways to make your repayment easier, right?
In the spirit of private lenders’ most recent innovations, here are five suggestions — some similar to federal loan features — for new, borrower-friendly improvements to student loan refinancing options.
1. Offer the ability to switch repayment plans
When in repayment, federal student loan borrowers can lower their monthly payment by switching from the standard 10-year repayment plan they initially receive to one of four income-driven repayment (IDR) plans. They can change plans free of charge and at any time.
When you refinance with a private lender, however, you’re stuck with the term you agreed to when you signed your new loan (unless you refinance a second time).
Still, lenders could increase your flexibility in repayment by offering a federal loan-like option to switch repayment plans, perhaps allowing borrowers to extend a loan term, without having to go through the red tape of a new refinancing application.
2. Bring back on-time payment rewards
Over the years, lenders at large have phased out rewards for making on-time payments in favor of rate reductions for enrolling in autopay (as well as rewards for opening and linking a savings or checking account with the same bank).
Autopay and loyalty bank account discounts, which typically knock 0.25% to 0.50% off your interest rate, are big boons in repayment. But lenders could go further by awarding similar benefits if you’re tackling your debt on or ahead of schedule.
After all, if refinancing companies truly win when the money they lent is repaid, then why not motivate borrowers like you to maintain your progress? Modest rate reductions for hitting repayment milestones could incentivize borrowers to keep up.
3. Accept credit cards as a form of payment
Generally, making a student loan payment with a credit card is a bad idea. If you’re already struggling to repay loans, you could unwittingly shift your debt to the plastic in your wallet, which most likely carries higher interest rates.
Nowadays, however, many consumers are financially-savvy optimizers. These are the same sort of borrowers who are creditworthy enough to qualify for student loan refinancing. If you’re among them, you might be the type to chase cashback bonuses, points or travel rewards and yet still responsibly zero out your balance every month.
With that in mind, refinancing companies could accept credit as a form of payment for loans — at least from dependable borrowers. It might cost the lender more money in transaction fees, but it gives the creditworthy borrower one more option to make payments.
If you’re repaying a lender that doesn’t offer payment date scheduling, for example, you might prefer using credit on the seventh day of the month if your paycheck doesn’t reach the bank until the 15th. And you shouldn’t have to resort to a service like Plastiq to do it.
4. Share clearer guidelines for forbearance
If you’re hoping to press pause on your federal student loan payments, you don’t even have to phone your loan servicer. You could review the clear-cut eligibility rules for deferment and forbearance, decide which is best for you, and complete your application.
With refinanced student loans, lenders aren’t so clear-cut. “If you can’t make your monthly payment,” they might say on their websites, “we will work with you to find a solution.”
There are some exceptions to this trend, with a few top-rated lenders guaranteeing unemployment protection to their borrowers.
For other lenders, we’re not holding out hope for an industry-wide guideline — trying to get every bank, credit union and online company on the same page isn’t realistic. However, lenders could go a long way toward helping their customers if they become more transparent about their forbearance programs and the qualifying criteria.
When you phone your lender looking for a reprieve, you shouldn’t have to wonder what the voice on the other end is going to say — it’s better to see the policies clearly written when you borrow, and to be able to reference the guidelines online in case you want a reminder.
5. Delay delinquency from turning into default
The differences between delinquency and default are striking. You could go from missing a single payment to fielding calls from collections agents. Unfortunately, in the world of private student loans, the shift can happen that suddenly.
But while the Department of Education gives you at least 270 days to catch up on your federal debt, private lenders could consider you to be in default almost immediately – as soon as you miss a payment.
Sure, top-rated refinancing companies aren’t so unforgiving. Still, like with forbearance, they could be more transparent about their default policy. Finding it among loan disclosures shouldn’t feel like searching for a needle in a haystack.
Ideally, lenders would also give you more breathing room before a delinquent loan goes into default. Assisting cooperative borrowers should eliminate the need for involving a collections agency.
Student loan refinancing companies can always do more for customers
Student loan refinancing was born because some borrowers wanted an alternative to the Department of Education’s system. In the years since, these lending institutions have competed for your business with low rates and other attractive loan terms. But competition isn’t always enough to spur change.
Banks, credit unions and online companies can always strive to do more for customers. It also could be in private lenders’ best interests to make refinancing more consumer-friendly, as some 2020 presidential candidates have proposed allowing the federal government to refinance student loans, likely eating into the private sector’s business.
If you’re shopping around for a lender, ask if the perks most important to you will be available as part of your loan agreement. That’s among the ways to vet a refinancing company before you decide to borrow.
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