Fin 422 section 04
15 September 2015
Lenders Pitch Refinanced Loans to Former Students (Some of Them)- Annamaria Andriotis- July 30, 2015 A growing number of student lenders are now refinancing the debt of certain graduates with high credit scores and high-paying jobs. Andriotis explains that five lenders have recently refinanced $5 billion in loans, and Golman Sachs Group Inc. estimates $200 billion of student loans could become eligible for refinancing. This strategy of the lenders is aimed at stealing customers from large banks and the federal government. The federal government currently makes up about 93% of outstanding student loan balances and charge the same interest rate regardless of income or credit score. While still a small portion of the student market, lending firms could potentially transform a huge part of the lending business. Refinancing through big banks has been difficult in the past and still is today. But recently, newer, more innovative startups are making it easier on student borrowers by refinancing private and federal loans. While helping students lower interest rates is definitely a good thing, some consumer advocates argue that under this approach, most of the debtors getting a break are the wealthy, not the ones who need it most. This is because the borrowers have incentive to “cherry pick” borrowers with lower credit risk. This new attention to the student-market isn’t surprising given the huge and growing market. With tuition prices still rising, the average student debt in this country continues to climb, yet repayment terms are extremely rigid and student borrowers have far fewer refinancing options than mortgage holders and other borrowers. Helping the student population in this country manage their debt would go a long way in allowing students to pursue their dreams and become successful. Refinancing options would be a big