This is a guest post written by SoFi's CEO, Mike Cagney.
Student loans aren’t fun, and they can be confusing. What frustrates us at SoFi is the dogma in the market that students should always exhaust their federal loan options before considering private loans. This can be very bad advice. While we agree that subsidized Direct and Perkins loans are clear no-brainers for students if you are eligible for them, things get more ambiguous with unsubsidized Direct loans and become down right murky with the egregiously burdensome PLUS loan.
To illustrate where the so-called experts fall down, I’m going to demonstrate why you should give back your PLUS loan and replace it with a SoFi student loan. I’m going to compare the loans across four key points: rate, origination fees, borrower protection and community. For illustration, I will assume you are a graduate student in your second of two years of school and you just borrowed $20K this Fall through a PLUS loan on a 15-year term. However, my reasoning will generally apply to any PLUS borrower, including parents, and at any stage in the loan maturity.
The interest rate on the PLUS loan is fixed at 7.9%. That’s more than what General Motors, US Airways, Morgan Stanley and the typical high yield (e.g., junk) bond pay. It’s more than the governments of Spain, Kazakhstan and Iraq pay. Do you think you’re a better credit than the government of Iraq? No offense to Iraq, but we do. That’s why our loan rates range from 5.99% fixed for refinancing to 6.49% fixed for students in school who are deferring payments until after graduation. You’d pay the government $4,563 more in interest than SoFi over the life of your $20K loan.
Origination fees add insult to injury......Click here to read the full article .
Here are the details:
Current MBA and undergraduate students can get SoFi loans at a 6.24% fixed rate (6.24% APR)* if payments are made while in school using auto payments. A 6.49% fixed rate (6.38% APR)** product is also offered for students who defer making payments while in school. An additional discount drops the rate to 5.99% (5.99% APR)*** for making auto payments after graduation. These loans do not require a cosigner or have an origination fee.
Recent MBA grads can also refinance their federal and private loans at a rate of 5.99% (5.99% APR)**** with no origination fee or prepayment penalty.
All SoFi loans also offer access to SoFi's alumni investor community, and borrowers enjoy many of the benefits of federal loans, including income-based repayment and economic hardship forbearance options .
To learn more about SoFi, visit www.sofi.com or call us at 1.866.357.6342. We have real people here in our San Francisco office to help answer your questions.
* 6.24% APR Assumes a $10,000 loan, borrower begins making monthly interest-only or interest and principal payments immediately with auto ach, 15 year repayment term and no origination fee.
** 6.38% APR Assumes a $10,000 loan with a 22 month in-school deferment, 6 month grace period, monthly payments, no origination fee, capitalization of accrued interest upon entering repayment and a 15 year repayment term. Does not include any discounts.
*** After a borrower graduates and pays using automatic ACH payments, a .25% discount is applied to borrowers under the 6.24% rate loan and a .5% discount is applied to borrowers under the 6.49% loan. In the event a borrower stops making automatic ACH payments, this discount will be removed.
**** This product requires the borrower to sign up for automatic ACH payments. A 6.24% (6.24% APR) fixed rate loan consolidation product is also offered that does not require sign up for automatic payments. Both APR assumptions are based on a $10,000 loan, 15 year repayment term, and beginning monthly repayment 30 days after loan origination. Your APR may increase or decrease based on your own circumstances. You will receive a customized APR estimate during the application process.
Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident and meet underwriting requirements. This information is current as of July 26, 2012 and is subject to change. SoFi loans are originated by SoFi Lending Corp (dba SoFi) California Finance Lender #6054612. 220 Halleck Street Suite 200D, San Francisco, CA 94129