You’ve made your decision. You are going to refinance your student loans. You’ve done the research. You’ve compared a number of student loan refinance programs and done side-by-side calculations to see which ones have the lowest interest rates, best repayment options, and the most generous borrower benefit programs. You’ve read the fine print and narrowed your choices down to your top three.
So which one is it going to be? Is it the lender who lists the lowest interest rate? Or perhaps the lender with the repayment plan that allows you to lower your monthly payment the most? How about the lender that offers those tantalizing borrower benefits that allow you to save hundreds of dollars more when you refinance with them?
Choosing which student loan lender to refinance with can be a difficult decision. While you should definitely take into consideration the overall cost, monthly payment, and borrower benefits offered, there is another very important factor to consider. You need to know who the lender and loan servicer will be after your new refinance loan is made; the one you will start making your new monthly payments to.
You may be wondering why this is important. Well, it’s because once student loans are refinanced, many lenders have agreements to sell, or package their loans into financial securities, often going to the highest bidder. The proceeds from the sale are then used to make more refinance loans, which are subsequently sold. This happens over and over again. Rinse and repeat.
Ok, so the lender sells their loans, but the loan servicer the lender contracts with to manage your account and accept payments has a good reputation, which means you’re good to go, right? Maybe. That’s because the holder of your student loans (either the original lender or the buyer if the loans are sold) gets to decide where the loans are serviced. And once your refinance loan is made, the loan servicer is most important to you, since this is who you will be interacting with. It’s similar to when you buy a TV from a large retailer. The retailer sets the price and sells you the TV, but once you own it, you must contact the manufacturer with any questions or if you need customer support.
Tip: The lender and loan servicer information can usually be found on the lender’s website, in the Application and Solicitation Disclosure every lender is required to present you before you apply for a loan, or on the actual promissory note you must sign. If you don’t recognize the lender or loan servicer, you should call the financial aid office at your school to ask them if they are a reputable organization.
What if the lender doesn’t sell their loans, or package them into financial securities. Everything is fine then, right? If the lender doesn’t sell their loans, or sells them to a buyer that uses the same loan servicer, then you can feel pretty good about things. While there are no guarantees, if the lender uses a reputable loan servicer, then you can feel fairly confident your customer satisfaction is very important to them. The chances that they would jeopardize this by cutting corners with a low-cost, low-quality servicer just to save a few dollars is less likely.
Knowing who the holder and loan servicer of refinanced student loans are after the loan is made is extremely important. If the lender sells their loans, be sure you know who the buyer is and which loan servicer they use. If you’ve ever had to deal with a company that provides poor customer service, chances are you wouldn’t buy from them again if you didn’t have to. With student loan refinancing it’s even more important, because if you’re unhappy with your loan servicer, the only way to switch is to refinance your loans again.