For many recent graduates, the thought of paying back the principal amount of their student loans can be overwhelming, add in the additional compound interest they’ll be paying over the life of the loan and the total student loan figure can become utterly nauseating. As a result (and because it is unlikely their student loans will disappear), some recent graduates may consider student loan consolidation and refinancing as a way to combine all of their loans into a single monthly payment and possibly save money over the life of their loans. Whether they will actually save money or not will depend on their loans’ current interest rates and the refinancing rate as well as whether or not they extend the life of their loan. Before signing up for a new repayment program, it is important that recent graduates crunch the numbers themselves, taking into account worse case scenarios, to ensure that they won’t actually end up paying more for their loans. Because of this enthusiasm for alternative loan repayment options, new nonbank private student lenders are now providing recent graduates with more consolidation and refinancing options than were previously available.
I recently had the opportunity explore this emerging aspect of the student loan services industry by speaking with David Klein, the CEO and co-founder of CommonBond, a venture backed financial services company that assists recent graduates with loan consolidation and refinancing. Prior to CommonBond, David worked in consumer finance at American Express, as Director of Strategic Planning and Business Development, where he led a $250M annual business. David started his professional career as a consultant at McKinsey & Company, where he advised clients in the financial services industry.
Q: What is CommonBond?
David: CommonBond, launched at Wharton--where I met my co-founders, Mike Taormina and Jessup Shean, is a values-driven financial services company, helping graduates across the United States save money on their student loan payments.
CommonBond is also the first company to bring the “1-for-1” model of social good to education and finance: For every degree fully funded on the company’s platform, CommonBond funds the education of a student in need abroad for a full year through a partnership with Pencils of Promise.
Q: How can CommonBond help graduate degree holders saddled with student debt?
David: We can help them find the best refinancing loan to fit their lifestyle right now. We have fixed and variable rates. Loan terms range from 5 year to 10 years to 15 years to 20 years; we even have an industry-first "Hybrid Loan"--a 10-year loan that is fixed for the first five years and variable thereafter. We created the "Hybrid Loan" specifically in response to our borrowers’ needs.
Q: How does refinancing work?
David: At its most basic, refinancing is paying off one loan with another loan. “Consolidation” is when you refinance multiple existing loans on the same new student loan. When you refinance and consolidate your student loans, you get a “do over”--a chance to put all your loans into one new loan term and interest rate. So let’s say you had two loans for law school, one Stafford Loan for $20,500 at 6.21% percent and one private student loan for $10,000 at 7.99%. If you decide to refinance these loans at a fixed rate of 3.625% you’ll have one, new loan for $30,500 at 3.625% interest--and you’ll be saving thousands in interest payments made over the life of your loan.
Q: What kind of rates does CommonBond offer? How are rates determined?
David: Borrowers can get variable rates as low as 2.65% APR (with autopay), and fixed rates as low as 3.625% APR (with autopay). Meanwhile, our Hybrid Loan rates are as low as 3.82% APR (with autopay). The Hybrid Loan is special--it gives you a fixed rate for the first five years of repayment, and then a variable rate thereafter--especially if you’re planning to prepay your loan, this is a great way to minimize the uncertainty of a variable rate loan while maximizing your potential savings on interest payments.
Q: On which type of degrees does CommonBond focus? Are graduates of all schools eligible? Are all loans eligible?
David: Right now, we’re able to refinance loans for graduates from over 100 programs across four degrees: JDs, MDs, Master’s of Engineers, and MBAs. We’re expanding rapidly, and we expect to expand to many new programs in the next few months.
And yes, all student loans--graduate or undergraduate loans, federal or private loans--are eligible for these graduate degree holders. We also consolidate federal and private loans together into the same loan.
Q: Are graduates who refinanced with CommonBond still eligible for income based repayment plans and loan forgiveness programs, such as the public service loan forgiveness program, offered by the federal government?
David: No, those programs are for federal student loans only. Instead, CommonBond borrowers can benefit from several other features of our loan program. For instance, through our CommonBridge program, we help borrowers find a job if they’re facing unemployment, which can include a paid consulting engagement to help with cash flow in the short term.
We also provide economic hardship forbearance, so if you unexpectedly fall on hard times, you can postpone payments for three months at a time, for as many as twelve consecutive months, to give you some time and space to get you back on your feet.
Learn more about CommonBond here.
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