Why Do Banks Want to Refinance Your Student Loan DebtOctober 26, 2018
Millennials have been accused of killing everything from napkins to mail, but we still get a lot of mail. Mixed in among the pizza coupons and carpet cleaning flyers, you’ll usually find banks advertising for student loan refinancing or consolidation services. So, what is student loan refinancing and consolidation? If you’ve ever been puzzled by advertisements asking you to refinance your student loan debt, we can shed some light on the subject. Why do banks want to refinance your student loans? Here are five reasons.
Updated June 03, 2020
Business for the Bank
Banks make money off the upfront costs of refinancing student loans. You usually have fees associated with the process of refinancing, from administrative fees to application fees and so on. This pays the bank to employ people who work on your accounts. Basically, it pays the bills. They make money from customers setting up new accounts or new loans. It’s simple: refinancing pays the bank to provide a service that, in turn, helps them keep the lights on. Fortunately, some lenders such as ELFI offer refinancing with no application fee or loan origination fee.*
They Want You to Stick Around
It’s an attractive deal for some borrowers to reduce their monthly payments by refinancing student loan debt. Some people will happily jump on a good deal to refinance student loans for longer terms to get lower payments because that puts more of your monthly income back in your pocket. This keeps you as a customer for a longer term, which is beneficial to the bank even if you’re paying less each month. So, if you’re happy and able to make your monthly payments without a problem, they’re happy.
You’re a Good Borrower (On Paper!)
If you’ve got a good credit score and income, you look good on paper. A bank will want you to stay with them or change to them instead of shopping around where they may be one of countless competitors vying for your business. Banks know that web-savvy searchers like yourself can hop on the internet and get quotes for new financial products in a matter of minutes. If you look good on paper and have all the characteristics of a responsible borrower, they want to offer services such as student loan refinancing that keep you as a customer. It’s worth their advertising dollars to attract and retain good borrowers.
They’re Making Your Debt Easy to Sell
Banks regularly sell debt to other institutions. If you have had a mortgage or student loan for several years, you may have seen this at least once already. You get a notice in the mail saying something is changing with your servicer because your debt has been acquired by another company. It’s beneficial for the financial institutions, and it doesn’t mean that you did or didn’t do anything in particular—you might be one of many people your bank has targeted as a current customer whose debt would be easier to sell if it were refinanced.
Those are the main reasons that you might be seeing advertising for your bank or any other bank trying to get you to refinance your loans. If you start thinking about refinancing your student loans, check out the help we can offer navigating the process.*
*Subject to credit approval. Terms and conditions apply.
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