Chris Winiarz, a 31-year-old money manager with a Northwestern MBA, jumped at a student-loan deal of a lifetime.
A startup called SoFi offered to refinance his $45,000 in federal debt, slashing his interest rate to 2.69% from 6.55%, Bloomberg reports. Winiarz will pay off his obligation three years early, saving about $9,500 and helping pay for an engagement ring for his girlfriend. The company even threw in a free bottle of artisan olive oil.
“I really should have done this a lot sooner,” says Winiarz, who helps oversee the University of California’s endowment and pension investments, according to Bloomberg.
In a growing refinancing boom, a new generation of private lenders—backed by hedge-fund billionaires and Silicon Valley royalty—is targeting successful graduates with professional degrees and student loans. For the borrowers, “it’s an uncashed lottery ticket,” says Brendan Coughlin, head of education finance for Citizens Financial Group Inc.
There’s a catch. Their good fortune could cost taxpayers billions and damage the credit quality of the government’s $1.2 trillion student-loan portfolio, the biggest pool of U.S. debt, except for mortgages. That’s because professional-school graduates and other borrowers with successful careers subsidize the less fortunate, who are more likely to default.
“Cream-skimming by private lenders will remove these profitable loans and leave mainly—or only—the more risky loans,” says James McAndrews, executive vice president and director of research at the Federal Reserve Bank of New York.
