When a group of Stanford University friends got together and founded Social Finance Inc. — commonly known as SoFi — in 2011, their goal was to ease one of the greatest areas of financial stress for their alumni friends and other consumers: student loan debt.
After moving into the mortgage space in 2013, SoFi now seems to be returning to its roots by partnering with Fannie Mae on a new loan option. The offering allows homeowners to use their equity to whittle away at their burdensome student loan debt.
Student Loan Payoff ReFi
The San Francisco-based nonbank lender and the government-sponsored enterprise (GSE) announced the availability of the loan option today.
Called the Student Loan Payoff ReFi, the offering will allow homeowners to refinance their mortgages at lower rates to pay down their student loan balances. Under this cash-out refinance student loan payoff plan, SoFi will disburse payments directly to student loan servicers.
SoFi said it designed the loan option to help homeowners manage their student debt, including many college graduates who co-signed loans with their parents.
According to the company, about 8.5 million American households could benefit from participating in the program.
“People can pay off student loan debt and are left with one loan at the low rates that mortgage borrowers are enjoying in today’s market,” said Michael Tannenbaum, Sofi’s senior vice president of mortgage lending.
What’s the advantage?
Fannie Mae noted that the offering is great timing because it will enable homeowners to take advantage of historically low mortgage interest rates while attacking their student loan burden.
According to Experian data, the average homeowner with outstanding co-signed student loans has a balance of $36,000 on those student loans, and those with outstanding Parent Plus loans have $33,000 in student debt.
Nearly 90 percent of private student loans made to undergraduates require a creditworthy co-signer, according to data compiled by Sallie Mae, and Private Parent Plus loans carry a higher rate than the borrowing costs of most mortgages.
“Fannie Mae and SoFi are leaders in housing and student finance, and this option gives us an opportunity to both promote homeownership and relieve part of the country’s student debt burden,” said Jonathan Lawless, the GSE’s vice president for product development and affordable housing, in a statement.
The Student Loan Payoff ReFi is available to SoFi members and the public starting today.
SoFi at Work
The loan program comes on the heels of another program, SoFi at Work, which SoFi launched in September to help companies extend student loan debt relief to their employees.
Administered by SoFi, companies make regular contributions directly to their employees’ existing federal or private student loans, reducing loan balances and saving interest expense. Then, at no cost, companies make SoFi student loan refinancing available to employees to help them save money and pay down their loans faster.
More than 600 companies and associations have adopted the program, including some of the nation’s top technology, law and banking firms.
“When it comes to employee benefits, we believe student loan help is the next 401(k),” said Mike Cagney, Sofi’s CEO, chairman and co-founder at SoFi, in a statement.
“This is especially true for the millennial generation, now the largest percentage of the workforce, who are starting their careers with record-setting student loan debt and deferring important priorities like retirement savings or buying their first home.”