By Margery Weinstein
Managing Editor, ROB
Refinancing student loans can enable financial flexibility and allow you to invest in growing your practice.
When Kevin Pugh, OD, graduated from optometry school, he had $300,000 in debt. He had taken out several government loans to get through school, and he felt like he wasn’t making much progress paying them off. The loans carried interest rates of 6.9 to 7.9 percent, and Dr. Pugh was looking at a 25-year monthly payment of $2,300. Further, under the terms of the loans, Dr. Pugh was set to pay more than twice the principle–or more than $600,000–over that 25-year period of repayment.
“I have a young family, so I wasn’t able to work during school,” Dr. Pugh, now an associate at McDougal Eye Center in Mesa, Ariz., says of how he amassed such debt. The financial burden was frustrating, so he decided to refinance and consolidate his loans. Refinancing a loan enables the borrower to establish new interest, terms and timetable for paying off debts. Essentially, it provides the opportunity to renegotiate lower payment costs for money borrowed at higher terms.
Safe, Secure Option for Refinancing
Data breaches, including those affecting college and optometric students, have been in the news lately.
When applying to refinance college loans, you are required to submit personal financial data, which raises security concerns, so it is important that the refinancing partner you work with is able to promise the security of that data.
CommonBond utilizes highly secure SSL encryption technology to safeguard applicants’ personal data. Data is hosted and stored on dedicated servers in AWS data centers, and is subject to regular audits to ensure compliance with industry standards.
With such a secure platform to receive and process applications, those seeking refinancing have nothing to think about–other than securing the best refinancing plan for their future. —Margery Weinstein
After researching and applying for refinancing with a few different financial institutions, Dr. Pugh chose to refinance with CommonBond. “My initial loan with the government was $108,721 at 7.8 percent at a 25-year repayment term. By payoff in 25 years, I would have a monthly payment of $824 with total interest of about $138,700,” he says. “My CommonBond loan was refinanced $108,721 at 5.99 percent for 20 years. By payoff in 20 years I would have a monthly payment of $795 with a total interest of just over $78,000. That’s: $138,700-$78,000=$60,700. Therefore, I will be saving about $60,700 in interest by refinancing.”
Indeed, it is not uncommon for those refinancing with CommonBond to see significant savings over the lifetime of the loan, says CommonBond’s Director of Business Development Mike Muller. “We’ve looked at the average estimated savings over the lifetime of the loan for those who refinance with us, and found an average $14,941 in savings,” says Muller. “Those savings are even greater for those with a greater debt burden.”
Muller explains that CommonBond’s savings calculation of $14,941 is based on the actual average loan balance and a weighted average interest rate for CommonBond members who refinanced student loans from Dec. 1, 2015 to May 31, 2016, and indicated that their occupation was optometrist. Savings is calculated as the difference between the borrower’s estimated future payments for loans at 7.21 percent (Federal Grad PLUS Rate between July 1, 2014 and June 30, 2015) and their future expected payments after refinancing with CommonBond. The calculation is a weighted average dollar savings across loan terms, and assumes no change in interest rates, on-time payments, enrollment in ACH, and no pre-payment of loans.
There are no costs to the borrower for refinancing through CommonBond. The company profits by securitizing (i.e., re-selling) the loan to investors while it remains the lender of record, and services the loan for the life of the loan. In other words, borrowers always deal with Commonbond for service during refinancing and all subsequent payments.
Optometrists are especially good candidates for refinancing, says Muller, because their high student debts are offset by their high income and steady cash flow. “When you take out student loans, it’s one size fits all,” he says of government-based loans that offer the same rates to everyone. “But when you are a trained professional in the workforce, and highly credit-worthy, why not take advantage of preferential rates that allow you to save money and use the savings to make capital improvements to your practice?”
Customer-Friendly Approval Process
The application process at CommonBond was more easy and convenient than what he had experienced at other institutions, or when applying for government refinancing. “It was much faster than other institutions I got loans from,” says Dr. Pugh. “As long as you have your paperwork in order, you can get at least a quote almost instantaneously. I got an actual offer within a week or two.”
The streamlined application process was something that also stood out to Tia Tucker, OD, who refinanced her $200,000 student loan with CommonBond two years ago. The financial information requested, such as proof of income, employment and credit rating, was much less, and handled in a more organized way, than what she had experienced working with other financial institutions. “One company asked for my tax returns for three years, and bank statements, said to send it by this date, and then declined my application because they said it took too long,” says Dr. Tucker, an associate at The Eye Institute in Maumee, Ohio. In contrast, CommonBond told her at the start of the process about how long it would take, and approved her for refinancing within one month.
The refinancing Dr. Tucker was approved for lowered her interest rate to 4.99 percent from 6.5 percent, and will enable her to pay off the new loan in 10-15 years at a minimum payment of $1,700 per month.
Dr. Tucker says that to pay off her loan faster–for which there is no penalty at CommonBond–she makes $2,000-per-month payments. As her income continues to grow, she may reapply for new refinancing to see if she can get an even lower interest rate.
The ability to reapply for even better terms is an option that is always open to those who refinance with CommonBond, says Muller. “Let’s say the needs change of a person who initially refinanced planning to take a shorter loan cycle, and now they’re starting a family, taking time off of work or are unemployed. If their financial realities change, and they would now be better off with a fixed loan, or find that their lending eligibility improves, thanks to a better credit score or income, they can reapply.”
A Financial Partner You Can Count On
Dr. Tucker says the refinancing she has received from CommonBond has lessened her financial burden, so that she was able to invest more easily in the purchase of a home, and is able to do needed repairs on that home, and she is even able to pursue one of her passions, travel. “I feel like I live a more comfortable life now, which is nice,” she says.
Dr. Pugh says working with a company like CommonBond has also lessened his financial stress. “Most people just go through school, find out how much they owe and then just start paying it. The government loans don’t actually forgive anything because you still have to pay taxes on it in the end. I needed to be able to pay it off faster and with less interest. And refinancing with a private company is the only way to do that. CommonBond offered the best terms.”
He recommends that optometry school students start thinking about a strategy to pay off their loans as soon as they secure a job offer. “It’s tough to do it while you’re in school, but once you have an offer for a job, you can start looking into it. It’s a long-term game. It’s not like you refinance and your whole world changes. But I looked at my financial goals for the next 20 years, and I knew that the savings of the tens of thousands of dollars I got by refinancing with CommonBond was what I wanted.”
A refinancing partner that gives you the terms you are looking for is coupled with a company that has a small, friendly culture, Dr. Tucker points out. “I feel valued as an individual, not just a number, which I was pleased with,” she says. “I have recommended CommonBond to a couple of people. It’s been easier than I thought it would be. I always tell my friends about them–because I have a lot of friends with just as much debt as me.”
Refinancing–and a Good Deed
When you refinance your student debt with CommonBond, you can secure a new loan with a lower interest rate, better time table for paying off the loan, and a new minimum monthly payment.
But refinancing with CommonBond also accomplishes a good deed for another. With each loan that is refinanced, CommonBond makes a donation to the charity, Pencils of Promise, which provides education to children in need across the world.
For every loan the company funds, it also funds the education of a child. The donations, powered by refinancing, enable CommonBond to help build new schools, pay teachers and provide technology to classrooms.
Once a year, CommonBond gives its members, those who have received refinancing from the company, with the opportunity to see this charity in action in person in Ghana. Those interested submit essays on what education means to them, and why they would like to see the charity’s work in Ghana.
Members are able to see how refinancing with CommonBond has helped more than just themselves–how a child overseas is now learning because of them.
Margery Weinstein is managing editor of Review of Optometric Business. To contact her: firstname.lastname@example.org