On November 10, the Michigan Ross FinTech Club hosted its first personal finance session in an effort to expand financial literacy among students. Melissa Bassett, Head of In-School Lending at SoFi, talked about student debt and how MBA students can approach funding their education.
MBAs and student lending
Bassett noted that MBA candidates are a desirable group from a loan provider’s perspective, “You are the most sought after demographic, both for your debt and your earning potential, for refinancing,” she said. According to SoFi, MBA students receive the best rates in the industry, and MBA students tend to choose the lowest repayment term possible. She encouraged students to make a plan for their financial future, especially with turmoil and disruption in the industry. “Federal debt is serviced by five major servicers. Three of them have put the Department of Education on notice that they plan to exit,” Bassett said. Naviant, Granite State and PHEAA have all exited its contract with the U.S. Department of Education in the last year, according to Bankrate.
Managing student loans
Loan bearers have the option to choose between federal loans and private loans. Federal loans come with federal benefits such as deferment, forbearance, and income driven repayment, while private loans are slightly cheaper but lack federal benefits. According to Bassett, , the question to ask when tackling student debt is “Do I want to minimize my monthly payment, or minimize the amount I pay in interest?” She also acknowledged that loan bargaining companies such as Juno are growing in popularity, but encouraged students to crunch the numbers before committing to a loan.
Student loan forgiveness and the CARES Act
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) is a $2.2 trillion economic stimulus bill passed in March 2020 in response to the pandemic’s economic fallout. A key component was the student loan payment pause, which will last until January 31, 2022. The act suspended loan payments and interest accumulation and stopped collections on defaulted loans. Speaking on student loan forgiveness, Bassett said “We will see more fringe cases, but I would caution that broad based loan forgiveness isn’t going to be a thing.”
Direct federal loan consolidation vs. refinancing
Direct federal loan consolidation and refinancing both merge multiple loans into one and require monthly payments. Refinancing accepts both federal and private loans and ideally reduces a borrower’s interest rate, while direct federal loan consolidation accepts federal loans only and is less likely to reduce a borrower’s rate. The benefits of refinancing include securing a lower interest rate, consolidated monthly payments and the release of co-signers. However, borrowers with a low credit score and high debt-to-income ratio may not be eligible for refinancing.