Or How First Republic Saved Me From Other Banks’ Rate-Jacking
A few years after graduating law school with an immense debt load (ironically, the debt was mostly from undergrad), I finally decided to step up and get serious about addressing the albatross by refinancing my debt and working on a plan to pay it off. I had a few private loans from my years at UC Davis (Go Aggies!) and a big consolidated federal loan that had been on the minimum IBR route since day one.
Why did I wait so long? Like many millennials who graduated into the Great Recession economy, I didn’t have the income to qualify for attractive student loan refi terms. Plus, in the aftermath of the banks’ bloodbaths of 2008, very few lenders were even offering private student loan consolidation. Plus, a happy side effect of the recession was a plummeting Prime and LIBOR, which meant favorable interest rates on my existing private loans, so there was no real advantage to refinancing, other than fewer monthly payments to keep up with.
By 2016, five years after graduation, those private loan rates had ticked upward. My best rate was now just over 4%, while one loan had surpassed 10% (Wells Fargo was rate-jacking me). A few career advancements also meant I had a better salary to show off to lenders. It was time to refi.
I checked everywhere: my existing banks, Credible, SoFI, etc. For me, the best rate was the most important thing – while I wanted to pay off my debt sooner, rather than later, I have a growing family and a wife who is a medical resident (vastly underpaid), so I needed the security of a low rate.
First Republic was, by far, the lowest. In fact, I remember wondering about their legitimacy due to the disparity of rates – they advertise as low as 1.95%, versus the rates I was seeing elsewhere of more than 4%. A friend vouched for them, so I reached out about a quote. Though their rate quoting and approval process was slow – it wasn’t much quicker than getting a mortgage – it was absolutely worth it, as I ended up with an incredible rate.
The Pros
Rates, Obviously.
Cash rules everything around me, right? Well, when it came to dollars, First Republic made sense. Their rates were ridiculously low and flexible: if you choose a short-term repayment plan, you’ll get a lower rate but higher monthly payments. Go long-term and the inverse is true: smaller monthly, higher APR. And there were no hidden origination fees, “buying points” nonsense, or any other tricks.
Relationship Discount
Another interesting feature of their loans is a discount for parking money in a First Republic Checking Account. In short, you get a 0.5% APR discount by opening a checking account there. But you have to park 10% of the original loan amount in that account to get that discount – no matter how much you owe down the line. Is that a deal? Let’s do some math:
- If I borrowed $130k, I’d have to park $13k in a checking account.
- A few savings accounts are paying 2.2% or so these days.
- The rate discount saves $650 in interest the first year.
- The savings account would only net $286.
That’s great for now, but down the line, those rate-based savings will diminish as I pay off the principal. At that point, I’ll probably drain the First Republic account and either apply it to the principal or invest it elsewhere.
Interest Rebate for Paying Off Early
One more financial incentive that sets First Republic apart is their interest rebate. If you pay off your loan within four years, they will return your interest, up to 2% of the principal. It’s not a ton, and probably not nearly as much as you’ll actually pay in interest, but if does provide an extra ounce of motivation to get the debt off the books faster.
Really Nice People
Another thing I really enjoyed about the experience was the customer service. From the staff members I met over email and phone, to the bank branch where I went to sign up, everyone was absurdly nice and helpful. Given that I live in New York City, that’s a big deal, since nobody here is absurdly nice and helpful.
Holistic Credit Determination
The last pro, which is also a con, is their holistic process to credit approvals. Basically, instead of throwing out a calculator and saying yay/nay, they take all of your information (financials, career path, education, etc.) and present that to a credit team which makes a case-by-case determination. It’s awesome in a way – many of us millennials carry a lot of student loan debt and faced setbacks in our career during the recession, but by taking a longer look at us, the bank can get better qualified people who may not fit the traditional algorithm approval process.
The Cons
Holistic? More Like Slow-listic.
That holistic determination? It can be slow. It took a few weeks, plus I felt like the guy running my file kept coming back with the same questions over and over. It was, in all honesty, barely easier than the mortgage process. In 2018, you sort of expect instant gratification: plug your info in, get an approval or rejection in minutes, or maybe a day. Not weeks. But then again, they do factor in a lot of “soft” factors, like your career path.
Limited Geography
The other major con is their geographic limitations. Since the bank is only in Boston, NYC, and California, they only offer refis in those areas. I’d like to refer my siblings, but two of them are in the midwest, so they’re stuck with other lenders.
Who Should Refinance?
Answer: Pretty much anyone with a weighted interest rate significantly above those offered by First Republic. (What’s a weighted interest rate? It’s basically an average of your balances and interest rates on multiple student loans – it factors in the debt load and APRs to give you the rate you’d have if it was all one consolidated loan. Here is a calculator to help.)
A better question is who should not refinance with a private lender. And there a few groups of people who really should think twice:
- Anyone counting on student loan forgiveness (so far, that dream seems to be a bust);
- Anyone with loans deferred or forgiven because of disability;
- Anyone who needs IBR and can’t afford the monthly payments of a private loan – rather than graduated payments that get bigger over time, most private lenders (First Republic included) have a flat payment structure – it’s about the same amount in month one as it is in month 120.
- Anyone with an unstable income: Unlike the federal loans, deferrals and income-based monthly payment amounts are not as easy to come by if you lose a job, or have an emergency. The bank may work with you, but it is not as easy as calling your fed loan servicer and saying “I’m unemployed!”
- For First Republic specifically, their standards are really high. You need great credit (over 700), a decent income, great long-term prospects (like a doctor or lawyer), no red flags on your credit history, etc.
Really though, it doesn’t hurt to get a quote: First Republic offers multiple plans, so you’ll see the rates and monthly payments before you sign up.
Referral Bonus
If you do get a quote from First Republic, I’d appreciate it if you let them know that I, William Peacock, sent you. They’ll pay $200 to you, and $300 to me, for the referral and it doesn’t affect your approval or rates – it is free money.
