The irony of student debt
We take out loans for various purchases: cars, homes, or schools. But unlike cars or homes, education isn't tangible. You can't ride your education or live in it. But in America, we take out large loans to attend good schools for good jobs.
We do this because education is closely tied to social mobility, one of the core traits of what makes America, well, America. To access this education that allows us to move up the social ladder and improve our lives, 40+ million of us in the U.S. collectively saddled on $1.4 trillion of student debt (or more than $30,000 per borrower). At $1.4 trillion, student loans have more than doubled over the past 10 years to become the second largest consumer debt, surpassed only by mortgages.
The alarming growth in indebtedness has far outpaced inflation and wage growth, leaving many to ask the question "is it worth it?" or even "is it possible?" While these questions have different answers for different people, it is undeniable that for many borrowers, student loans are a heavy burden to bear. The monthly payments take away from other spending, forcing many borrowers to postpone purchases for homes & cars, retirement planning, having children, and other markers of a good life that education should afford. For some, postponed success is better than no success. For others, it's a cruel turn when paying for the education that promised to improve the quality of life is seemingly making that life less attainable.
Quick, easy win
Cruel or not, the $1.4 trillion in student loans have already been disbursed, and borrowers are now responsible to repay the debt. How can we help borrowers? Loan forgiveness? Employer contribution? Some solutions require long uphill battles and drastic changes in current policies and practices. But one solution, in particular, is simple to implement and can have meaningful impact in the near-term.
With other terms of the loan fixed, minimizing interest rates will ensure that monthly payments are as low as possible. It's a basic concept, but often overlooked by millions of borrowers that neglect to refinance their eligible loans. Refinancing is not for all borrowers, especially if you need the flexible repayment terms or other borrower benefits of federal loans. But for others, it could mean significant savings.
Over the past 5 to 10 years, loan aggregators (like Credible and Lendkey) and direct lenders (like SoFi and CommonBond) have increased borrower-access to lenders, yet an April 2016 Citizens Bank survey revealed that more than half of the borrowers didn't even look into refinancing. Other sources reveal similar statistics. Increased access and lender options alone made little headway.
Maybe the experience is still too cumbersome. The borrower has to find a loan aggregator, request refinancing quotes, and then apply at a matching lender's site. Or they have to apply and compare quotes from multiple lenders, jumping from site to site. It's too many steps, but what's even more deterring is that the borrower has to actively seek refinancing for a loan with 5- to 15-year terms.
Instead, what if your student loans refinanced to lower rates automatically? Wouldn't it be wonderful if your loans shifted from lender to lender with the most affordable interest rates? It would fix your loans into a lower rate the moment you become eligible. And maybe this could really be possible since student loans (unlike mortgages) typically don't have closing fees or origination fees.
Well, it should be possible (or at least something very close to it), so I launched kofunds. Over the entire life of your student loans (whether 5, 10, or 15 years), kofunds analyzes your interest rates against the current market rate, notifying and protecting you from overpaying or any predatory pricing and practices. We do this at no cost to borrowers.
When your loans qualify for lower rates, you'll receive a notification from kofunds. You'll know when and who to refinance with, lowering your monthly payments with little effort. If you're already locked into the best rate, you won't hear from us. You not hearing from us is the goal, and hopefully we can make $1.4 trillion of student loans feel a little more affordable.
Yoonki Lee founded The Project on Student Lending Transparency through kofunds. Supports more comprehensive student loan borrower protections and consumer rights in the US.