All 5 Hidden Costs I Experienced When Refinancing My Student Loans

And What You Can Learn From It

Why doesn’t such a standard of care exist in the lending space?

Student loan borrowers, many of whom first sign on the dotted line when they are 17 or 18 years old, should be held to a higher standard of care.

APPLICATION PROCESS — THE DUPLICATE LOAN AND HIGHER INTEREST RATE

The next day I received an email from the lender, but they were now quoting an interest rate of 5.12%, instead of the 4.65% that I saw the day prior!

Two days later, I received a call from an underwriter. It turns out that I was correct when I communicated the duplicate loan as the possible cause of the discrepancy. The customer service representative did not have access to the information necessary to see the inconsistency, and the underwriter reverted my rate back to 4.65%.

The issues here are:

What borrowers can do about it:

APPLICATION PROCESS — THE MISLEADING INTEREST RATE

Student loan lenders are currently allowed to represent interest rates and minimum monthly loan payments however they like.

The issues here are:

What borrowers can do about it:

LOAN DISBURSEMENT — OVERPAYMENT

When I did, I discovered that my prior lender had mailed the check on June 4th, only six days after my loan was disbursed, and my current lender cashed the check on June 20th. Therefore, my new lender had received the check more than two months prior but had never applied the credit to my account.

The issues here are:

What borrowers can do about it:

LOAN DISBURSEMENT — DOUBLE INTEREST

This is the most important hidden cost of refinancing. It represents potentially illegal behavior because it appears that borrowers may end up paying interest to two lenders for the same loan, at the same time.

It took a bit of digging but I discovered that my new loan provider started charging me interest on May 29th, but my old loan provider stopped charging me interest on June 3rd. Therefore, for 6 calendar days I was paying interest to both lenders for the same exact loan.

The underwriter acknowledged the issue and proceeded to offer me a $125 refund — the amount of interest I paid to them while also paying interest to my prior loan provider.

The issues here are:

What borrowers can do about it:

FIRST PAYMENT — EXTRA INTEREST

This led to a ripple effect because, when less of my first month’s payment went towards principal than scheduled, the principal balance was $378 higher the next month, and ultimately was scheduled to lead me to pay $641 more interest over the life of my loan.

Despite the rep’s assurances, the problem was hidden in his response: the lender was aware that more of my first payment will go towards interest, which means that less will go towards principal, and the original repayment schedule will clearly not be followed.

Rather than notifying borrowers that they should pay more than the minimum for the first month, lenders make the change on their own because “it’s simpler this way.”

The issues here are:

What borrowers can do about it:

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