Sadly, a bank going under or declaring bankruptcy usually isn’t good news for borrowers. While there have been reported instances of borrowers coming out ahead from a bank collapse, in most cases, they end up worse off.

In fact, the bankruptcy double standard is yet another example of how the deck is stacked against student loan borrowers.

Bank Failures and Your Student Loans

Many borrowers hope that a bank or lender going under means they no longer have to pay their student loans.

It is a reasonable theory at first glance. If the bank no longer exists, who collects the monthly check?

The problem for borrowers is that the debt is transferrable. The money owed to a lender is an asset that financial institutions can buy and sell. If you borrowed money from Bank A, and Bank A is desperate for cash, they might sell your loan to Bank B. At that point, you have to make payments to Bank B.

The terms of the original loan contract are almost always written so that the debt is transferrable.

Lender Hardships Usually Mean Problems for Borrowers

Having student loans move from one lender to the next isn’t just a minor inconvenience. For many borrowers, it results in a significant hardship.

When a loan holder changes, borrowers must adjust how they make monthly payments. For the borrowers that use automated bill pay, the transition to a new lender may cause issues and potentially missed payments.

In other words, the shift isn’t just a mere headache. The forced transfer to a new lender can result in late fees and adverse credit reporting.

Worse yet, the company that buys the debt may be especially hostile to borrowers.

The lenders that market directly to consumers are incentivized to have a good reputation. If the marketplace knows that a lender is awful, students will avoid that particular lender. Thus, some lenders cut borrowers some slack. This assistance might mean an extra deferment not required by the loan contract or forgiving the debt if the borrower dies.

If the new lender doesn’t market directly to consumers, they have less incentive to help struggling borrowers.

The Instances Where a Borrower Benefits from Lender Bankruptcy

I’m hesitant to include this information because it rarely happens, and I don’t want anyone to get their hopes up.

That said, it is a remote possibility that does exist.

In some rare cases, lenders do an awful job of keeping track of their records. If the bank or lender fails quickly and liquidates all of its assets, some loans could get overlooked.

I’ve heard anecdotal stories from borrowers who had loans with a lender who collapsed and then never received a bill.

Digital recordkeeping makes the odds of an accident happening especially remote.

Sherpa Tip: If you think your debt records might be permanently lost, it is a good idea to talk to an attorney in your state with collections experience.

The attorney can advise you on protecting your rights and let you know when you are legally in the clear.

The Bankruptcy Double Standard

Bankruptcy is an integral part of our financial system. It allows investors and consumers to seek a fresh start after a significant monetary setback.

If a lender fails and declares bankruptcy, the investors don’t get stuck with the lender’s debts. Their business failed, and they get to try again.

Borrowers don’t get the same second chance. If they attend college and it doesn’t work out, they don’t have an easy path to a fresh start. They carry a debt that could last for decades and fundamentally alter the trajectory of their life.

We saw this double standard play out when lender My Rich Uncle declared bankruptcy.

While there is some new hope for student loan borrowers in bankruptcy, borrowers have a long way to go before they get treated like business owners, home buyers, or credit card users in bankruptcy courts.

The post What Happens to My Student Loan if my Bank or Lender Collapses? appeared first on The Student Loan Sherpa.

The first thing to know about First Republic student loan refinancing is that it isn’t actually student loan refinancing.

Instead, First Republic offers a large personal loan that student loan borrowers can use to pay off their debt.

The problem is that there are a ton of requirements that borrowers have to meet. Sadly, most student loan borrowers probably won’t be able to qualify.

If lenders like SoFi and Laurel Road are the high-end sports cars, and lenders like LendKey are the family sedans, First Republic is the private jet in the student loan refinance world. It is a great way to go, but not a realistic option for most borrowers.

First Republic Basics

Borrowers can use a First Republic loan to pay off federal and private student loans. Loans are available in 7, 10, or 15 year increments. Interest rates on the y-year fixed-rate loan start at 2.25%.

These interest rates are among the best available in the student loan refinance market.

Like other legitimate lenders, there are no prepayment, origination, or annual fees associated with a First Republic Loan.

Unfortunately, borrowers must meet a number of requirements to qualify for a First Republic loan.

First Republic Limitations

Borrowers will not be able to qualify for a First Republic Loan unless they can jump through a number of hoops.

High Loan Balance Requirement – Surprisingly, First Republic will not help borrowers with small or even average loan balances refinance their loans. The minimum loan amount is $60,000 and the maximum is $350,000. Most student loan refinancing lenders having a minimum refinance balance requirement of $5,000 to around $10,000.

Excellent Credit Required – First Republic has a reputation for being extremely selective.

Limited Geographic Range – Unlike most other student loan refinancing companies, First Republic borrowers have to finish their applications in person at a local branch.  Branches are limited to California, Portland (Oregon), Boston, Palm Beach (Florida), Greenwich and New York City. Unless you live within their “service area,” First Republic will not offer a loan. This means that geography precludes most people from getting a First Republic Loan.

Personal Liquidity Requirement – On their website, First Republic used to indicate that potential borrowers need documents to verify “personal liquidity with full account statements.” However, the site no longer indicates the amount of liquid assets necessary to qualify for a loan. Applicants may need to maintain a minimum savings or checking account balance in order to get approved.

Checking Account Requirement – A student loan lender requiring a checking account is not unheard of, however, the First Republic Checking account requirements are quite strict. The minimum balance to open an account is $500, but unless your average monthly balance is above $3,500 you will have to pay a $25 fee each month.

Auto Debit Requirement – The industry standard is that if you sign up for automatic withdrawals for your student loan payments you get a .25% interest rate deduction. First Republic imposes a strict penalty if you do not meet this requirement. Borrowers who refuse automatic withdrawals from their account have to pay their base interest rate plus 5.00%. That means if you have a 2.25% loan and do not sign up for the auto-debit, your interest rate will jump to 7.25%. The same 5.00% penalty is also imposed for borrowers who do not directly deposit their main source of income into their First Republic account.

Finally, it is worth noting that First Republic is not offering a student loan. They are offering a personal line of credit.

This has a couple major impacts. First, because it is not actually a student loan, borrowers will not be able to deduct student loan interest on their taxes. Second, if you refinance your federal loans, you will never be able to utilize programs like student loan forgiveness or income-driven repayment plans.

Other Refinance Options

Most borrowers will not be eligible for a First Republic Loan due to geography or First Republic’s strict credit, income, and asset requirements.

The good news is that there are a number of other lenders to consider.

At present the following lenders offer extremely low interest rates competitive with First Republic:

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

Final Thoughts on using First Republic for Student Loan Refinancing

Given First Republic’s extremely low interest rates, their student loan refinancing option cannot be generating much income for the bank.

Instead, it appears that First Republic is offering these low rates to attract wealthy individuals into becoming long-term private banking and wealth management customers.

Borrowers who are able to jump through all of First Republic’s hoops will be in a position to save a great deal of money on their student loans. If we looked purely at lenders from an interest rate perspective, First Republic would rate highly in our student loan refinance rankings.

However, due to the unique nature of the First Republic refinance option and the fact that the overwhelming majority of borrowers will not be able to qualify, we will not include First Republic in our rankings.

The post First Republic Student Loan Refinance Review appeared first on The Student Loan Sherpa.