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Lenders Pitch Refinanced Loans to Former Students (Some of Them)

Wall Street Journal:

“More student lenders are for the first time offering to refinance the loans of professionals who are years out of college, promising low rates in return for the prospect of lucrative new customers, the Wall Street Journal reported on Friday.

A growing number of lenders have started refinancing the debt of select graduates with high credit scores and, often, high-paying jobs. Five lenders who jumped into the business staring in 2012 have already refinanced about $5 billion in loans, while Goldman Sachs Group Inc. estimates $200 billion of student loans could be eligible for refinancing.

Lenders looking at growth in the business see an opportunity to snatch customers from large banks and the federal government. They also are betting that helping customers save money in their 20s or 30s will allow them to “cross-sell” investment advice or other services later.

Nearly 93 percent of outstanding student-loan balances are made up of federal loans, which remain the cheapest loan option for many student borrowers. Federal student loans were created decades ago to promote economic mobility, and they charge the same interest rate regardless of the borrowers’ income or credit score.

Historically, refinancing for a lower rate was generally limited to the small slice of the market handled by private lenders. But in recent years, companies such as Social Finance Inc. have been refinancing both private and federal loans.”

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