First Republic Refinancing Student Loans into Lines of Credit

[thelungguy]

First republic held off on student loan refinances for the past couple months and unveiled on July 1st their new student loan refinance process which involves
1. Establishing a line of credit to pay off the loan leading the borrower to lose whatever benefits that came attached with loans being classified at student loans
2. Rate reductions for holding 10 - 20% of the loan amount in an account with them
3. Rates are somewhat competitive at 10 - 15years, 3 - 3.5 if you hold a good chunk of cash captive in their account.
I am a little puzzled as to why they elected to convert student loans to a line of credit. It does not seem to be favorable to us, the borrowers. I am not expect, so wanted to get some thoughts.

[billy]

Not sure why FRB is doing this, but if they are not considered student loans does that make them easy to erase them in bankruptcy?

[xraygoggles]

Interesting, had no idea they changed their policies.

Does that mean you also lose the "pay off loans within 4 years and get interest refund up to 2% of your initial principal" for new clients? That was a very nice perk.

[thelungguy]

Interesting, had no idea they changed their policies.

Does that mean you also lose the "pay off loans within 4 years and get interest refund up to 2% of your initial principal" for new clients? That was a very nice perk.

That’s a good question; not sure. The terms offered were 7, 10, 15. I did not see a shorter term.

[billy]

That’s a good question; not sure. The terms offered were 7, 10, 15. I did not see a shorter term.

I got that offer based on a 5 year term (in 2018). I knew about it from WCI but only saw it on the paperwork when I had the final papers to sign

[xraygoggles]

Establishing a line of credit to pay off the loan leading the borrower to lose whatever benefits that came attached with loans being classified at student loans

This is a moot point though.

Even before this switch, when I refi early in 2019, they said my student loan is converted to a personal loan in their portfolio, which is why they could offer such sweet rates at that time (I did a 5 year 1.95% fixed) with the aforementioned interest refund benefit. So that part of losing the benefits of student loan classification was always there.

[Hank]

Interesting. I'd have to see the actual loan documents. On the one hand, I think they may be too clever by half if they're converting a student loan that isn't dischargeable in bankruptcy to a line of credit that very much is dischargeable. On the other hand, if they only lend to good credit risks like physicians and dentists and avoid doing refinances for lawyers outside the top 14 schools, then maybe they'll be alright.

Perhaps they're trying to normalize the idea of keeping a bunch of cash at First Republic and keeping a line of credit open indefinitely. Hard to tell.

[xraygoggles]

Interesting. I'd have to see the actual loan documents. On the one hand, I think they may be too clever by half if they're converting a student loan that isn't dischargeable in bankruptcy to a line of credit that very much is dischargeable. On the other hand, if they only lend to good credit risks like physicians and dentists and avoid doing refinances for lawyers outside the top 14 schools, then maybe they'll be alright.

Perhaps they're trying to normalize the idea of keeping a bunch of cash at First Republic and keeping a line of credit open indefinitely. Hard to tell.

Yes, that is part of it. I remember when I applied for re-fi, they asked for my bank records and asked specific questions on where I was getting money from and cash flow per month etc. They are very picky in whom they will approve for their student/personal loan refi. Like you said, mainly high income docs and likely other stable professions.

[Tim]

Marketing! FRB has always been a little different.
Location and deposit requirements. They simply used student loans as an intro in HNW customer acquisition. LOC is typically a variable rate loan. They simply still want you banking business. Less fuss for them and no interest rate risk. Their goal has always been customer acquisition. Use it for student loans, pay it off, the use it for remodel or whatever. Mission accomplished.

[xraygoggles]

I must admit after checking out the website today, their personal line of credit sounds very intriguing. I'm not one of those anti-debt people; low fixed debt is a tool you can use to build wealth at a faster pace. Most "rich people" (whatever that means) use debt of some sort, in an intelligent manner, of course.

I'm gonna speak to my banker there next week about it.

[BCBiker]

I was filling out all paperwork prior to pandemic to refinance. They were quite excited about my cash position being able to pay off if I wanted to. Once the 0% on federal student loan is gone, I will probably go with them for finish off the student loans over next few years. I will be interested to see what changed. The previous offering was very compelling.

[thelungguy]

So from what I gather no significant downside, possible easier to get rid of the debt under bankruptcy ?