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My email box is always full of interesting stuff. I thought participants might be interested in an exchange I had recently with one of my sponsors/advertisers, a student loan refinancing company. This isn't the first time I've had this experience with one of these companies. They come to me with a new product they're very excited about and then are surprised that I'm not really very interested in helping market it, even for a generous commission. I've removed the name of my contact and the company, so don't bother asking. It's the discussion that I think is interesting and would love to hear your feedback on.
Lender:
[We are looking at launching] a very compelling 20yr refi product. If/when that happens, is it possible to try an email announcement to folks? We expect the option to be very popular amongst the medical community to keep monthly obligations low on large debts, but still lower rates and still include a no-penalty early payoff. I'll share more as we get closer to the launch, but just wanted to see if that was something you'd consider ahead of time!
WCI:
We have to be very careful with "email updates" as I have promised my readership list that I will not spam them and that helps keep my email open rate very high, enabling us to sell sponsorships of the emailed monthly newsletter for a high price.
I'm glad to hear you are constantly developing/finding new products, but there's no way you're going to find me being an advocate of a 20 year student loan refinancing product. Being in debt for 20 years after completing training sounds like a terrible idea to me and would run against everything I've ever recommended about student loans on the site. Any chance of a new 3 year product being developed? Surely that could be offered with much lower rates than a 20 year product and would be a welcome addition to the marketplace that I could wholeheartedly get behind. I think there will be more and more interest in products like that as rates climb.
Lender:
I wholeheartedly agree with you on the 20yr loan term from a conceptual perspective.
What we see and what the data shows, however, is that the demand is there for a longer term product to keep monthly payments reasonable, while still achieving a lower rate than what borrowers currently have. They typically plan on paying off the loan earlier than the 20yr term for all the reasons you'd expect, but they appreciate the low monthly obligation, particularly early in their careers when earnings are not at their peak but student loan payments are still very high.
Their alternative is to move to an IBR plan that will achieve more affordable monthly payments, but still push their term out substantially and without reducing the interest rate. For those that will not achieve PSLF, which is many, extending the term is already happening by moving to IBR, but they're not capturing the savings of that lower rate.
A 3yr term would definitely come with much lower rates, but a pretty small percentage overall of applicants are even choosing the 5yr term, so bringing an even shorter term to market doesn't make as much sense as the longer term. Someone who can handle the 3yr term monthly payment schedule can still get a great rate on a 5yr term and pay more than the monthly obligation to achieve a similar result, which I'm sure some do.
Would love to hear your thoughts on the longer term concept, though, as someone who has a readership across the full spectrum of career arcs in medicine. Does that make sense for the younger crowd?
WCI:
Thanks for sharing your thoughts. I'm not sure you understand how strongly I feel about this point, so I'll elaborate a bit more.
I don't doubt that lots of people like lower payments and choose 20 year terms based on that lower payment. My contention is that they shouldn't. It's handicapping their financial progress to spend that long paying off an education. So I can't push that sort of a product.
I'm 11 years out of residency. By making smart financial decisions early in our careers we're multi-millionaires and can quit working at any time. Now I practice medicine as a well-paid hobby because I enjoy it. That's what I'm trying to teach other docs how to do. It's pretty hypocritical to turn around and email readers recommending they take out a 20 year student loan.
The docs using IBR are primarily in training, where the lower payment is needed because, well, they literally cannot make a full 10 year payment even if they had their paycheck deposited in the lender's bank account. They HAVE to have a lower payment in residency. But as soon as they're out, they can and should pay off their student loans in 2-5 years.
The alternative isn't to move to IBR, it's to accept that you don't want the lowest possible payments. You want the highest possible payments so you have them paid off sooner. The way you make those is by spending less on houses and cars and vacations and the like. Physicians coming out of residency looking for lower student loan payments don't have an earning problem. They're all making at least $150K a year (3 times what they made as a resident), and most of them much more. They have a spending problem. Rich people ask "How much?" Poor people ask "How much per month?" I don't think doctors ought to be poor, so I teach them not to do that. That's the message of the blog. So you can see why it would distort my message to push a 20 year loan for a house, much less a student loan.
Frankly, I'd like to see you eliminate the 20 year product so nobody is tempted to buy it. There's a demand for heroin too. That doesn't mean you have to supply it. There are 50 year mortgages in Europe and 100 year mortgages in Japan. Not sure that's doing anybody any favors to supply that demand. Credit has its uses, but when you get carried away with it you become its prisoner.
Very interesting conversation though. I'll discuss it (no mention of you or your company) on the forum. It'll be interesting to see what forum participants say about a 20 year student loan product.
So, what say you? Should I be pushing a 20 year refinancing product? Would I be doing doctors a favor or a disservice?
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