Splash/GradSchool Loans? Why is this a good student loan refi idea/option?

[MochaDoc]

I don't recall seeing this company before the most recently updated student loan thread so I have questions.

 

WCI's blurb:

"Splash! – Anyone who refinances over $200K can get $1,000, over $100K can get $500, below $100K it is $250.

This is a new company on the scene, originally called GradSchoolLoans, but they also offer a great resident program. Their monthly required payment during residency is just $1 (for a maximum of 84 months of training.) Expect rates in the 5.5-6% range for a 5-10 year repayment period after training. They tell me that residents and fellows all get the same rate but that the rates vary by length of training and selected payback period. So if you need 5 years of training and plan to pay back loans over 10 years, you’ll pay a higher rate than someone who only needs 2 more years of training and 5 years of payback time."

The money you get for refinancing with them, if you owe more than $100k, is impressive but everything else seems terrible.

1) The upper end of the rate range is not that impressive if you're doing autopay and are in repaymnent with the fed (6.08% v 6%).

 

2) Paying $1/month sounds great but

"Borrowers can reduce their monthly payments by $3k-$6k during their training period (calculated by comparing borrowers’ estimated annual government REPAYE payments of $250-$500 per month to borrowers’ payments under Splash Financial’s $1 per month payment option over the same time period). If you choose to make $1 per month payments, all unpaid principal and interest amounts are capitalized at the end of each month during the $1 per month repayment period, and borrowers will pay more over the life of the loan with the $1 per month repayment option than if a different repayment option is selected. For example, a refinance loan with a 5.71% APR on a $180,000 principal balance, a 36-month training period with payments of $1 per month will have a 10-year repayment term after training is complete with payments of $2,373 per month."

Capitalizing unpaid principal and interest each month seems severe.

3) There are so many IBR options that choosing Splash doesn't make sense as far as affordable, reduced monthly payments.

4) You lose federal benefits that are provided through the fed/fedlike benefits that are provided by other recommended, refi companies. From Splash's own web page:

"Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance."

5) Unlike other recommended refi companies, there's an origination fee. When I checked rates prior to refinancing my student loans last year, I don't recall seeing origination fees for any of the companies I considered.

"For residents and fellows there is a 2.5% origination fee. This is not paid out of pocket and is added to the balance of the new loan. For Doctors this fee is 2.0%."

Source: https://www.leveragerx.com/blog/splash-financial-student-loan-refinancing-review/

 

So why is this a good deal? Why is it worthy of being recommended on this site? Genuinely curious. If I'm missing a few glaring positives, please let me know.

[Zaphod]

MochaDoc wrote:

I don’t recall seeing this company before the most recently updated student loan thread so I have questions.

 

WCI’s blurb:

“Splash! – Anyone who refinances over $200K can get $1,000, over $100K can get $500, below $100K it is $250.

This is a new company on the scene, originally called GradSchoolLoans, but they also offer a great resident program. Their monthly required payment during residency is just $1 (for a maximum of 84 months of training.) Expect rates in the 5.5-6% range for a 5-10 year repayment period after training. They tell me that residents and fellows all get the same rate but that the rates vary by length of training and selected payback period. So if you need 5 years of training and plan to pay back loans over 10 years, you’ll pay a higher rate than someone who only needs 2 more years of training and 5 years of payback time.”

The money you get for refinancing with them, if you owe more than $100k, is impressive but everything else seems terrible.

1) The upper end of the rate range is not that impressive if you’re doing autopay and are in repaymnent with the fed (6.08% v 6%).

 

2) Paying $1/month sounds great but

“Borrowers can reduce their monthly payments by $3k-$6k during their training period (calculated by comparing borrowers’ estimated annual government REPAYE payments of $250-$500 per month to borrowers’ payments under Splash Financial’s $1 per month payment option over the same time period). If you choose to make $1 per month payments, all unpaid principal and interest amounts are capitalized at the end of each month during the $1 per month repayment period, and borrowers will pay more over the life of the loan with the $1 per month repayment option than if a different repayment option is selected. For example, a refinance loan with a 5.71% APR on a $180,000 principal balance, a 36-month training period with payments of $1 per month will have a 10-year repayment term after training is complete with payments of $2,373 per month.”

Capitalizing unpaid principal and interest each month seems severe.

3) There are so many IBR options that choosing Splash doesn’t make sense as far as affordable, reduced monthly payments.

4) You lose federal benefits that are provided through the fed/fedlike benefits that are provided by other recommended, refi companies. From Splash’s own web page:

“Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance.”

5) Unlike other recommended refi companies, there’s an origination fee. When I checked rates prior to refinancing my student loans last year, I don’t recall seeing origination fees for any of the companies I considered.

“For residents and fellows there is a 2.5% origination fee. This is not paid out of pocket and is added to the balance of the new loan. For Doctors this fee is 2.0%.”

Source: https://www.leveragerx.com/blog/splash-financial-student-loan-refinancing-review/

 

So why is this a good deal? Why is it worthy of being recommended on this site? Genuinely curious. If I’m missing a few glaring positives, please let me know.

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Its a good deal for the company. Capitalizing interest monthly and the like basically turns a simple loan into some form of compound. This type of thing shouldnt even be legal, basically preying on people with limited time that are likely to assume its just another refi company.

The word should be spread to avoid this company. Its pretty bad how many of these "reviews" are just pr blurbs.

[MochaDoc]

Zaphod wrote:

This type of thing shouldnt even be legal, basically preying on people with limited time that are likely to assume its just another refi company. The word should be spread to avoid this company.

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Exactly.

[The White Coat Investor]

Interesting.

https://splashfinancial.com/faq

Splash is brand new to me (literally this weekend) and I didn't realize they had that (because they're the only ones who do.) I agree that makes the deal DRAMATICALLY less attractive. It could still work out well if their rates were much lower than their competitors, but they're not. Too bad. But you still have 9 other options for attendings and 3 other options for residents.

I've asked them to drop it. We'll see if they do so. More info in the post that goes live in 4 hours.

This news is actually pretty disappointing. I've been waiting months for these guys to come online and to get this affiliate deal in place. Now it's highly likely that nobody is going to use it anyway. Meanwhile, the niche I was really hoping they'd help with (residents/fellows) has two other new players (more details tomorrow).

 

[The White Coat Investor]

MochaDoc wrote:

I don’t recall seeing this company before the most recently updated student loan thread so I have questions.

 

WCI’s blurb:

“Splash! – Anyone who refinances over $200K can get $1,000, over $100K can get $500, below $100K it is $250.

This is a new company on the scene, originally called GradSchoolLoans, but they also offer a great resident program. Their monthly required payment during residency is just $1 (for a maximum of 84 months of training.) Expect rates in the 5.5-6% range for a 5-10 year repayment period after training. They tell me that residents and fellows all get the same rate but that the rates vary by length of training and selected payback period. So if you need 5 years of training and plan to pay back loans over 10 years, you’ll pay a higher rate than someone who only needs 2 more years of training and 5 years of payback time.”

The money you get for refinancing with them, if you owe more than $100k, is impressive but everything else seems terrible.

1) The upper end of the rate range is not that impressive if you’re doing autopay and are in repaymnent with the fed (6.08% v 6%).

 

2) Paying $1/month sounds great but

“Borrowers can reduce their monthly payments by $3k-$6k during their training period (calculated by comparing borrowers’ estimated annual government REPAYE payments of $250-$500 per month to borrowers’ payments under Splash Financial’s $1 per month payment option over the same time period). If you choose to make $1 per month payments, all unpaid principal and interest amounts are capitalized at the end of each month during the $1 per month repayment period, and borrowers will pay more over the life of the loan with the $1 per month repayment option than if a different repayment option is selected. For example, a refinance loan with a 5.71% APR on a $180,000 principal balance, a 36-month training period with payments of $1 per month will have a 10-year repayment term after training is complete with payments of $2,373 per month.”

Capitalizing unpaid principal and interest each month seems severe.

3) There are so many IBR options that choosing Splash doesn’t make sense as far as affordable, reduced monthly payments.

4) You lose federal benefits that are provided through the fed/fedlike benefits that are provided by other recommended, refi companies. From Splash’s own web page:

“Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance.”

5) Unlike other recommended refi companies, there’s an origination fee. When I checked rates prior to refinancing my student loans last year, I don’t recall seeing origination fees for any of the companies I considered.

“For residents and fellows there is a 2.5% origination fee. This is not paid out of pocket and is added to the balance of the new loan. For Doctors this fee is 2.0%.”

Source: https://www.leveragerx.com/blog/splash-financial-student-loan-refinancing-review/

 

So why is this a good deal? Why is it worthy of being recommended on this site? Genuinely curious. If I’m missing a few glaring positives, please let me know.

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This deserves a direct response.

1) The upper end of the rate ranges aren't very impressive with any company. Unless you have 10% private loans. But you don't have to refinance if you have something lower or can get something lower. I always recommend applying to several and taking the lowest rate.

2) To be honest, I haven't paid all that much attention to the various capitalization policies of the companies. I see this as a relatively minor point, but it does make me curious to go see what the other companies do here. Bear in mind, only 4 companies do resident refinancing right now, and 3 months ago, it was only 1 (DRB/Laurel Road.) So for most of these companies it isn't an issue because they don't do resident loans at all so there's no interest to capitalize.

3) I agree that for most residents with federal loans, it makes little sense to refinance in residency. Usually REPAYE is the best option with its subsidy. After residency, you can get much lower rates and the REPAYE subsidy goes away, so it makes sense to refinance unless you're going for PSLF.

4) You're barking up the wrong tree here. You lose the federal benefits with any company. Don't refinance if you need the federal benefits like PSLF.

5) This is a huge deal and I appreciate you pointing this out to me. I missed it (shame on me.) But obviously 2.5% of $200K is $5K. $1K back seems kind of silly when $5K gets added on to the loan. I have added a note about this on my two lists of refinancing companies (on the forum and on the recommendations page) and have added it to the post running in a few hours. Again, thank you for helping me not look stupid tomorrow morning when I'm not around for a week to defend myself.

So why are they listed on the site? Well, when I first started working with them, they were only going to be the 2nd company offering resident refinancing. So if you didn't qualify with DRB/Laurel Road (which many didn't) it might be your only option. And of course, I didn't know about the origination fee. Might there still be someone for whom they're the best deal? Potentially. Plus, I suspect when people start talking about this fee that it'll go away. I've already asked them to get rid of it, pointing out they're simply not competitive until they do.

[Donnie]

You guys have done a good thing by emphasizing some of the negative aspects of a Splash refi that others may have missed. Sometimes I think the hysteria and hyperbole about things goes too far though. If you have cheaper or better options than Splash, you should take one of them. If you don’t, having an option like Splash is a good thing. Options are good.

No, capitalizing interest shouldn’t be illegal. If you don’t pay your interest, you are borrowing that amount, so why shouldn’t there be an interest rate attached to that borrowing. I understand that many student loans don’t work that way, but they just roll those costs into a higher stated interest rate or other costs. It’s a zero sum game.

[Craigy]

Origination fee kills the deal.  Absolutely absurd.  Zero reason to consider splash unless they simply offer an incredible rate, which I think is pretty doubtful.

Sure it's great to have options, but IMO this is a pretty horrible thing since thusfar, every student lender has offered zero origination fees and zero closing costs in general.  If this starts a trend, this would be a terrible thing for all student borrowers and people looking to refinance.

Also, most of these companies will refinance a resident, so long as you meet debt-to-income. Especially if you have a co-signer, but I refi'd as a resident without a cosigner with Earnest about 6mos ago.  This is nothing novel.

Up to the editor, but personally I don't think it's really fitting to have Splash as an advertiser on WCI.  Undermines the site's credibility.  At least as long as they have the origination fee.

[Donnie]

That’s not the way credit works in general. Some new start up isn’t going to move the market. Lenders focus on a return after losses. If lenders start adding or increasing origination fees or increasing interest rates, they are either lending to lower quality borrowers, their losses are higher than anticipated, or their own cost of capital is going up. A basic lending rule of thumb is that the origination fee should cover the expected losses. Higher quality borrowers have lower origination fees and lower overall rates. Options are good. Do your homework before signing anything. Get the lowest rate you can after factoring in origination fees and other costs.

[Zaphod]

Donnie wrote:

That’s not the way credit works in general. Some new start up isn’t going to move the market. Lenders focus on a return after losses. If lenders start adding or increasing origination fees or increasing interest rates, they are either lending to lower quality borrowers, their losses are higher than anticipated, or their own cost of capital is going up. A basic lending rule of thumb is that the origination fee should cover the expected losses. Higher quality borrowers have lower origination fees and lower overall rates. Options are good. Do your homework before signing anything. Get the lowest rate you can after factoring in origination fees and other costs.

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Fine and dandy, doesnt mean they get promotion on this particular website to this exceptional tranche of risk borrowers. Thats what makes a market.

[Donnie]

As in the other fee thread, I think we have to try not to be so myopic and assume that everyone is in the same boat that we are in. Not everyone has perfect credit, so maybe Splash is the best option some people have. Options should be listed the order of least expensive to most expensive. Maybe WCI didn’t do enough work on this one or the work we have come to expect from WCI (and perhaps criticism is warranted - I don’t know), but there is no reason not to list splash as an option with appropriate caveats. Just being more expensive doesn’t mean something should be illegal or otherwise condemned. This isn’t like whole life where there reallly is limited value for most people. Reducing payments to $1/month may be really critical for some people.

[SplashFinancial]

Hi Everyone,

Splash Team here to respond to your questions and comments. We appreciate everyone's feedback on the product, and welcome the discussion about how we might improve our offering.

First, an important note about “APRs” or Annual Percentage Rate as our product structure seems to have created some confusion. The APR of a loan is a calculation that lenders are required to make to help applicants understand the impact of additional fees and expenses of a loan. The APR of a loan includes all cost and fees associated with those loans including origination fees, capitalized interest, and interest rate. So when comparing two different lenders the key number to compare is the APR which offers an apples to apples comparison.

As an example, if we capitalize fees monthly and show a 5.71% APR and another company does not capitalize and shows a 5.71% APR, you will pay the same amount with both companies. This is the same with an origination fee. It is factored into the APR.

To answer one of the specific post’s questions:

1) Splash APR’s include all fees, interest, and monthly capitalization. We agree that someone in repayment with the government at a 6% rate may not save much money with Splash. However, some people have private loans or even federal loans that are well above 6%.

2) We offer maximum flexibility by allowing a $1 per month payment. Borrowers can always pay more. However, our capitalization of interest is captured in the APR’s listed on the Splash website. So when you see a APR % on our website it already includes the monthly interest capitalization. As a result, an APR % on another site should be an apples to apples comparison.

3) We agree that someone who can afford IBR payments without credit card debt should pick an IBR plan because of the subsidies you get while in training, but not everyone can afford those payments, especially in large cities on a resident salary. That’s when refinancing in general makes sense, regardless of if it’s with Splash. We actually put a loan analysis tool on our site which compares government IBR plans just for the reason brought up.

4) Yes, you lose federal benefits by refinancing with Splash. This is the same as all of the other companies. If this is an issue for someone, we would highly suggest not refinancing.

5) It is correct that most others do not charge an origination fee. However, fees get passed on in many other ways such as with a higher interest rate. Our fee is captured in the rate that is offered. Thus a 5.71% APR with Splash would save money compared to a 6% APR with someone else.

Please feel free to call (1-800-349-3938) or directly message ([email protected]) our team if you have any additional questions or concerns.

[Zaphod]

Donnie wrote:

As in the other fee thread, I think we have to try not to be so myopic and assume that everyone is in the same boat that we are in. Not everyone has perfect credit, so maybe Splash is the best option some people have. Options should be listed the order of least expensive to most expensive. Maybe WCI didn’t do enough work on this one or the work we have come to expect from WCI (and perhaps criticism is warranted – I don’t know), but there is no reason not to list splash as an option with appropriate caveats. Just being more expensive doesn’t mean something should be illegal or otherwise condemned. This isn’t like whole life where there reallly is limited value for most people. Reducing payments to $1/month may be really critical for some people.

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Its for residents/fellows and not being there I dont know the space fully. Idk if you can defer or forbear, etc...That gives you a 0/month payment. This charges you 5% for a 1/month. Cute, gimmicky marketing but a high cost for not really getting anything.

The rates are not much of an improvement, though I know residents have a tough time refinancing in general. Better to wait and pay something than basically hand out 5% of your balance for infinitesimal upside.

This is the job of the market. A company comes out with a product, and if its good, people will pick it up. If its trash, it dies.

[Donnie]

Zaphod wrote:

Donnie wrote:

As in the other fee thread, I think we have to try not to be so myopic and assume that everyone is in the same boat that we are in. Not everyone has perfect credit, so maybe Splash is the best option some people have. Options should be listed the order of least expensive to most expensive. Maybe WCI didn’t do enough work on this one or the work we have come to expect from WCI (and perhaps criticism is warranted – I don’t know), but there is no reason not to list splash as an option with appropriate caveats. Just being more expensive doesn’t mean something should be illegal or otherwise condemned. This isn’t like whole life where there reallly is limited value for most people. Reducing payments to $1/month may be really critical for some people.

Click to expand…

Its for residents/fellows and not being there I dont know the space fully. Idk if you can defer or forbear, etc…That gives you a 0/month payment. This charges you 5% for a 1/month. Cute, gimmicky marketing but a high cost for not really getting anything.

The rates are not much of an improvement, though I know residents have a tough time refinancing in general. Better to wait and pay something than basically hand out 5% of your balance for infinitesimal upside.

This is the job of the market. A company comes out with a product, and if its good, people will pick it up. If its trash, it dies.

Click to expand...

I agree.  Make sure the market is educated, and let the market decide if there is value.

To respond to the Splash post, origination fees and capitalized interest will be more punative if the loan is repaid early.  Likely the quoted Splash APR assumes the loan is paid according to the payment schedule.  If you pay off early, the actual APR will be higher than stated because the origination fee is spread over fewer years.

[MochaDoc]

Donnie wrote:

Sometimes I think the hysteria and hyperbole about things goes too far though.

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Not quite certain what could be considered hyperbole about any of this. I cited the Splash! website and another trusted source that Splash! shouted out in a tweet, i.e., leveragerx. "Hysteria" is a subjective criticism so I'll leave you with your own personal thought/assessment.

Craigy wrote:

Up to the editor, but personally I don’t think it’s really fitting to have Splash as an advertiser on WCI.  Undermines the site’s credibility.

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That's one of my primary criticisms. I respect WCI's response to my post and questions but my problem is the rationale of, yeah this product kinda sucks but it's one of only a few options so I'll promote it. Furthermore, if the origination fee is not removed, will this still be an endorsed product on this site? I don't see how this is a deal where the majority of residents would get a "fair shake." Maybe a few with toxic, private student loans at usurious rates but this would not benefit the majority. My concern is many would blindly follow the WCI endorsement, and the large cash back incentives, instead of doing their own due diligence and they would wind up with a product that is far from appropriate for them.

Zaphod wrote:

Fine and dandy, doesnt mean they get promotion on this particular website to this exceptional tranche of risk borrowers.

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Pretty much.

Donnie wrote:

Make sure the market is educated, and let the market decide if there is value.

Click to expand...

In an ideal world, this is what would happen.

 

I appreciate that my post here and on the student loan refinancing post has sparked some discussion and that Splash! has decided to chime in. I will now take the time to explain why I sounded the alarm about this company and why I dislike it so much. I will then leave this thing alone. If resident borrowers take the time to do their own due diligence and still choose Splash! at least they went in eyes wide open.

1) This was not a properly vetted product. WCI even mentions this in his response above. He wasn't aware that an origination fee even existed.

2) I have benefited greatly from the efforts of others on this forum who have done extensive research about almost every financial topic and engage in spirited discussion/debate when things don't make sense or are questionable. I hope I served a similar purpose here.

3) WCI's endorsement carries tremendous weight and his readers are a very lucrative niche. He's done an excellent job thus far vetting everything and everyone he's presented to us. Based on feedback I've seen, folks are happy with these products, advisors, etc. I did not, and still do not believe, Splash! is worthy of endorsement on this site. Mentioned/acknowledged as existing with the resultant downsides? Sure. But endorsed? No.

4) Dissecting Splash!'s whole APR argument is not my strong suit but it seems a bit dubious as other companies also have APRs without explicitly mentioning origination fees, etc. If someone else with the mathematical chops would like to weigh in on the veracity of what was said regarding APRs and baked in fees, for those of us who don't love such things, that would be great.

5) During my own analysis of Splash! I couldn't find any reviews from borrowers who had refinanced with them yet. On their site there are plenty of selected positive quotes about the company but none on sites where bias isn't clearly present. Perhaps the company, in its current form, is too young for such reviews to be widespread but it seems as if Splash! has existed for a few months to a year at this point so unbiased, honest reviews should exist somewhere. As mentioned above, at least this discussion now exists.

Thank you all for reading my "hysterical" and "hyperbolic" posts on this product. May we all continue to "trust but verify."

[Donnie]

MochaDoc, you raised some excellent points that are worthy of discussion. However you also compared Splash to Martin Shkreli, a felon convicted of securities fraud. Even if the comparison was to Shkreli’s massive price increase on a drug, the comparison isn’t appropriate. The Shkreli drug had a monopoly on the US market, so such price raises couldn’t be competed against. The comparison to whole life insurance is also dubious. Elsewhere in the thread folks stated that capitalization of interest should be illegal. These are examples of hyperbole and exaggeration that detract from the good issues that you and others are raising.

I haven’t done so, but calculating the APR in the manner described by Splash is how I would do it. As I mentioned the upfront fees will likely result in a higher APR than the stated APR if the loan is repaid early.