- July 26, 2017
- Posted by: Travis
- Category: Student loan Servicers
Before someone at Discover gets super mad at me, I want to preface this article by saying that relatively low cost Discover student loans do exist. However, the ones that I’ve seen have been at the kind of interest rates you’d assume the mob would lend at.
I’m talking 9, 10, 11, and even 12% interest. Additionally, many of those rates were variable.
If you’ve got Discover student loans at over 5% interest, you should take a look at your options and consider a Discover student loan refinance at a cheaper place. There’s no reason to give a giant credit card company any more profit than you have to.
What Kind of Clients Have Used Discover Student Loans?
I’ve seen Discover show up for all kinds of different degree programs. Generally speaking, they don’t like appearing in the middle of the market from my experience.
They’ll either have a decent rate offer for a cosigner parent with a pristine credit score or they’ll be charging you the most extreme student loan interest rate you’ve ever seen. There isn’t much in between.
Unfortunately, Discover student loans show up most frequently for students who went to very high cost institutions. In fact, I wouldn’t be surprised to learn that they are the biggest financier for quasi sketchy grad school programs in America based on what I’ve seen from the almost 400 clients I’ve advised in the last year.
What Interest Rate Does a Discover Student Loan Carry?
For some borrowers who got a special deal on the old federal loan guarantee program, I’ve seen rates down in the 3-5% range with Discover.
However, when Discover prices their own student loans without government backing, they often set the rate between 8% to 12% in some cases.
To top it off, many of these high interest loans can go even higher over time. Nothing like borrowing for school at a rate quadruple your mortgage.
What Kind of Deals do I Find for Someone with Discover Student Loans?
There are two kinds of folks with Discover student loans. One has a moderate cost of debt and a decent debt to income ratio. The other has a fairly high amount of debt relative to their income and their Discover student loans are at pesky interest rates.
For the Borrower with Manageable Student Debt
If you’re dealing with a Discover student loan between 4% to 6%, then standard refinancing rules apply. Shop around and see if you find something better.
Maybe your parent’s name is on the loan and you want to remove them as a cosigner. You might be able to refinance to a shorter term and take the loan out in your name only if you’ve got an income.
If you’ve got an interest rate below 4% with Discover, chances are you benefited from some sort of federal guarantee or a cosigner with pristine credit. I’d keep that debt around until everything else was paid off with a higher rate.
For the Borrower Who Owes a Ton and Discover Student Loans are Crushing Them with Ridiculous Interest Rates
Usually if you’ve got a 8%+ Discover student loan, you graduated from a degree program carrying a lot of debt in general. Moreover, that debt to income ratio can make it hard to refinance to a better interest rate.
However, there is some weird good news. If you’ve got a ridiculously high interest rate, a lot of places will refinance you to a fixed rate in the 6% to 8% camp even if you already owe a bunch.
While 6% to 8% kinda still isn’t that great, that could be a huge improvement for someone with a 10% variable interest rate on a Discover student loan.
Historically I’ve had the best luck with Credible for folks who have modest incomes and large debt loads with ridiculously high 8% to 12% interest rates. If you use that link you’ll get a refinancing bonus too if you get a better deal.
You Can Do a Discover Student Loan Refinance As Many Times as You Want
My goal would be to get you on a lower rate than whatever you’re paying on your Discover student loan. If you get a better debt to income ratio down the line, you might qualify for better offers in the future.
The two ways to improve your debt to income ratio? Earn more money and pay down debt.
It’s staggering how few people actually take a look at other offers a couple years after refinancing with their first lender. As a matter of fact, most borrowers are better credit risks after a couple years of payments.
So don’t the worry that once you pull the trigger and refinance Discover student loans that you’re stuck. Assuming interest rates don’t soar, you will probably find a better deal later on after locking in some level of savings.
My Guess Why Discover Often Lends at Such High Rates for Student Loans
There’s a big market for selling education in the US. That’s because schools sell hope and in many cases a dream.
Why are there medical and vet schools in the Caribbean that charge $400,000+? Why do so many dental schools put students in more than $500,000 of debt?
There’s a glut of qualified professors from all the law schools having layoffs. So why does law school cost so much when the main expense is just faculty salaries and schools could be replacing retiring professors at a much cheaper rate?
Students Want the Degrees so the Schools Charge A Lot
A big part of the answer to why grad school is so expensive is that students want to go and get a graduate education. Moreover, many want to be a veterinarian, dentist, lawyer, doctor, etc. no matter what.
So I think Discover made a conscious decision that since you can’t bankrupt student loans they could make big profits by lending at super high interest rates to borrowers who didn’t have any other options to get financing.
Most people target high interest debt to pay back first, so even if a borrower might be overburdened with loans, Discover probably figured they’d get prepayments that would reduce their risk.
Got a Discover Student Loan? Contact Me and See if You Could Get a Better Rate
If your rate is over 5% with Discover, seriously contact me and see if I could help you get a better deal.
Of course, you could also just check out these best in class cashback refinancing bonuses below. Speed up your debt freedom date y’all and toss those huge interest charges from Discover student loans out the window.
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