Capitalizing off of its start as a student lender, SoFi and government-sponsored enterprise Fannie Mae announced a new loan option on Wednesday that allows homeowners to refinance their mortgage at a lower rate and pay down the balance of an existing student loan.
Under the new loan option, which is titled the Student Loan Payoff ReFi, SoFi stated that it will pay down the student loan by disbursing payment directly to the servicer of the student debt.
“People can pay off student loan debt and are left with one loan at the low rates that mortgage borrowers are enjoying in today’s market,” said Michael Tannenbaum, senior vice president of mortgage at SoFi.
Tannenbaum explained in an interview with HousingWire that there’s a big opportunity for borrowers to take out additional mortgage debt on their home thanks to the current low interest rate environment.
Typically, he said, student loans have a much higher rate than mortgages, making it better for borrowers to have more mortgage debt and pay off their student loans.
Fannie Mae’s approval of SoFi Lending Corp. as a seller and servicer is still recent, announcing the news back in May.
Tannenbaum noted the history of SoFi, explaining that it entered mortgage in the middle of 2014. “We started ramping origination volume in the fall of 2015, and we only joined Fannie in May of 2016,” Tannenbaum said.
He added that this approval was very quick because Fannie Mae looked at what SoFi was doing in the student loan and mortgage space and appreciated the innovation that it was doing.
For the initial starting period, the loan option is exclusive to SoFi.
SoFi stated than an estimated 8.5 million households in the U.S. could potentially pay down or completely pay off their student debt obligations with this new option.
According to Experian data, the average homeowner with outstanding cosigned student loans has a balance of $36,000 on those student loans, and those with outstanding Parent PLUS loans have $33,000 in student debt.
Tannenbaum stated that this loan option is critical since it will free borrowers from the student debt they have.
For this product, Tannenbaum said SoFi is going to be mirroring Fannie’s eligibility requirements for the most part since it’s a credit positive and improves the credit of the customer once done.
Fannie Mae allows a minimum credit score of 620, which is a step away from SoFi’s typical marketing to an elite group of borrowers usually deemed as “great” in its ad campaigns.
SoFi hinted that it was considering lending to prime borrowers with slightly lower but still good credit scores back in September.
And SoFi is still only in the initail stages. Tannenbaum added that this is just the beginning of many things SoFi hopes to do.