SoFi Review: Loans for Responsible Borrowers

In 2011, four students at the Stanford Graduate School of Business had a novel idea for how to help their fellow Stanford students afford their student loans:

What if established Stanford alumni could invest in current students and recent grads by refinancing their student loans?

The investors would receive a nice return and feel good about helping fellow alumni, while the students could receive lower rates than Uncle Sam was offering.

The four students officially launched Social Financing, later shortened to SoFi, with a $2 million pilot program in 2011.

Over the past five years, SoFi has expanded to offer student loan refinancing from all Title IV accredited universities and graduate programs, as well as mortgages, mortgage refinancing, and personal loans.

Rather than rely on traditional underwriting, the founders of SoFi decided to take a more holistic approach to determine which borrowers would be the lowest risk. The lender considers borrowers’ on-time payment history, earning potential, and the industry where they work to be better indicators of responsibility than FICO score. (However, improving your score is always a good idea. Check out Experian Boost to see how.)

Read on to learn how this non-traditional lender is able to offer great rates and excellent customer service to the most responsible borrowers:

Qualifying for a SoFi Loan

When most lenders underwrite loans, they focus on your credit score, income, credit history, and debt-to-income ratio. The problem with these factors is that it can often shut out responsible borrowers who are just at the beginning of their careers.

SoFi instead focuses on only lending to financially responsible borrowers by analyzing “forward-looking” factors to determine each applicant’s future potential and ability to pay. For instance, as of early 2016, SoFi no longer uses FICO credit score in underwriting, but instead takes employment history and other factors into consideration.

The company uses similar metrics to evaluate personal loan applicants, lending to borrowers with a solid credit history and enough cash flow to cover their loan payments and living expenses.

SoFi has no minimum credit or income requirements, but average borrowers do tend to have good credit and a high income. This means that qualifying for a loan with SoFi is not necessarily easy.

Rates, Fees, and Loan Terms

SoFi offers borrowers competitive rates, starting as low as 2.14% for student loan refinancing and 2.625% for a mortgage. The peer-to-peer model allows for better rates for borrowers (as well as better returns for investors).

SoFi also has no application or origination fees for any of their products, and they have no prepayment penalty for those who want to speed up their repayment. Also, student loan and personal loan borrowers can save 0.25% if they pay with Autopay.

You can borrow between $5,000 and $100,000 for a student or personal loan, and loan repayment terms are offered in 5, 10, 15, and 20 year increments.

SoFi Customer Service

I wanted to get a good sense of SoFi’s user interface, but I paid off my student loans several years ago. Instead, I opened a SoFi account to check out their mortgage lending. After giving the program information about my family’s income, education, and employment, I was able to create an application for a mortgage. Assuming a $250,000 home with a $50,000 down payment, rates ranged from 3.5% to 4.25%, depending on the term and fixed vs. ARM rates.

From there, it was a simple matter to complete the pre-approval process (which I took the time to complete, since my husband and I will be moving soon). The entire application took less than ten minutes, not counting the time it took me to hunt down the necessary financial paperwork to scan in.

Customer service is about a great deal more than a well-designed user interface (although that certainly does go a long way). The company hopes to provide a community experience for borrowers, and arranges social events around the country where borrowers can network with each other.

SoFi also offers career services like one-on-one counseling and tips to help borrowers reach their career goals, as well as mentorship for borrowers who wish to become entrepreneurs.

But the program that really sets SoFi apart is their Unemployment Protection. Both student loan and personal loan borrowers can qualify for a three-month forbearance period after becoming unemployed. Interest will continue to accrue for the forbearance period, but SoFi will offer you job placement assistance during the forbearance. Unemployment Protection benefits are capped at 12 months in aggregate over the life of the loan.

Is SoFi Right For You?

The company is committed to only lending to the most responsible borrowers. This creates a kind of Catch-22, since the most responsible borrowers can generally qualify for loans from pretty much anywhere. The community experience and the excellent customer service are designed to make SoFi the lender of choice for those who could get their loans elsewhere.

While responsible borrowers without a long credit history can qualify with SoFi, anyone without impeccable financial bona fides may find that they either do not qualify with SoFi, or that they can get better rates with a more traditional lender.

If you do qualify for a SoFi loan, know that it puts you in an elite club–and the company is happy to help you feel like a member of more than just a bank.