Welcome to my latest episode of The Freedom Formula for Physicians Podcast.
As many of you know who read the Freedom Formula for Physicians, I have a passion for reducing, eliminating, and destroying debt.
When the banks were thrown into the pits in the depths of the debt crisis, we’ve seen a tremendous change in the way student loans have operated and now with DRB, even residents and fellows could refinance their debts!
Today, I have the pleasure of hosting Alex Macielak from DRB on the podcast.
In this podcast, we reveal:
– Learn about the NEW ground-breaking HUGE interest rate reduction plan for residents & fellows
– How they are mirroring IBR & PER to keep monthly payments cheap while in residency/fellowship
– Why DRB often comes cheaper than their competitors & how you can see that for yourself AT NO COST whether you are brand new to DRB or are already with them
(Note: I outsource transcription efforts, please forgive in advance any grammatical errors. I just simply don’t have time to review it all)
Dave: My name is Dave Denniston, and welcome to my latest episode of “The Freedom Formula for Physicians Podcast.”
Well, as many of you know, “The Freedom Formula for Physicians.” I have a passion for reducing, eliminating, and destroying debt, I hate it. As you think, we’ve been thrown into the pits of the depths of the debt crisis seven years ago.
We’ve seen a tremendous change in the way student loans have operated. And now, what’s really, really sweet, with DRB, even residents and fellows could refinance their debts. And so, today, I have the pleasure of hosting Alex Macielak, on the Podcast. He joined DRB Student Loans on March 2015. As the Manager of the Development.
And he spent the prior three years working for GL Advisor. Which is the Student Loan Advisory Service for Graduation Professionals. And while his work has ranged from business development to project management, along with nearly everything in between. So, he’s come up through the ranks, he ended his time there as Senior VP of the Northeast and Northwest.
He has a great passion and knowledge of student loans. Which considering what he’s doing now, it’s a good thing. He’s a thought leader, serving educational debt community. And prior to that he was an intern with Morgan, Stanley, Smith & Barnes, in Wealth Management. He holds a degree in Economics, and Finance from Bentley University, where he was Captain of the Varsity Golf Team. Well, welcome Alex.
Alex: Thank you, thank you, very nice to be here.
Dave: I appreciate it, man. Well, tell us a little bit about your journey. As I mentioned in my intro. You’re pretty good at the DRB, but you’ve been in this space of physician loans for a while, so? Tell us about your journey, and how you got into where you are today?
Alex: Well, definitely, I started at TRB and stayed, almost three months, now. And prior to that I was with a company called, “GL Advisor.” Which through specialized in helping medical professionals and some other graduate professionals. Managed this mounting debt for, so I kinda started out doing one-on-one comprehensive loan consultations with recent graduates.
To then, as you said, transitioned into that Vice President role where I was giving loan presentations, student loan best practices presentations. Primarily at medical schools and at hospitals around the country. So, during that time, as you eluded to there was a ton of options, or borrowers. In the private market place. So I gained a really good familiarity with some federal loan payment programs, and specifically how medical professionals can pursue loan forgiveness. You know, and that foundation might sound per-dash-a to the student loan marketplace. And then things started to transition, as you said, in the last few years. Credit markets have recovered, which lead me here to DRV and the new exciting opportunities of qualified borrowers being able to refinance their loans to lower rates.
Dave: So, it sounds like you’ve been doing a lot of speaking events in your career so that this is the face that you know quite well.
Alex: It is, it’s a space notably have never been on a Podcast like this. I have definitely hosted hundreds of presentations for, you know, rates, making from twenty, to a couple of hundred people in the audience. So, I’m familiar doing this. And also specifically in the medical student loans space.
Dave: Well, the Podcast is new blog, welcome to the future.
Alex: Yeah, no. I love it, it’s the best time I get out of the norms of the live presentations, and venture onto the web. I’m glad you got me.
Dave: Well, tell us about DRB? So, who the heck are they, and I’m sure most people aren’t familiar with the name, and what are they all about?
Alex: A yeah. So, DRB is an FDIC insured lender, who specializes in providing the top quality, really. They are the best borrowers in the marketplace, with the lowest rates in the marketplace. One would think that’s a “No brainer.”
Dave: Are they a bank?
Alex: We are a bank, yes. The Darian Rowain Bank, it’s a lending institution. And then we branded the student loan arm as DRB Student Loans.
Dave: So, you take on deposits, with CD’s and financial products. And then you have the lending side. So, you have your assets and your liabilities, and student loans are your assets?
Alex: Correct, correct. So, there is three branch locations in Connecticut, which in all sorts of reach out the consumer and small business banking services. And the DRB student loan arm is a national lending with a division. We all over all fifty states. From all different degree types. I think very strong focus on the medical state specifically. But we do run the borrows from all walks of life within the United States.
Dave: So, tell us more about kinda the history of the division space? Is it something that you guys have been doing for a long time? Or something that you’ve been an entrant in with this space? Tell me about it, that?
Alex: Well, we always value physician borrowers. You know, I think probably most lenders in the industry do. Being kind of a small regional bank, it’s made us nimble and progressive enough to do the roll-out product to programs that are specific to one small subset of the marketplace, like physicians. A, you know, I think they have some of the best credit programs far from any program marketplace. A very stable career, that have very lucrative earnings. And simply put, physicians always repay their debt. So, we’ve put a lot of value in attracting them as clients.
Dave: So, how’s it been, like a growing niche, you know, like where you guys weren’t doing much before? So, maybe give a ball park, maybe dollar amount of re-financing physician loans. Had you guys been doing before, let’s say ten years ago, five years ago? Compared to today?
Alex: So, the bank itself, the whole bank was founded in 2006. And their student loan funding operation began in earnest in June of 2013. So, it’s still relatively new. And prior to that, to give you a bit of context from the marketplace. Most private lenders weren’t really willing to re-finance student loans. Because specifically, because money wasn’t cheap at that time? Or, excuse me, money was cheap, but people just didn’t full expect borrowers to pay too. We over look that distance that specifically, you know, like I said, add the most credit worthy team. And at this point, we’ve re-financed six hundred fifty million dollars ($650.000,000.00) worth of loans. And we’re on to do $1.2 billion dollars at the end of 2015.
Alex: More than half of our volume of borrowers comes from the medical sector. So, between, physicians, nurses, PA’s, Dentists, more than half of our borrowers have fallen into that bucket. And of those of that vast majority we have are physicians. And so, we’ve been very physician focused, and we expect to continue that exponential growth from the MDPA marketplace. And in large part to this new resident accelerator offering we just rolled out.
Dave: Well, there ya go, good transition with that, Ironically.
Dave: You have been corresponding about that with the Podcast for about what, two months?
Dave: And a, I saw an article about a month ago, on “The White Coat Investor” website. Both then you guys rolled out this new program. And so what a great topic to discuss. I just think it’s awesome, to be able to have that opportunity. Tell us more about that, tell us about the ins and outs of this program? Because I’m sure we don’t want ribbons of healthy physicians paying $1000.00 a month while they’re in residency?
Alex: No, exactly. So this is probably the most unique thing we do. Why wouldn’t it someday be in the marketplace? So, to my knowledge we are the only lender who looks at any future earnings in the underwriting process. That’s the residence in seller that is eligible to qualify for refinancing that loan. Now, you’re right, I’m standard repayment terms with the average medical school. That being $200,000.00, you know, standard monthly payments, if you assume a regular ten-year repayment. You’re looking $25.000.00 down. Not really a viable option for a resident or fellow to afford. So, in light of that, we ask that, residents and fellows use this new program to reside during their training. That they pay only $100.00 a month all though training. Plus their first six months as an attending physician. And so basically, that those hundred dollar payments for all training. For six months, there’s no risk in this. And then at which point they would, the borrower would begin on whatever standard repayment terms they collected. When they initially applied to these loans.
Dave: So this? Just so I can understand? So, the hundred dollars a month. That doesn’t matter whether you have $300,000.00 in debt or that are $150,000.00 in debt. It’s the $100.00 irregardless? It’s not like IBR? With a fluctuating tenth?
Alex: Exactly, that’s right. It’s a hundred dollars a month regardless. So if you were to reflag $70,000.00 or if you were to reflag $500.000.00, your monthly payment would be $100.00, at the end of the $100.00 a month, monthly payment cycle. Then we calculate your monthly payment based on what you owe, and what the term you want to put on the loan out.
Dave: But I see in the mean-time, interest is accruing on the balance of the bill. That $300.000.00.
Alex: It is accruing, but it’s not capitalized. So that’s, you know, one of the things that we to some extent, have tried to mirror some of the federal payment options. Lump pay, is one of the ones more like FDR, where the interest doesn’t capitalize while you’re making those low payments. We set it up, in the sense that, you don’t even have it during the time of those low monthly payments. Which is still accruing interest. But that interest doesn’t get added to that balance continuously. It only does so once. When the borrower enters their standard repayment.
Dave: So, it’s not compound? Which is good news, it is not interest piling on top of interest.
Alex: Exactly. You’re never accruing interest on interest during training.
Dave: That’s huge, when you think about $300,000.00 a day, right? I mean, if someone was paying 6 percent, on that, that would be $18 grand a year. Which then he would pay another 6 percent on that $18,000.00 a year. If it was occurring? That’s a grand. Okay.
Alex: It is. You know, I think a grand is really going to change how young physicians in training deal with their debt. I mean, like I said, we’ve set it up so that just similar to the federal options as possible, you know, once fully dischargeable in the event of death or permanent disability. Just like the government case of all of our loans. We offer up to 12 months of economic hardships forbearance. A lot of people came to that typically as a reason to stay with the government. And the government lets you forbear, we do too.
Dave: Wow. So that’s the benefit too.
Alex: And the same goes for the lack of interest capitalization during training. So, now I really think this is a perfect alternative for anybody who’s sitting out there saying, you know, all I’ve been told from my financial-aid counselor, is all I got to use “pay as you earn.” And, you know, I should pursue loan forgiveness, but I don’t think that’s for me. This is now the next step alternative. You know, you can still save quite a bit of money during training. You know, and also save quite a bit on the long term interest.
Dave: Very cool. But while we’re on to the process then. If someone walks into the bank, or goes online, or however they do it? How are these loans underwritten? So, what’s been used to determine the interest rate? Is that going to be at the front door when they start to pay the $100.00 a month, or? Is that going to be two, three years later perhaps? When they’re in practice.
Alex: So, the application process is all online. This is borrower return, it’s 20 minutes worth of financial questions. We would say, “Alright, you know, we’ll give you an immediate answer on your credit. Assuming your credit, you have good credit. It’s pre-approved.” Not how we need a number of documents from you, to verify everything that you told us. So, once we have that, you know, it probably takes five to seven business days. And then we’ll come back with some great offers. We have terms in ranges from five, ten, fifteen, twenty years. So each one of those different terms, we’re going to offer the buyer with a fixed and variable rate option. So, at that rate they pick which option, everyone they thought was a good match. And we pay off their existing lender. Their first payment would be due to us 30 days after. In terms of what factors we were using to determine the interest rate? You know, really, three main factors.
- How much you owe?
- How much do you earn?
- And what’s your credit score?
You know, they get it for young physicians, we’re looking at their projected future income for their specialty. Verses, the just sort of modest starting salary as a resident. And, you know, young physicians are eligible to apply as soon as they match to a residence. And so, theoretically can still be in the last month or so of school and still be eligible. The other big box to check is, you need to be a U.S. Citizen, or permanent resident. In terms of fifth dimensions, what could possibly disqualify you from refinancing? We really don’t have any hard, fast rules to be candid. You know, typically we are looking for 680 credit scores, rule of thumb, you know, big red flag. Would be like if you defaulted on a piece of debt in the past. And that’s really the only thing that an automatic no go. The whole process of the borrower gets us all the documents in a timely manner. Shouldn’t take any more than two weeks or so.
Dave: So, it’s pretty quick, and so you take things like credit scores, or at the time that they are underwriting the loan. So if it looks a, some resident had some credit card debt. That would, it’s BAD! And because you know, have had a lot of past payments, through RBR. And they, before you guys got them, they, their credit score gets a little better. They have had some longer credit history, could they refinance the loan? Maybe at a lower rate, later?
Alex: Always could, we’re always working to our client’s refinancing with us again. It’s rates were to go down. Just like having a home loan mortgage. You know, you take out a mortgage and rates go down in five years. You could absolutely go back to your lender and say, “I want to refinance again.” The thing with us, you could even better, we don’t have any application, no origination, there’s no pre-payment penalty. This is literally 100% free to the borrower.
Dave: Essentially, there’s no cost to refinancing.
Alex: There is no cost what so ever. And I guess add a little bit of context is to shaving
2-2 ½ % off of your rates means. I mean, if you assume that a 2015 grad. Owed 220 upon graduation, which is the average. And then you used, “Pay to Earn, during training for four years.” And then got on a federal plan with the government. And their rate was 7%, the government. That verses our new in-resident fellow program. We assume that they got, not even the lowest, let’s say, 4745% at that rate with us. The total out of pocket cost, is $50,000.00 less. You repay the loan using our program, verses even using the federal retainer option. So, I know it’s tough to envision work a couple of percentage points really make a difference. It’s a major difference when you’re talking about hundreds, and thousands on loans.
Dave: Absolutely, absolutely. And what about because you being the special favor, you have been. What about the people on PSLF? Because you are no longer on government subsidies and that.
Dave: Oh, are you still? And can they still get their loans forgiven through PSLF. Or did that now get taken off the table.
Alex: That’s now taken off the table. And that’s now the biggest kind of consideration. The biggest down side at the end of the refinance. So, once you’ve moved those loans from the federal government, over into our hands? They are no longer eligible to be forgiven through public service, loans forgiveness. Honestly, when I started working here, I accepted maybe a third a quarter of the newly minted loans to the marketplace, to be interested in, can’t get enough in public service. This just saying, I want to refinance right off the bat. Honestly, it’s been more like half, to two thirds have been interested. We’ve seen what their rate could be on the re-fi. I think a lot of those proposed changes to public service, possibly limiting it to 57 grand. It has given people cause about putting all their eggs in one basket. In the hopes of having the government forgive hundreds of thousands down the line.
Dave: Well, from my understanding, no legislation is passed yet about that yet, correct? I mean, it’s just been a proposal on the table?
Alex: Correct, it has just only been a proposal. It, the only piece in the executive order is the expansion of pay as you earn to all to all powers. City outfit, it has passed, I mean, in my personal opinion, it’s going to, it has not passed. In my opinion, it will, you know, it was brought to the house by the Democrats. I don’t personally envision the republicans voting down a bill that’s going to lose the limits of the republic’s spending. I think the big question for borrowers out there right now is? If they do pass this, and things do change? Will it affect them or only go into effect the next proper docket first? Which is to say, are they gonna grand father people through? Or are they not, are they going to pull the rug out? That remains to be seen.
Dave: My experience usually been with these things that, I look at retirement plans. And ways to be a key hole plan. And, no one knew to get into a “key hole plan.” That was grand fathered in. But the government, usually since the grand fathered in the plan let people in.
But, they certainly are entitled, to change their minds with the National deficient spending, and Medicare, and everything else. But, gosh, I sure hope they don’t. We’ll find out in 2017, right? Those are the first run.
Alex: That’s right, another year and a half.
Dave: Another year and a half.
Alex: after we see the first people to have their loans forgiven. And I would agree with you. You know, I think the past pressures, has been that people get grand fathered through. The one scenario that I keep going back to in my mind is? You know, what happens when, unless the first physician walks in there and says, “You know, I full filled all the requirements, I still owe $2000.00-$3000.00, please forgive my loans. Oh, by the way, I’m currently making $250,000.00. I think that might be a tough pill to swallow for some tax payers. But, like you said, it remains to be seen? And something all borrowers really need to keep a close eye on.
Dave: Well, you know, at the end of the day, I think that these physicians, that having given up the first ten years of their career, In those cases I mean. We’re trying to catch-up. Like we do,
Dave: Many. I’ll get off the soapbox.
Dave: So, Now. The good thing, the good news I get from many physicians. In the spaces that there’s many more companies like DRB. That are coming into this marketplace, that are going after it. SoFi, Common Bond, those are the top of my mind. So, could you maybe compare and contrast DRB, verses some of these other companies. And maybe are there any new entrants that do something different, that people should be aware of?
Alex: Yes. I think at first glance? The Stephen Winword Finance Operations named a couple so far, common bonds, DB Student Loans. At first glance they all looks basically the same ya know? A, rate offerings almost all of us have five, ten, fifteen, twenty-year term options. And everybody displays theirs at a very similar rate. If you look closer GRV, I think is one of our bigger competitive advantages. Is that our rate spread, each term, are typically about half of what the other lenders are. So for example, like a ten year fixed term, other lenders will have it from
4 ½% to 6 ½ % ours is 4 ½%, than to 5 ½%. So, if you get approved, you’re going to get a low rate. You know, in all these lenders are secure ties in our loans for selling them. So, we have the opportunity to see what rates other lenders are actually giving. So we found that on average our rates are .7 to9% lower than some of those competitors. There is, you know, a factor, the fact that we’re a bank. We have a low cost of capital. Most of the competitors, the ones you mentioned? They’re funded by venture capital. So, they are, they’re investors are demanding a higher rate of return, than us being in debt. So, in light of that, we’re able to offer more borrowers typically the lowest rates in the marketplace.
Dave: And do you think that because of a bell curve, where you guys are a little bit more generous. You know, perhaps towards the lower end? Or what would you attribute the, when you look at the headlines? Look at the write-up, it looks the same.
Dave: But, does it profit some because it’s different?
Alex: Like, in terms of how we are able to give the lower rates? Is that, I’m not sure I’m understanding the?
Alex: Yes. So, I think it all comes down to the fact that, I’ve seen a lending institution. That all we have to do is attract further deposits on the balance sheet. You know, when we we’re taking deposit sheets payings very low interest rate to the person that loaned them to us there, checking or savings account would there as for so far a common bond to drum up additional dollars. When they’ve got to go to venture capital enterprise. And say, “Hey, we need another couple of extra hundred million dollars. That venture capital enterprise is going to ask for a great rate of return that what the savings account was for. So, because of that, we were able to pass on the savings to our borrowers.
Dave: Whoa, whoa. But what I’m getting to I guess? My point was, you know, if you look at the way, from what I understand, those lenders do. Let’s say, the lowest straight on the variable is 1.9 right? But they may go all the way up to a 3.9? And so, they’ll have kind of a bell distribution curve. Where, let’s say, a ten percent get the 1.9%, and 10% get the 3.9, and then 80% that people fall at 2.9%? And still, you guys can have more people, like at the 1.9% for example. For less than the 3.9?
Alex: Much more, so I can tell you that 70% of our true borrowers get our lowest rates. Their.
Dave: So, 70%.
Alex: So, a majority of them are getting the lowest rates that we offer.
Dave: Yes, that’s not a bell curve, by any means.
Alex: It is not. It’s not for us, no. I couldn’t tell you what it is? It may very well be the other lenders. But, for us, it’s primarily, if you’re approved, you’re getting the lowest rates.
Dave: Which makes it what? More of a tease than a reality, when you see those headline numbers.
Alex: Very much so, very much so. I think if people come into it? Often times, you know what? They are working with another lender. And just with the expectation, oh, I’m going to get the lowest rates here. And as you said, that not necessarily fixed at.
Dave: The good news is, it sounds like if someone has loans that are still at 5. And they want to see if they can shave off another percent? They could probably shop it out with you guys then.
Dave: Which is a guarantee they are getting the best rate.
Alex: essentially. I always encourage people to shop around. You know, I think the other lenders, you know, they’re captivated trying to get ours in house and keep them there. And give them no inclination to look elsewhere. We always tell people, see what else you can get, where else you can get, what’s out there? As far as corporations and associations we partner with? We encourage them to partner with other loans, and ours as well. We have such confidence that we are basically always going to be able to offer the lowest rate, through a qualified buyer.
Dave: Well, that sounds good to me. Well, tell us about the future for the company. Because obviously it is a huge push, 100% growth, right? From one year to another, right? And you guys want to keep on moving in the space? Or do you want to expand the portfolio a little bit more? Or do you, what do you think the future holds for you?
Alex: I think some folks, with a very strong market, still on the student loan market. Typically switch positions. We estimate that on a yearly basis, there’s $13 billion dollars, worth of loans that come into retainment with, should be eligible for the lowest rates based on that borrower’s credit profile. Over that $13 billion dollars, like I said, we’re due to hit $1.2 billion dollars in five at the end of this year. And so, it’s truly an untapped marketplace. I mean, there’s $1.2 trillion dollars in total outstanding educational debt. We really do have room to grow. I think in the student loan lending enterprise. And given our clients hard such quality hours. There may be plans in the future to expand into other offerings: Mortgages, credit card refinancing, auto loans, we do currently through our retail customers in Connecticut that offer mortgages and offer personal loans. You know, I think once the student loan offering is fully built out. That in running seamlessly some of those other items could be placed into the mix as well in a national scope.
Dave: So perhaps, edition that they might be able to tie in high interest credit cards into this refinance. But maybe in the future they could do that? So there.
Alex: Definitely. I mean, right now, they would be eligible to get a personal loan from us. Which they could then in tern take and pay off high interest credit cards. But, the credit card would not be eligible. We ruled in favor of the student loan refi itself.
Dave: Okay. Great, great. Just one more, I just want to thank you so much for being with us. And especially for being part of this process to save physicians money. And the awesome thing, helping them get out debt quicker with less interest this week. So, if the people have more questions, how can they get in contact with you? Or where can they find DRB online to apply?
Alex: So, yeah. I’m happy to talk with physicians one-on-one. If you have questions and you just got to keep this to a suitable decision for you. Like I said, my background is at in there is always one-on-one time consultations that can serve around the numbers. My contact info. is –
“A” and then my last name Macielak @ drdank.com and I can also be reached at my cell – at
In terms of where to apply? The DRB website – www.student.drdank.com.
Dave: Okay, great thanks so much for joining us, Alex.
Alex: Thank you, I certainly appreciate it.
Dave: Well, if you are a physician, or maybe you’re some other service, and your servicing physicians and you want to tell your story? You want tough issues like, debt, that we’re talking about? And you want to get on soapbox for a few minutes. I’d love to share it too. The next Freedom Formula for Physicians Podcast. Make sure you subscribe to the next Podcast, on ITunes, or on our website – www.freedompodcast.com or contact me on my website – www.daviddenniston.com/physician. For Formula for Physicians Podcast, this is Dave Denniston, thank you so much for joining me. And make sure your subscribe and check in again soon, have a good one.