This podcast features an interview with Dan Macklin, the co-founder of SoFi.
As many of you know who read the Freedom Formula for Physicians, I have a passion for reducing, eliminating, and destroying debt. Practically every single resident or fellow is paying somewhere between 6% and 7% in interest rate. On $200k worth of debt, we’re talking about $13k a year in interest or nearly $1,000 a month. If you think about virtually any loan, like a mortgage or a car loan, if you have a high interest rate today and tomorrow interest rates drop, you could get it refinanced somewhere. Your 6% loan can become a 5% loan.
That’s why I thought I’d bring a special guest to the podcast, Dan Macklin. Dan is a co-founder and vice president at SoFi, a leader in marketplace lending with over $2 billion in loans issued. Dan heads the Business Development team, spending a lot of time with SoFi borrowers across the nation.
This interview reveals the following:
– How you can cut cost of interest of your student loans by 50% or more
– When you are NOT able to refinance your loans and when you SHOULDN’T refinance them
– How quick and easy it is for you to refinance your loans and what you can do to speed up the process
– The two critical difference between fixed and variable loans and how you can change your loans if you change your mind later on. (Hint: It doesn’t cost a single penny!)
Podcast Interview with Dan Macklin of SoFi
Dave: My name is Dave Denniston. 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.
Practically every single resident or fellow is paying somewhere between 6% and 7% in interest rate. On $200k worth of debt, we’re talking about $13k a year in interest or nearly $1,000 a month.
If you think about virtually any loan, like a mortgage or a car loan, if you have a high interest rate today and tomorrow interest rates drop, you could get it refinanced somewhere. Your 6% loan can become a 5% loan.
Yet, for student loans, there became this vacuum. You couldn’t get em refinanced. Docs have been stuck with these crazy high interest rates even though the Fed has driven interest rates to be crazy crazy low. And we couldn’t make it happen!
In this void, private equity has started to step-in and is making refinancing possible today for many physicians.
Today, I have the pleasure of hosting Dan Macklin on the podcast.
Dan is a co-founder and vice president at SoFi, a leader in marketplace lending with over $2 billion in loans issued. Dan heads the Business Development team, spending a lot of time with SoFi borrowers across the nation.
Prior to SoFi, Dan spent twelve years at Standard Chartered Bank leading Enterprise Sales and Product Development across London, Singapore and Shanghai. Born and raised in the UK, Dan holds a BA in Business Economics from University of Durham in England. He also holds a graduate degree in Management from Stanford Graduate School of Business where he was a Sloan Fellow and co-founded SoFi.
Dan is a thought leader whose perspectives on Millennial and Gen X personal finance topics have been featured in a variety of media outlets including ABC, Fox, CNBC and Fast Company, as well as his personal favorite, Italian Vogue!
Dan: Hey Dave, how are you? Happy to be here.
Dave: Glad to have you. First, tell us about SoFi’s evolution. How did the company start?
Dan: Okay since talking about four years ago as you mentioned I was at Stanford Business School and whichever ranking table you’ll look at Stanford is always up there so it’s one of the best business schools in the country. These are very, generally small people, very employable people but we saw that our classmates were paying really, really high rates for their loans. First a lot of people were borrowing and secondly they were paying ridiculously high rates for their loans, six seven, eight percent. We thought it was strange like you mentioned in your introduction, we thought it was especially strange that once you graduated you couldn’t then refinance that debt. So SoFi sought to change that, we sought to introduce a refinancing product, a refinancing loan that allows somebody once they’ve graduated and once they’re working to refinance their debt down to a rate that was fairer for them and more reflective of who they were at that time as a working individual and that’s how we started four years ago and it’s been in a great rate since then and we managed to help many, many people, thousands of people to save lots and lots of money on their loans.
Dave: That’s awesome and it sounds like you kind of started with folks that you knew in Stanford and you guys have transitioned here to helping out docs in particular, so tell us about that. What led the company to the physician marketplace in particular?
Dan: Sure, so we started at the business school where were lending to people that had been to the business school and had MBAs and that’s how we started our life nearly for the first year and then we realized or rather we proved the concept, we proved that lots of people wanted to take lower rates which I guess is no surprise and our customers were saving an average about eleven thousand dollars on their loans, So big benefits. Then other schools, other industries and other folks came to us and said “why can’t you help as prints, employee, folks that have been to law school and to medical school?” So we did that, we opened it up, so went from just being a five business schools at the beginning to then being a hundred schools and then a thousand schools and now were on twenty four hundred school. What I say we’re at those schools were helping graduates, all twenty four hundred schools around the country including medical schools. So obviously as the listeners to your podcast will probably know all too well it’s very, very expensive to go to medical school and you have to go for many, many years but for good reason. So people come out with lots and lots of debts, so so far very quickly we realized that we could help people in a major way and were bringing any folks down, physicians, nurses, dentists you name it in the industry, we’re bringing their rate down from, usually they’re paying six or seven or eight percent before they come to us and our rates go as low as on a fix rate, 3.5% and on a variable rate 1.90%. So people are really saving two, three, four, five percent, slashing their cost in half and as result saving tens of thousands of dollars in the process.
Dave: Tell us more about the growth of that marketplace- where did it start in year 1 and where are you now? How many/ what’s the dollar amount of physician loans is the company current servicing?
Dan: Yes, I think we started the physicians two years ago, the lawyers and the business school graduate had a bit of a head start but now as you mentioned in the introduction we’ve went so far as a company used to have a two billion dollars. It’s very evenly split, so roughly a quarter of that is to folks who went to business school, roughly a quarter is folks who went to law school, another quarter folks went to medical school and then as another quarter that is everything wrapped up including undergrads and all the different majors there are out there. So it’s about twenty five percent in general for the healthcare professionals out there which is as a dollar value is about five hundred million dollars’ worth of loans.
Dave: I can’t imagine that there’s a lot more of that pie out there to possibly take.
Dan: Correct, so we as an industry as a whole is more than a trillion dollars of student loan debts out there. So if I’ve done two billion, that’s great but there’s nine hundred ninety eight billion that we haven’t refinanced and much of that if fitting with doctors, surgeons and nurses and people that maybe just don’t know that they’re able to do this since the biggest challenge I think we have as a business is there are many folks out there we’ve get who are simply unaware that this is an option available to them. Because its new and its only three or four years, two years in the case of the healthcare industry that we’ve actually been able to do this. So it’s an education process as much as anything else.
Dave: For sure when you’re not a major bank people can’t just walk into your branch and look at some of the things, cost of the mailing and advertisement and that kind of stuff. It takes a while to spread the word.
When is a good time for residents, fellows, and newly practicing physicians to refinance their loans?
Dan: So it is a little bit different for everybody but in general I would say good time to consider it is once you’re attending. Typically in residency for most people the salary that they’re running is not the highest. They’re still in that training process and the debt is because you’ve been to medical school for so many years, very often many hundreds of thousands of dollars. So usually it only really kind of works with people once they’re in attendance, once they’re at their higher full time salary. There’s no exact debt-income ratio that we’re looking for, there isn’t a perfect number that I can tell you but for most people it’s tough to get approve for loan in residency but usually or for many people at least once you’re attending the numbers made much more sense and we’re able to approve the vast majority of physicians for example that comes to us. So the other things I would mention Dave would be that most people tend to have federal loans, the majority of loans that somebody would have would be taken from the federal government and there may be some private loans added in there. But those federal loans do come with certain protections and certain features ad certain benefits, until we are running that kind of ongoing regular salary then maybe some reason to stay with those loans because certainly if you’re in public service there are things like public service loan forgiveness. So maybe until you found that job or that ongoing regular job it’s good to stick with your federal loans and then once you’re in that private practice attending then maybe that’s the time to consider refinancing.
Dave: So it sounds like that while somebody is in residency or fellowship making fifty, sixty grand a year, may have a hundred and eighty grand to lease through, so far they’re not really going to be able to refinance, have I understand that correctly?
Dan: Yes correct, I mean its slightly different for everybody because we look at a number of things including the accredit history, what school you went to, what kind of profession you’re doing, where you major etcetera but among those things the salary is very important and typically someone earning fifty to sixty thousand in residency, unless they have an extreme, relatively low level of debt it will be tough for them to get approved. We are working on developing a product, a loan for residents but that is not available to date. So in general I will advise folks to generally to wait until they are attending.
Dave: So sound like it could be something in a change for you guys a year, two down the line.
Dan: Certainly, I hope it won’t be that long. Like I mentioned before we started lending to folks who went to business school and then we open that up and gradually as we get more comfortable and our investors get more comfortable them we’re able to expand the number of people that we’re able to help. One tangible way that that is being seen is in our pricing. Our pricing started off at a certain rate and then we just continued to drop it and we’ve been able to reduce our pricing because we become more efficient at raising money, meeting, finding investors who want to invest in these loans. So we expect to continue, to be able to do that, to continue to reduce the rates that we charge. Actually we just reduced them on Friday again, so this new rate of 1.9% has a new rate as of Friday and I’d like to think that that would stretch to coming out with something for residents as well but that’s not available today and I don’t want to get people’s hopes up too prematurely.
Dave: Sure, well I want you to walk us through this process. Let’s say someone is in practice and they’ve applied to get their loans refinanced, tell us about their process, what’s asked for? How long does it take? What should someone expect as they go through that?
Dan: Well the process takes really as long or it depends how organized the individual is. So it’s an individual, and most folks particularly if they’re in practice would come to us with a number of loans built up over a number of years, maybe its ten different loans taken out over three or four different ears. If somebody has all of their information about those loans and knows what those loans are worth and knows their balances, they can do it extremely quickly. The application form itself only takes two or three minutes to fill out and then we so far provide an electronic approval or otherwise instantly for the vast majority of people. So within five or ten minutes you’ll know exactly if you’ve been approved or not. Then if you have been approved and have been approved at a rate that you like, we approve people at rates for the different fixed variable rate products we have and we also have five, ten, fifteen and twenty year products. So you may be approved for all of them or some of them and then you choose which one you like, although you can change your mind later and it’s at that point we ask you to provide some information. So prove who you are, prove where you work and how much you earn and importantly give us information about the existing loans that you have, who they’re with, etcetera so we can go and pay those loans off. Usually that takes somebody half an hour to upload that information, depends on how many loans they have, then so far we go and pay those loans off, so maybe you have ten existing loan providers, we will pay those loans all for you, we contact your existing loan provider and do that. And then at the end of that you have one new loan with SoFi for whatever the amount is, maybe two hundred thousand dollars. And then you have one payment each month and just one company to work with as opposed to ten different ones.
Dave: Is that a pretty quick process to get people to turn the loans over or does that take a month or two or three? Because it sounds like the application process itself is pretty darn quick, like you go through the income verification, come up with the interest rates scenarios whether it’s fixed or variable or whatever, maybe it takes a while to the loan service to turn those over or what’s that like?
Dan: Yes it can do but it really depends. So if you’re someone who only has a few loans and many people do this, they can have a new loan with SoFi within six or seven days of starting that application form. So that’s ten, fifteen minutes to fill that thing out and wait to be approved, maybe half an hour to upload documents, and then three or four days for us SoFi to be paying off and working with those existing loan services. And then there is a three day recession period by law, we have to give everybody three days to change their mind if they wish, so that’s great for our customers and then it gives them that option, it get extend the period slightly but we have many people that go though in a week or so. Now there are some that take a little bit longer, it can take a month or so if they are not quite as organized in having their loan information, maybe some of the loan services don’t get back to us straight away, so that can draw it out a little bit but generally within four, five weeks everyone has completed, they have their new SoFi loan. We’d like it to be quicker in something in our control and some things aren’t but if you’ll think about the savings and I mentioned before our average customer saves about eleven thousand dollars, our average physicians saves more like thirty thousand dollars, so the savings are huge and most people believe in waiting a couple of weeks is a good thing to do giving those savings.
Dave: Also, let’s talk about costs for a bit. I usually think of mortgage refinancing and points. Tell us about cost to refinance student loans. What are the good things and the pitfalls that doctors should look out for?
Dan: So there aren’t actually any cost to take a loan with SoFi, so there’s no origination fee or appropriation fee or any other fee of any other description that you have to pay to take a loan, it’s completely free to apply, there’s no commitment if you decide to change your mind and walk away and that’s absolutely fine. Equally there aren’t any pre-payment penalty, so you take a two hundred thousand dollar loan with us today and then in six months you get a bonus or you inherit some money or whatever it is or you win the lottery, you could pay the whole thing off in one go, there’s no fee or you could pay a thousand dollars extra a month to pay this thing off quicker, there’s no fee for that.
Dave: There’s no pre-payment penalty?
Dan: No, by law we’re not allowed to do that. We wouldn’t do that anyway. We encourage our customers to pay off those loans as quickly as they can. So while there aren’t any physical cost to apply for loan, to take a loan or to pre-pay a loan the things that you would be giving up are likely the things we mentioned earlier, the public service loan forgiveness, the opportunity to use in coinage repayment. The benefits and features are associated to those federal loans. Now SoFi does have some of that ourselves but it’s not exactly the same, it’s not a like for like. So that’s really what you need to consider that you’re giving up, that’s the cost so to speak of refinancing your loan with a private provider or be at a lower rate.
Dave: So it’s basically for someone that is working in a non-profit world for example and they’re relying on the public service loan program to pay off the loans, this may not be a good fit for them.
Dan: Correct and there are some other benefits and features to the federal loans, there’s income based repayments, so you maybe just have a ridiculously high amount of debt and your salary even in practice, in that first month of practice that you still maybe kind of sure every month, so in that position maybe you can take advantage of in coinage repayment. Maybe you can take advantage of pay as you earn, maybe you can take advantage of public service loan forgiveness. So people should look at that, they should understand that but for many folks in private practice certainly six months or a year or two years in that changes and for many folks then the needle switching over and refinancing is a very viable and sensible solution for them.
Dave: Well one of those things that I usually think about with mortgages for example. In order to apply for a mortgage they usually always rely on your tax return to do that, so if someone was transitioning into practice in order to get a loan sometimes they might have to wait until the following year unless there’s some sort of income verification. Do you folks find that that’s the same with you or can when people let’s say they transition to practice in August or July, could they get their loans refinanced that quickly when they’ve just started with their new employer?
Dan: They could and in fact many people did before they’ve started. So if you have a job offer for the future, if its within I think its three month we keep to, maybe you haven’t started in your new job today but you’re going to be starting in the next three months then we look at that salary and we’ll look at the job offer and we’ll make an approval decision based on that. So you certainly don’t have to send us your tax return in order to get a loan at SoFi. If you have a salary and its two hundred thousand or whatever it is then that in itself will be enough for us to be able to make a decision. Now this is maybe more relevant for dentists or other folks setting up their own practices where maybe they’re starting their own business and not owning a regular salary then we may ask for different information, but if you’re going into a more salary position its relatively simple.
Dave: Okay and of course they have to make sure to be careful of the amount they’re going to pay and when, so if they’re trying to refinance at a couple of months ahead of time now they’re going to start pulling monthly payments when they don’t have the salary yet.
Dan: Yes but if they are in a grace period we can honor that. There’s usually ways around that but certainly if you wait until that first paycheck comes through then there’s going to be less issues there, you’ll know there’s more certainty around that but you don’t have to wait for that time.
Dave: Okay, very good. Well one of the circumstance they do see from time to time is residents and fellows have absolute credit card debt, so is that something that they could refinance along with their student loans if they have the opportunity to?
Dan: So our student loan refinancing product is only able to refinance educational loans. So loans that were taken out for the purpose of financing an education, even if you took out or rather you funded some of your education using credit card debt or a personal loan, unfortunately the way the rules are they are not allowed to be rolled in. So this is federal education loans, student loans and private student loans. SoFi does that, she have other products for things like that, we have a personal loan product that allows people to borrow between ten and a hundred thousand dollars starting at rates of five and a half percent going up to 8.95% and many people are using that to refinance credit card debt, pay back expensive credit card debt. But your question again it was talking about residents and in general residents probably wouldn’t have that debt to income profile that would allow us to approve that either, so normally we’ll wait for someone to be in practice. In general, I can’t say for everyone but in general.
Dave: Okay very good, well some of the things that I’m seeing now is that you guys first kind of hit this market a few years ago that there wasn’t a lot of competition and now I finally see more companies like yours driven by private equity coming into the marketplace, for example there’s VRP and Common Bond, how would you say SoFi compares a contrast versus some other companies?
Dan: Yes it’s a good question, I think its great there’s other companies coming in because between us we’re helping to spread awareness that this is a possibility like I mentioned earlier. The biggest challenge we have is just making sure people realize that they can do this and if you’re sitting there with two hundred dollars of debt eight percent we want you to know that that doesn’t have to be that way, maybe you can pay four percent or five percent and all these other companies along with SoFi helping to get the word out in many different ways, Polka Fight is included, we think it’s great to spread that awareness. But coming back to your question about how we compare and contrast, I mean we are the first company to do this, we are the very first company to refinance both federal and private loans together and by some order of magnitude we are by far the biggest company doing that, the two billion dollars is much, much larger than anyone else has done and I think that’s a combination of the quality of the product, the savings but also the experience, the application experience, we have live customer support, our own people seven days a week, that’s very important to us. We also have features quite of a protection where if you lose your job we’ll help you to find a new job and this is limited to a smaller number of our customer base but so far about seventy of our customer have used it. So if you take a loan with us and you lose your job we’ll do our best to help you get re-employed, it’s in your interest, it’s in our interest so it’s a good win-win. But I think just generally the customer experience, the speed in which we can refinance you and the rates. As of today our variable rate as I mentioned starts at 1.90% that is the lowest rate out there. So there are number of things as to how we compare.
Dave: Well and do you think as with the rates, how many people can qualify for example with that lowest interest rate? Is that something that is hard to obtain or take it at 1.9% for example, how many people do you think physicians that will say they’re in practice to qualify for that kind of loan?
Dan: It’s pretty much a bell shaped curve in terms of our rates, so if I take out five year rate and this may not be the best example for a physician because typically someone coming out is going to have a lot of debt and they want to spread that out a longer period but let’s just stay with it from now it goes from 1.9% to 4.1% you know the average person that gets approved by SoFi somewhere in the middle and then you know as a quarter of the upper end and then a quarter or the lower end. Even if you are at the lower end, if you’re getting a rate of 4.18% you’re probably coming out of paying six, seven or eight percent so still huge savings. And physicians among kind of a demographic who many of them get that highest rate, not everybody gets there of course but a very, very high number of people do get it.
Dave: What’s the variable? Does that change monthly or quarterly or annually? How often does that change?
Dan: It changes monthly, it’s linked to an interest rate measure called LIBO, the London Into Bank Operate, most, many mortgages are linked to it as well. It changes monthly so theoretically it can move every month, it’s been extremely stable really since we launched the company, the interest rate have been very stable. It is capped, of course we don’t know where the interest rates are going, no one does, it is capped so that the five year and the ten year are both capped at 8.95% and the fifteen and the twenty year are capped at 9.95%. And although they may sound higher, 8.95% and 9.95%, for people who are refinancing out of seven and eight percent the downside is fairly limited and the up side is extremely large, so roughly half of our customers take variable rates, roughly half takes fixed rates, that’s a personal decision and anything else.
Dave: Yes I’m sure part of it is how fast can they pay it off right? if you’re going to pay it off quicker, variable certainly will make a lot more sense versus a few, if you’re not sure how quickly you can pay it off because you’re looking to buying your first house and do some other stuff then perhaps you might want to look at a fixed rate.
Dan: Exactly. There’s nothing to stop anyone Dave from moving from one to the other at a later date. So it would be a separate application, the rates may be different, they may be lower, they may be higher at that stage but a number of our customers have come in, maybe like you said, somewhere at the beginning of their career taking a fixed rate because they are not quite sure and then two years later their salary may have gone up that paid a bit of their loan off and they have some more certainty about their situation then they move to a variable. And vice versa it really depends on the individual where there’s nothing to stop you from refinancing into another rate, another product at a later date.
Dave: And it doesn’t cost them anything it sound like from what you’ve discussed.
Dan: It doesn’t and know that I expect this to happen but if another provider came along tomorrow offering one percent loans to everybody, anyone can move from a SoFi loan to that loan without any cost, at least from SoFi. So people shouldn’t feel like they’re stuck with this forever, one thing you can do is move back to those federal loans. So if you’ve give up those federal loans, you can’t go back to those but there’s nothing to stop you from going to another private loan from another private loan company.
Dave: Okay, great. Well we’re running out of time here and I just like to wrap up with what do you see the future holding for SoFi? Where do you want to see particularly in relation to physicians? What do you see is happening for your company in the future?
Dan: Well I think we asked all of our customers or many of them, how we can help them with other products because student loans made a great start, we realized that that’s only part of somebody’s financial life and credit card debt was something that people told us about, so if you have physicians out, they have credit card debts, maybe our personal loans is of interest to them. Also mortgages, we have a lot of folks who partly because they had student loan debt was struggling to actual afford a down payment for a house, so we have a mortgage product that requires any ten percent down, there’s now mortgage insurance and that’s proving very popular as well. Beyond that I think we’ll moving to other financial products and I think physicians will be able to benefit those along with the population at large but it’s a big part of our customer base so I think our products will continue to be steered in that direction.
Dave: Okay, great, great, great. Well I just want to thank you Dan for being with us and especially thank you for being part of the process to saving physicians money and helping them get out debt quicker!
If people have more questions, how can they get in contact with you or where can they find SoFi online to apply?
Dan: Sure so if they would like to apply they should go to SoFi.com there’s SoFi.com/250 the number two fifty, if they do that we’ll know that they came from this podcast and we’ll be able to give them a two hundred and fifty dollar welcome bonus if they end up taking a loan. So Sofi.com/250 if they have questions they can come direct to me Dan@SoFi.com
Dave: Thanks again for joining us Dan! I really appreciate your time. I know you are extremely busy!
If you are a physician or someone else servicing physicians and want to tell your story, grapple with these tough issues, and get on the soapbox for a few minutes, I’d love to share it too in the next Freedom Formula for Physicians Podcast.
Make sure to contact me at firstname.lastname@example.org or on my website www.daviddenniston.com/physicians.
For the Freedom Formula for Physicians podcast, this is Dave Denniston. Thanks so much for joining us and make sure to subscribe and check in again soon! Have a good one.