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 several companies, even residents and fellows could refinance their debts!
Our next guest got her undergrad at Harvard. She holds an MBA from Wharton. She also has been in strategic planning roles with American Express. And she even worked as a financial advisor for high net worth individuals through JP Morgan.
Now, she’s doing some really neat stuff with all that banking experience through a relatively young firm, Link Capital.
Please help me welcome Katherine Hebenstreit.
In this podcast, you will learn:
– Why LinkCapital Is Focusing On Physicians & How You Can Refinance Your Debts As a Resident or Fellow
– Learn the crazy amount (it’s less than IBR) that you need to pay while in residency
– How rising interest rates is effecting what LinkCapital is charging
– Could your loan be sold after they refinance it? Find out what happens afterwards.
(Note: I outsource transcription efforts, please forgive in advance any grammatical errors. I just simply don’t have time to review it all)
Welcome to the freedom formula for physicians podcast with all about slashing your debt and taxes and creating a liberated lifestyle. And now, your host, with the love of fantasy books and funk and the hatred of running more than three miles; Dave Denniston.
Hey this is Dave Denniston and welcome to the latest episode of the freedom formula for Physicians podcast. Well as many if you know who have read the freedom formula for physicians I have a passion for reducing, eliminating and destroying debt. And we all know when the banks were thrown into the pits of the depths of the debt crisis we have seen a tremendous change in the ways student loans have operated and now with several companies even residents and fellows can refinance their debts.
As a matter of fact our next guest, she got her undergrad at Harvard, she holds an MBA at Walton, she also has been in strategic planning roles with the American express. And she even worked as a financial advisor for ?? individuals through JP Morgan. Now she is doing some really cool stuff with all her banking experience through a relatively young firm; link capital. Please help me welcome Catherine Heavenstreet.
Dave: welcome Catherine
Catherine: thanks Dave I appreciate it. Very excited to be here.
Dave: very cool. First, tell us about your journey. As I mentioned in the intro you been quite a few walstreet firms and now you are in the space of physician student loans. Tell us more about your journey and how you’ve gotten to where you are now.
Catherine: sure. So I have really enjoyed all my previous experiences but am loving what am doing now and the impact that I feel we are having at link capital. I actually got to know Bill Clouds who cofounded Del blink. Well he was walking ?? in New York City at the same time I was working in finance there as well. We both had student loans in business school at very high interest rate in fact I had some at 6.8, 7.4 percent he had some I think the highest 8%. So we understood the pains associated with that debt first hand and decided that we want to do something to help set what a lot of people recognised seems to be really a broken inefficient system.
Dave: yeah. I mean look at those interest rates I mean that’s a killer. 8% I mean talking on the undergraduate debt that`s 8000 dollars a year. Just servicing that bad boy.
Catherine: exactly and Bill`s background is specifically healthcare finance so he had heard many times while meeting with his healthcare system clients about the negative impact that the student loan burning of medical professionals had on their relationship with their employers, their career choice, their life decisions. So that’s what led us to focus specifically on medical professionals as population.
Dave: ok so you guys kind of got started there and was it a group of partners or you know how many people were involved in getting the company set up and when was this?
Catherine: sure so we started with our entity formation late in 2013 and then throughout 2014 Bill and I both left. I left KP Morgan he left Barclays and we had a team of about 4 people through that time when we started building our platforms, getting the technology ready and then earlier this year we grew our team. We were now actually 15 people and we started processing loans late May – early June of this year.
Dave: ok. So started about six months ago. So you guys are obviously pretty new to this space. How much annually of dollar amounts of physician loans have you been servicing or taking over since about six months ago?
Catherine: sure so we have done just about 15 million dollars in loans to date and what’s interesting is most of that volume has actually come through referrals and word of mouth which I think speaks to the strength of the offering and the needs of this product for population. We`ve also began to establish relationships with a number of healthcare systems who are going to be offering our product as a voluntary benefit to their employees. So we actually anticipate that loan by picking out even more in 2016.
Dave: that’s cool. What’s it like I mean when you start out like that. Right I mean literally at ground zero entrepreneurs building this thing out. I mean is overwhelming I mean what kind of bugs happen when you do something like this.
Catherine: it’s definitely overwhelming very different than being in a big corporate entity. But it is exciting. I think there is a lot of challenges, you are always dealing with the unknown every day, things you kind of don’t anticipate it but I think what keeps us all going is knowing the impact we think we are having on a population who gives so much to our community. When we think about healthcare professionals, they are devoted to long extensive education, a long training period and even when they are full attending devoting so much to their patients so we get really excited about the idea of trying to help them take control of their current finances and their financial future.
Dave: and one of the questions I always ask about these entities, there are several out there now like you guys, and what kind of entity are you getting and who is behind backing you guys. Because we see a lot of VC venture capital activity out there, some entities like banks? How are you guys structured?
Catherine: I think we are a little difference in that regard. Our current investors are comprised of private individuals and a non-profit student loan agency called IAFC student loan and they all get why physicians have such credit profile and also believe that giving all the medical professionals that are due for our communities we should be finding ways to get back and help them. In our next round of funding which will be in early 2016, we are anticipating that a number of healthcare systems will actually be participating as well. So I think having these types of strategic investors really sets us apart from others in the states. And allows us to give back as much value as possible to our customers.
Dave: really cool. Ok. And tell us about the process. How are your loans underwritten? For example what determines that new interest rate, when are physicians not able to refinance? What does that look like?
Catherine: sure. So I think somewhere two others in the states our loans are not into variety factors mainly about credit history as well as their debt level relative to their income. well we are a little unique is that for physicians who are in training we take their projected income so meaning the incomes that they will be making after completing their training into account.
Dave: meaning when you say in training do you mean while they are medical students or do you mean while they are in residency of fellowship?
Catherine: residency of fellowship. So if you know during that training period most of the times those individuals are making 50-60, 000 dollars a year so they might not qualify under some programs in terms of their debt to income limit. But we will look at what they project the income to be once they are through training and underwrite to that.
Dave: so what does that look like then? Let’s say I am a resident and am making 55, 000 dollars a year and I am currently enrolled in IBR and they current amount payment you know is like 400 bucks let’s just say. And I end up knowing that I want to refinance my loans and get the loans. But also we go through you guys and get a lower interest rate but I am still on residency so what does that payment look like?
Catherine: we actually allow for a completement deferement of payment to residency. That means a resident could choose to make payment that they choose and there is no penalty for pre-payment so if someone says I’ve got a habit of making a few hundred dollar payments a month under IBR and I want to continue doing that we allow for that but we do allow for full deferment of payment during training.
Dave: so is it fixed or is it variable until they are in practice.
Catherine: so for the residents and fellow loans there are only fixed rates available, for direct consolidation loan for other medical professionals there are both tax in variable. You know if we find that someone is going through training because we are going to have that large period before they start repayment we believe that the fixed rate option is most appropriate for that situation.
Dave: and so then is after they are out of residency fellowship so they have a loan and the loan balance of course has increased a little bit but not early as much as it has been going for PSOF. Is the loan amatized over a certain period aside that in residency? How does that work?
Catherine: correct, they will choose a term so let’s say they choose a ten year term at the beginning of residency and their training period counts towards that.
Dave: their training period counts towards that so they would have accelerated payment basically that`s… so let`s say the residency is three years they would have essentially accelerated payment of a seven years then. If they did a ten year note.
Catherine: let me explain that point. The ten years will begin once they`ve started repayment.
Dave: ok. So once they are in practice and is that like immediately once they are in practice I mean how do you guys know, how does that work?
Catherine: big question. So we, during our underrating process we collect documentation to the proves that are in the training period, what the specialty is and also includes an end day for the training period and then we give a two months grace period following the end of their training period before real payment will begin.
Dave: so basically you are checking with their employer to see that is still there or have they left yet.
Dave: have you guys run into any situations yet where someone maybe they took a month off or two months off and had a couple of physicians that did that this last summer. They just needed a bit breathing room before starting practice. What happens in those kinds of situations?
Catherine: Is a good question and you know we`ve had you know few different situations like that or when someone went from a residency and decided at the end of that they wanted to go into a fellowship. In such situations our servicer will ask the borrower for documentation either approving that they are in fact moving into a fellowship or am going to take these two months off but I have an offer letter showing my start date in two months. In those situations we work with the borrower and kind of offer a deferment for economic hardship or whatever might be appropriate and then they resume their repayment when the full time job started.
Dave: ok so it sounds like that you guys are flexible which is awesome but it is something you also just mentioned which I thought it was an interesting point is you guys are underwriting the loan but someone else is servicing it. Is that right, did I capture that correctly?
Catherine: that’s correct so our loans are serviced by expire resources.
Dave: ok. And I think expire use to do a lot more of student loans if I remember right?
Catherine: correct, they told you they service a large portfolio of student loans have a long history in the states and we`ve so far seen great customer feedback on the services they provide.
Dave: well I remember back when I was going through college there was this crazy kind of frenzy when interstates were actually low right, you know you have 2.5%, 3% interest rate back then in the tech crush when I was going through college and I remember all the loan servicing companies kept on trading horses. It was like you know different people were underwriting the loans and then someone would sell off my horse to someone else. So what does that look like you know when you have servicing companies? Does that change often? What does that look like?
Catherine: so even if the loans will exchange hands from links to someone else from a servicing perspective they continue to be serviced by expire. So for our customers once their loan has originated they are on a apy platform they are making payments there that would always be consistent there would never be any change in the customer experience.
Dave: ok. Do you see anything like that happening? Is that happening now as more companies like technology in there now do you see much in the way of people changing portfolios of student loans? So far ??
Catherine: did you see some of those entities selling off some and secure ?? some of their loan portfolios so I think there is an element of that taking place but place but I think this same is true for other lenders where there is at least consistency in servicing so that from a customer`s perspective there is consistency in experience.
Dave: interesting. Ok. I haven’t heard of it yet from any client but definitely I will hear from anyone who`s had that happen to him. And of course now we are seeing more and more companies like link capital coming as market place right? And I heard of link capital through the white coat investor website and I have had so far NBRB on the podcast. So tell me, compare and contrast link capital versus ?? versus BRB. What are the differences between the three companies?
Catherine: sure, I think first of all we think it`s fantastic, there are so many companies looking to help solve what the huge problem. Link though is currently the only lender solely focussed on medical professionals and I think that allows us to really create really unique tailored product for the various stages that medical professionals go through in their careers. So the one example we`ve already discussed is offering refinancing options for residents which includes a fully deferred payment to the residency and fellowship. And I think that in the near ?? that we intent to launch other financial service products that are also uniquely tailored for physicians, nurses and other medical professionals.
Dave: and what do you think about the underrating? You know how does that differ between sofa and BRB and you guys for example. Do you have any knowledge on that? Do you get passed on the folks?
Catherine: is a good question. I think there is a lot of consistency. We obviously don’t know the exact details of sofa and BRB`s underwriting models but I think that for the most part all three lenders are looking at credit history, employment status, and ratio of debt to income. Again I think link is a little unique as we talked to ?? before is for the population who are still in training we are underwriting to future income. And I think what allows us to do that is because we have such a ?? focused on a population and have our investors comfortable with the kind of career pattern trajectory of physicians. They`ve got uncomfortable with underwriting in that manner.
Dave: and what is the distribution you know. I think I believe from my understanding so far it does like a normal distribution curve so for example the… I call it the teaser rate, let`s say 3% not a whole lot of people actually get that right. And the majority of people will get 4.5% for example which is still awesome compared to 6.8 but they have that normal distribution curve. From what I understand at DRB attempts to be a little more front loaded. So what about for you guys, do you get more offers of some other hybrid model or what does that look like in terms of how the underwritings most people land considering credit history and those sorts of things.
Catherine: sure it’s a good question. Overall I think most lenders are kind of striving to have ?? … ?? loaded. We are trying to be, you know to a point we don’t ever want our rates to be seen as teasers trying to entice someone for a rate that`s not realistically available. So in order for it to be transparent we have a loan calculator on linkcapital.com which allows a potential borrower to enter the current information about the student loans and give a sense of what they believe, their credit quality to be and by playing around with that they can see the different rates that would be available to them depending on where their credits go and those other metrics actually fall out.
Dave: you I think it`s the coolest thing about all of you guys that I personally really appreciate is it doesn’t really cost anything to apply right?
Catherine: exactly. No cost to apply, no penalty for pre-payment, you can refinance it any time so I think there is not a lot. If you know you are interested in private financing and committed to that there is really not a lot to lose by doing it sooner rather than later.
Dave: and why not try two or three different companies? And see who can give you the best rate because it doesn’t cost a single penny to do so there is no refinancing cost, I don’t believe through you guys right?
Catherine: correct, right.
Dave: so there is no penalty you guys so try out multiple companies and see what happens. And the other thing that of course we are looking at now is the third coming out earlier and this week are recording this ?? on the week of December 18th is the interest rates raised for the first time in seven years on a short term rate. So this will be a good timely thing to discuss about how did you guys see for you how did the rates change if at all? With the ?? having their first announcement of a short term interest rate hike.
Catherine: is a good question. We`ve had one rate change since we launched which took place a little about two months ago as we bring on these new investors that we previously talked about we will be revamping some of our rates so I think the recent change in interest rates may impact that but it`s still a little to be determine.
Dave: do you guys use a certain benchmark like a ten year treasury or libel, third funds rate, what are you guys benchmarking to?
Catherine: it`s a little more complicated than I think just one benchmark. I think the way we view rate setting is, what is the tolerance that our investors have? So you know from their perspective they`re looking at that as a risk adjustable term. So they like to understand historically how do the student loans and medical professionals perform and given that risk you know they benchmark it against other investment opportunities available to them to decide what type of return they are looking for and those types of directions and conversations help dictate how we set our rate?
Dave: so certainly interest rates are part of it but a lot of it might have to do with default or what people can afford or not afford so interest rate going up may or may not affect the interest rates that you guys have.
Catherine: correct. Presumably you know it will lead to an increase but as you mentioned there is multiple factors at play there.
Dave: ok. Awesome. Well I think this is just great in sharing all of this info. Tell us about you know the future for you guys. You mentioned having a couple products down the line and being more part of physicians’ lives. So tell us more about that. What does that look like?
Catherine: yeah. I think we recognize that students loan is still the best often times the first financial steps for physicians and we are striving to offer over time a fourth year financial products to meet all of their needs over their career and life. So we are currently investigating products such as personal loans and mortgages and credit cards to help medical professionals in a same way we are striving to deal with student loans.
Dave: I think that will be great, I mean one of the things that I see for many physicians is obviously a 55000 dollar salary and heck of a lot of debts in many cases for a couple is hard trying to keep everything balance and often they are travelling and taking exams and bored exams and those kinds of things so I think the more help they can get with lower interest rates the better. That will be great. And other things that I thought it was cool about you guys you didn’t have a chance to mention yet was on your blog. You have some really good articles that I think is great content for folks to check out. Do you want to tell us about the blog and what goes on there?
Catherine: yeah absolutely. So it’s a linkcapital.com/blog and we`ve tried I think the right balance of articles that are specific to student loans and other financial products and how medical professionals should be thinking about that and we also try to include things that are a little more light hearted. So how are the wish list in five books that we think everyone should have on vacations that we think physicians might not be interested in taking so that. You know we are recognizing that well physicians have interest in reading more about their personal ?? and other things going on in their lives and we trying to speak to that as well.
Dave: very cool. And the other thing I thought was unique about you guys when I looked at the website you ?? either you have a referral program.
Catherine: correct. So we have a friend and family referral program that allows for anyone who refers a borrower to link who goes on and take a loan to receive 200 dollars back to the person who referred them.
Dave: that`s pretty sweet I like that. Do you have any other closing thoughts Catherine? On debt and physicians and money stuff.
Catherine: no, just encourage anyone who has any questions about students’ loan generally or what link offers to feel free to reach out. We are always available to talk through people’s questions, their particular loan situations.
Dave: awesome. Well thank you so much for being with us and especially thank you thank you for being part of this process to save physicians money, getting them out of debt quicker and easier. And if people have more questions how do they get in contact with you or where can they find the link capital online to apply.
Catherine: sure so I would welcome anyone to email me directly it`s Catherine.heavenstreet.linkcapital.com and we`ve set up a London page so its www.linktopcapital.com/freedom for your listeners and if they refinance by mid-March they will receive a 200 dollar incentive.
Dave: sweet deal. Well thank you so much for joining us Catherine we really appreciate your time and if you are a physician or someone else servicing physicians you want to tell your story grappling with tax issues get on the sole box for a few minutes. I would like to share it too in the next freedom formula for physicians’ podcast. So make sure to subscribe to the next podcast on iTunes or on the website doctorfreedompodcast.com for the freedom formula for physicians podcast this is Dave Denniston. Thank you so much for joining us. Make sure to subscribe and check in again soon. Have a good one.
Hey this is Dave Denniston I hope you liked today`s episode. If you did hey please do me a favor and go to iTunes and give this a five star review. We have to get those reviews on up so more people can discover how to slash their debt and their taxes and create a liberated lifestyle. As a matter of fact each month I am giving out a price package to one of our viewers for the month. So make sure to go to iTunes right now and place your review. Thanks so much and I will talk to you next time.