See 10 Best Student Loan Refinance of 2018

What's the difference between fintech companies and traditional lenders?

Bridget CassidyApr 4, 2018

Thinking about refinancing your student loans? I know, I know. It hurts just thinking about it. It’s kind of like having to go to the dentist, right? Ugh. As painful as it might be, refinancing or consolidating your federal or private student loans with a private lender can be one of the best financial decisions you make in your lifetime. And it is a great time to refinance or consolidate your loans due to the recent changes in the student lending marketplace.

So, What’s Changed?

The shift in private student lending services is primarily attributed to two recent events: the 2008 financial crisis and the explosion in U.S. student debt post-crisis. Since 2009, the total student loan debt has gone up more than 70%, with more than $1.5 trillion in student debt, surpassing the nation’s total credit card debt.

So, what are other contributors? After the financial crisis, traditional banking institutions were burdened with meeting new banking regulations and therefore tightened their lending practices, becoming even more risk-averse, specifically in regard to student loan lending. Startup tech companies looked at these conditions and jumped at the opportunity to fill in the lending gap. Some of these startups are called Fintech companies and offer student loan refinancing services that are quite different from traditional banks.

So, what exactly is a Fintech company?

You may have heard the term before, but Fintech is the combination of financial and technology, and describes companies that offer mobile payments, money transfers, asset management, and online lending. Fintech has been around for years but, until recently, it only represented back-end processes in the financial services industry. Now Fintech has moved to the front end and new Fintech companies are competing with traditional banks for your student loan refinance business. These companies, often funded by venture capitalists, are disrupting the financial marketplace by applying new technology to online services and introducing a simplified student loan refinancing application and approval process while also focusing on overall customer experience and financial literacy.

What Does This Mean for You?

Fintech is competing for your business, big time. You are the tech-savvy generation, having grown up with mobile phones in your hands. There are more millennials than baby boomers and, unfortunately, you guys have more student debt than any other age group in the United States: 63% of your generation has more than $10,000 in student debt. Now, that hurts.

Ok, back to the dentist. According to the Millennial Disruption Index (2015), 71% of your generation said they would “rather go to the dentist than listen to what a bank has to say.” And 69% distrust the financial services industry, in general, according to the Makovsky Wall Street Reputation Study (2016). So, a Fintech student loan refinancing company might be the right fit for you, but let’s do a comparison based on our reviews, which include reviews on both traditional banks and Fintech lenders.

Please note that this is a comparison of private lenders only and does not address the consolidation of federal student loans with a federal loan servicer. To find out more information on the federal student loan consolidation program, go to Direct Consolidation Loan.

Loan Specifics

Most likely you are looking at two key factors in refinancing your student loans: the best interest rate to save you money and the right term to get you the monthly payment you can afford. Both types of lenders offer fixed and variable interest rates, multiple loan terms, waive fees and prepayment penalties, and offer flexible maximum loan amounts. Both offer the refinancing of private and federal student loans (some also offer loan consolidation). Fintech companies, however, can offer lower interest rates because this type of lender only provides online services, and doesn’t have a large overhead to cover.


Fintech companies focus on simplifying the overall application process experience as well as reducing the approval process time. Many Fintech companies use proprietary algorithms that include a broader set of eligibility criteria including both traditional and non-traditional application information. Traditional banks, on the other hand, are slower to implement new technology but are working to catch up, though you may still face a more cumbersome loan process with a bank than with a Fintech company. However, Fintechs have been called out on “cherry-picking” borrowers, preferring applicants who have higher credit scores, advanced degrees, and a higher earning potential.

Customer Experience

Fintech companies focus on financial literacy and customer service with some companies employing former students to work with borrowers. These individuals have student loan debt and know the pain associated with the loan process. Traditional banks may not have the same level of personal online customer service but can provide in-person support at branches located in your neighborhood. Additionally, many banks offer discounts, including a reduction in your interest rate (some as much as 0.50%) if you also open a checking account with the bank.


Fintech companies are fairly new on the lending scene, but some already have high ratings with the Better Business Bureau and are receiving good reviews on consumer review sites. Traditional banks are more established, lending to a longer reputation history. You can see our reputation reviews by going to our 10 Best Student Loan Refinance of 2018 to learn more.

collaboration and Techfin 

The student loan refinancing marketplace is still changing with larger banking institutions embracing new financial technology and even partnering with Fintech companies. Additionally, Techfin companies (yes, you heard that right) like Google and Amazon could become significant players in online banking services. Millennials trust these companies over banks and may prefer working with Fintechs to refinance their student loans. Either way, let’s hope the trend continues to be customer-centric and focused on what you want out of your student loan refinancing experience: no more eye-rolling or dentist references, only lower stress levels thanks to easier application processing, great interest rate offers, and the best loan terms to meet your needs.