How This Borrower Refinanced Their Defaulted Student Loans

With about $160,000 in delinquent private student loans and monthly payments she couldn’t afford, Caitlin Cipriano was tired of hearing from debt collectors.

So, you can understand Cipriano’s hesitation when a refinancing lender asked her to purposefully ignore her debt.

“The calls got more and more intense,” recalls Cipriano, a Connecticut-based clinical social worker. “Sallie Mae called me every day, multiple times a day following the plan to go into default.”

Fortunately, the phone eventually stopped ringing. And that refinancing lender, Yrefy, rewarded Cipriano with a sub-2 percent interest rate and a realistic path — albeit a two-decade-long one — toward a zero balance.

Cipriano stumbled upon Yrefy online, and her many peers are likely unaware of the lender that appears to have a monopoly on bad-credit student loan refinancing. Unfortunately, its customer base is likely to grow: About 5 percent of private loans are at least 30 days late, and early-stage delinquencies rose by more than 15 percent in early 2025, compared to the year prior, according to Enterval Analytics.

A possible solution for distressed private loan borrowers

Yrefy director Jack Wallace says that demand is continuing to rise for his company, which only refinances private loans in default, and has been for nearly two years. COVID-19 era pauses have expired for millions of federal student loan borrowers, many of whom also have private loans to repay and can’t fathom adding another bill to their budget.

“And it’s gone out of the park in the last month since [the Education Department] started to go after people with the Treasury Offset Program,” Wallace said in mid-June. “Depending upon who you talk to, you’ve got anywhere from 8% to 12% of people that have federal student loans have private loans.”

Besides borrowers who juggle federal and private loan monthly payments, Yrefy also serves borrowers who had their private loans’ variable interest rates balloon in the past couple of years.

Wallace says the average rate awarded to Yrefy customers is about 4 percent. The caveat is that it can come with a longer repayment term — if the borrower needs it. Cipriano, for example, told Bankrate in June she had 233 months — about 19 and a half years — left in repayment. She added that despite the long repayment term, her unbeatable APR made it all worth it.

Another piece of fine print: While Yrefy accepts borrowers with bad credit, your eligibility could still hinge on your ability to repay. For instance, Cipriano is a licensed clinical social worker who recently opened a private practice.

Mark Kantrowitz, the country’s top student loan expert and a Bankrate contributor, says Yrefy appears to serve a niche audience.

“The number of borrowers who qualify may be limited, as the original lender must have been unsuccessful at collecting the loans and thus willing to sell the loans [to Yrefy] at a big discount,” he says. “The borrowers are likely to have been struggling to repay the debt for a long time.”

A lesson in private student loan delinquency, default

Cipriano’s start with student debt is a familiar one. As a teenager, she applied for a private student loan because her dad earned too much for her to access federal financial aid. He recommended it, and she didn’t give it a second thought.

“I think he just heard of Sallie Mae and figured that was like what people did,” Cipriano says. “So without really knowing and without much help, I just agreed and filled the application out.”

Cipriano used Sallie Mae loans through her college years. Then, as an independent student later, she relied on federal student loans for her ensuing graduate degree. But after earning her master’s degree in 2022, Cipriano lost the in-school deferment on all of her education debt, and the $2,000 monthly Sallie Mae bills arriving.

She couldn’t afford the payments. “I was working as a social worker in a nonprofit community-based center, not making much,” Cipriano says. “So the phone calls, they were just nonstop every day, multiple times a day. And I really didn’t know what to do.”

Throw in the COVID-19 pandemic, and she remembers feeling overwhelmed and confused by her options to consolidate federal loans or refinance federal and private loans. The infamous Public Service Loan Forgiveness program could have helped her gain relief for her graduate school debt if she worked for a qualifying employer for a decade — but Cipriano was in the less common scenario of having far more private loan debt, which isn’t eligible for PSLF and most government assistance programs.

Cipriano mentions grieving upon hearing her colleagues talk about their excitement over PSLF and their time in the program coming to a close. She also speaks about the resentment she felt about how little she was prepared for the financial consequences of taking out private student loans.

“Months after just pleading with Sallie Mae and trying to get them to understand I couldn’t afford that rate, I did some research, asked around, just started with family recommendations and then I made some calls, and that’s how I found Yrefy.”

A leap of faith into student loan refinancing

Typically, if a company suggests that you default, it’s a red flag and a possible sign of a student loan scam. Defaulting voluntarily can wreck your credit — the derogatory mark stays on your credit report for up to seven years — and is rarely the right decision. Rarely being the operative word.

Cipriano says she felt more at ease about the prospect of defaulting once she heard about borrowers who had seen their credit fall off a cliff, only to see it quickly rise after refinancing with Yrefy. Wallace says the company tells borrowers to request a loan modification from their current lender if their loans are delinquent but not yet in default.

“They advised me to just watch some of the videos on their website, and it’s funny now I’m [in] one of those videos,” Cipriano says. “But then I really saw people who were exactly like me with a lot of loans and little hope and made it work.”

Cipriano actually refinanced for a second time in 2024, dropping her monthly payment from $1,400 to $800 and extending her term as she navigated an out-of-state move.

“I think I’ve paid $16,000 and only $2,000 has gone to the interest,” Cipriano says. “So, it’s been good.”

What’s the right repayment strategy for you?

Since there’s no universal solution for student loan debt, the right repayment strategy is a mix of them, particularly if you have multiple types of loans and lenders. Cipriano, for instance, refinanced her private loans but has continued to rely on an income-driven repayment plan for her lower federal loan balances borrowed for her master’s degree.

If student loan refinancing isn’t the right path for you, consider an alternative, such as employer repayment assistance. There are a number of options you can consider, including:

Whatever you decide — or if you’re not sure how to proceed — don’t forget to ask for help, including from organizations that offer student loan relief.