Breaking Down Yrefy for Investors and Borrowers: Fact, Fiction, or Fraud
Yrefy (pronounced “Why Refi”) has had a tumultuous year, and both investors and borrowers continue to ask whether they can trust Yrefy to deliver on their promises. Regardless of whether you’re a prospective investor or a student seeking a solution to imminent default, it’s critical to understand the true costs, benefits, features, and limitations of Yrefy’s product offering to reach an appropriate risk-based decision for your particular circumstances. This article will help both investors and prospective borrowers understand the costs, risks, and trade-offs of committing to Yrefy.
To create an appropriate foundation to reach that conclusion, we must first consider the claims made against Yrefy, how Yrefy operates, and consumer sentiment regarding the product.
February 2025 Commonwealth of Massachusetts Action
On February 7th, 2025, the Commonwealth of Massachusetts entered into a settlement with Yrefy, resolving allegations that the company misled consumers through the use of celebrity endorsers and other misleading advertising claims. Yrefy agreed to pay a $750,000 administrative fine[1].
The Commonwealth of Massachusetts contended that 1) individual investors were not aware of the nature, scope, and amount of compensation these celebrities were paid to promote Yrefy, and 2) some of the statements that celebrities made did not articulate the true benefits, costs, limitations, and features of investing in Yrefy. The FTC rules regarding the use of paid endorsements (and manipulation of consumer reviews) were adopted in July 2023[2].
Privately, questions were asked about the viability of the Yrefy investment program itself[3]. According to the offering materials, investors committing for a five-year hold period could earn an annual return of 10.25%[4]. With an advertised rate to consumers far below that threshold, it wasn’t clear how Yrefy could afford to pay out such an annual return when that would lead to a negative rate margin for Yrefy. Some pundits naturally jumped to the conclusion that these facts evidenced a Ponzi scheme or material misrepresentation of an investment product. However, to understand how Yrefy’s investment model is theoretically possible, we need to understand and explore the Yrefy model.
Yrefy’s Loan Acquisition and Income Model
Yrefy focuses on refinancing distressed private student loans. Yrefy correctly identifies that both federal and private student loans are treated differently from other types of consumer debt in bankruptcy. In most cases, these loans are not easily discharged, meaning borrowers remain responsible for repayment even after bankruptcy proceedings conclude. Some borrowers who experience financial hardship may seek alternatives to bankruptcy, such as refinancing or restructuring their private student loans. Yrefy evaluates whether these distressed borrowers might qualify for refinancing options that are designed to make repayment more manageable based on their circumstances.
In recent investment promotions[5], Yrefy acknowledges that it buys these distressed loans at a steep discount (35%-40% of the balance) and charges a 5% origination fee to consumers. This means that Yrefy can buy a defaulted asset with an outstanding principal balance of $20,000 for $8,000 and then refinance the defaulted loan into a new loan that capitalizes the fully owed balance (including outstanding interest and fees) from the distressed loan.
In this example, $8,000 enables Yrefy gets to place a brand new loan asset in its portfolio for $25,000 (or more based on the outstanding interest accrued) and to receive a 5% origination fee ($1,250) from the consumer. It’s fairly easy to see why the interest rate doesn’t factor into Yrefy’s investor proposition – Yrefy can make good on investor promises if customers repay most of the principal balance that they now owe.
While the customer will receive an interest rate on their new loan between 1% and 5.99%, it may come at a term of 20 years and require the inclusion of a co-signer, which fully obligates that person to the debt as well.
While the past credit history of the original lender will still show a delinquent history for several years, the loan sale and satisfaction of the original note would likely eliminate the original lender’s notice of default on that report. Yrefy’s hard credit inquiry would appear along with the new loan, and assuming that the customer continued to make payments, the customer’s credit score would very likely improve with that payment history.
Yefry’s Underwriting Model
Yrefy only refinances private student loans that are behind on payments or in default, and they will consider refinancing amounts between $5,000 and $350,000. Yrefy evaluates credit, income and asset information about the prospective co-borrower in making credit decisions. While Yrefy pulls the borrower’s credit report, they also consider factors related to their ability to pay the loan back. This includes the requirement to have a steady income, but a borrower is not required to have graduated to refinance their loans with Yrefy.
Yrefy caps their debt-to-income ratio (DTI) at 35%, meaning that if a borrower’s DTI is too high, a co-signor is required to proceed.
It’s important to recognize that Yrefy also offers eligible borrowers who qualify to skip one payment, every six months, for the life of the loan. Military forbearance is also available in 12-month periods.
Yrefy Interactions, Reviews, Feedback and Complaints
Customers can learn about Yrefy through a combination of referrals, media marketing efforts, and online outreach. Referrals may come from organizations such as lenders, servicers, collection agencies, or law firms that work with borrowers seeking to resolve or refinance distressed private student loans.
Yrefy also uses some digital marketing and other marketing campaigns designed to reach customers directly. These efforts aim to raise awareness among individuals who may be eligible for private student loan refinancing and want to explore possible options.
Yrefy makes several claims on their website[6] about the ability of borrowers to “save thousands with your refinance” without any context or clarification. A refinance transaction may easily cost more over a longer term (the additional term required to pay off the debt overrides the interest rate reduction), and Yrefy’s loan offer and its ability to “save borrowers money” should potentially consider the terms of the discounted loan sale from the original lender.
The Better Business Bureau (BBB) only has a few isolated reviews and complaints, and Yrefy maintains an A+ rating[7]. Similarly, Yrefy does not regularly receive reviews at Trustpilot[8], Trustguide[9], or other common sites for reviews. The lack of either positive or negative sentiment may be attributed to the fact that Yrefy and its refinance product is still relatively new.
Is Yrefy a good option for distressed and defaulted borrowers?
It’s important to remember that Yrefy is just one option – a borrower always has several options during imminent or actual default. While these options all represent difficult choices, a consumer should weigh the short and long term costs with the potential benefits of each option. Yrefy might be a good option for someone who can afford regular payments but doesn’t have the assets built up to make a substantial settlement offer to their lender and also can’t afford to have a default impact their credit history for seven years.
Yrefy offers an option to start over with your educational debt. That reset offers the opportunity to more quickly restore your credit history with the timely repayment of this new loan. Yrefy purchased your loan at a significant discount, so they can be flexible with the financing terms they offer.
This offer comes at a significant cost. You’ll pay a 5% origination fee, you may have a loan term that reaches out 20 years to ensure you stay within the DTI maximum, and you might need to ask a co-signer to obligate themselves to your debt to qualify. This option is not about saving money, this option involves recovering your credit history and paying off your debt in manageable installments over a longer term.
Yrefy’s outreach to you suggests that your original lender would be interested in a lump sum loan settlement (or that Yrefy has already purchased your debt for a discount, the sequence and timing of those events is still unclear). If you are interested in settling your debt with your creditor for less than what you owe, reach out and see what options are available.
The settlement option also comes with significant costs. Financial institutions will generally only consider settlements where the full amount of the agreement is received within 90 calendar days. A settlement, while better optically than an unpaid, unresolved default, will still appear on and potentially impact your credit report for years.
The third option is to accept the default. It will impact your credit for seven years from the date of the event, but there is a statute of limitations for collections. If your loan has already been in default for six years, it doesn’t make sense to refinance through Yrefy for the full amount of your debt, and you may be able to negotiate a favorable settlement option with your lender based on the collection window winding down on your debt.
The cost of this option is clearer – a credit history with an unresolved default may prevent you from buying a home, securing reasonable financing for a car, pursuing another loan to complete your degree, or potentially renting an apartment or obtaining a job where credit reports are reviewed. If you’ve already endured this cost for six years, a Yrefy refinance doesn’t make sense. If you’re staring down the barrel of imminent default and potential severe impacts to your credit access for the next seven years, it might be a worthwhile option to pursue if you can afford the monthly payments.
Is Yrefy a good investment for accredited investors?
I’d want to know more about the portfolio before making this determination. Yrefy (and/or Yrefy’s promoters) claims a 2% default rate[10], but the portfolio may be too new or growing rapidly for this statistic to have significant meaning or relevance. If you’re considering an investment in this company, here are some of things I’d want to see first:
Delinquency and default ratios by loan origination cohort (meaning not the entire portfolio, but just Q4 2024’s loan originations for instance)
Modification usage trackers, including:
Skip payments
Forbearance
Payment Modifications
Re-aging
Average LTV by ranged loan amount (i.e. what is the average LTV for a $300,000-$350,000 loan)
Default curve projection as the loan portfolio matures
Average credit score at origination by ranged loan amount
Average current credit score and net credit score change by origination cohort
Policies regarding settlement of defaulted Yrefy loans
Channel attribution for leads, referrals, and loan conversions
Process flow showing the chronology of the following events:
How Yrefy becomes aware that Lender is interested in selling a distressed loan
Yrefy and Lender agree to a loan sale
Yrefy contacts the borrower to determine their interest in refinancing the distressed loan
An annual (purported) 10.25% return is incredibly attractive especially in the current economy. In theory, it’s achievable based on Yrefy’s business model, though reaching that return would require Yrefy to maintain a robust underwriting model, monitoring and testing, and consistent evaluation of key performance and risk indicators. Based on the lack of reviews and insights from borrowers using the product, it’s unclear whether this product is attractive to prospective borrowers, and whether the model is sustainable in the long term.
Summary
Understanding the costs, benefits, limitations and features of what you’re being offered is crucial to making sound risk-based financial decisions. Whether you are an accredited investor or distressed borrower, Yrefy’s benefits are easy to read about. The implied costs and risks in those decisions are buried much further down. Uncovering the magnitude of those costs and risks will help guide your decision on whether Yrefy is appropriate for you.
Follow NAQF on LinkedIn for additional insights. For more information on how NAQF can help your organization with workout solutions, credit models, or portfolio management contact us at contact@naqf.org.
Article References
[1] https://www.lexology.com/library/detail.aspx?g=18490c99-4a50-415f-afc0-82450baf3f1c
[2] https://www.federalregister.gov/documents/2023/07/26/2023-14795/guides-concerning-the-use-of-endorsements-and-testimonials-in-advertising
[3] https://barryminkow.substack.com/p/fox-news-channel-yrefy-llc-and-the
[4] https://www.investyrefy.com/faqs
[5] https://riskyinvests.com/is-yrefy-a-safe-investment/
[6] https://yrefy.com/
[7] https://www.bbb.org/us/az/phoenix/profile/loans/yrefy-llc-1126-1000043794
[8] https://www.trustpilot.com/review/yrefy.com
[9] https://www.trustguide.ai/reviews/yrefy-llc
[10] https://riskyinvests.com/is-yrefy-a-safe-investment/
