Should I consolidate or refinance my student loans?
Should you refinance your student loans or consolidate them? The decision is important and could save you tens of thousands of dollars.
Here’s what you need to know.
Student loan consolidation: the basics
Federal student loan consolidation involves combining your federal student loans into a new federal student loan called a direct consolidation loan. Only federal student loans (not private student loans) are eligible for direct loan consolidation. Which student loans are eligible for the federal student loan consolidation?
Most federal student loans are eligible, including Subsidized Direct Stafford Loans, Unsubsidized Direct Stafford Loans, Direct PLUS Loans, Federal Direct Consolidation Loans, and Federal Family Education Loans (FFEL).
Student loan refinancing: the basics
Refinancing a student loan involves combining your existing federal student loans, private student loans, or both into a new student loan with a lower interest rate. The goal of refinancing a student loan is to get a lower interest rate, save money, and pay off your student loans faster. When you refinance, your new lender pays off your old student loans and replaces them with a new student loan. Unlike direct consolidation, federal and private student loans are eligible.
Student loan consolidation and student loan refinancing: interest rates
1. Consolidation of student loans: With the federal student loan consolidation, your interest rate will not not decrease. Rather, it is equal to a weighted average of the interest rates on your existing federal student loans rounded up. at the top to the nearest 1/8%.
2. Student loan refinancing: Student loan refinancing interest rates are incredibly low right now, starting at 1.9%. With a good or good credit score and recurring income, you can earn a lower interest rate that can save you thousands or tens of thousands of dollars on your student loans. With student loan refinancing, you can also choose a fixed or variable interest rate and a loan repayment term of between five and 20 years.
Student loan consolidation and student loan refinancing: student loan repayment
The Federal Student Loans Pool and the Private Student Loan Pool offer different options for the repayment of student loans.
1. Consolidation of student loans: With the Federal Student Loan Consolidation, the standard repayment term is 10 years. If you’re having trouble paying off your student loans, income-based repayment plans, such as Income-Based Repayment (IBR) or Pay As You Earn (REPAYE) can reduce your payments by based on your discretionary income. You can receive a student loan forgiveness on your remaining balance after 20 or 25 years, but you are responsible for income tax on the forgiven amount.
2. Student loan refinancing: Most student loan refinance lenders allow you to pay off your student loans over 5, 7, 10, 15, or 20 years. If you want to pay off your student loans faster, you’d better choose a shorter repayment term. The monthly payment will be higher, but you will save money with lower total interest. If you want more time to pay off your student loans, you can choose a longer repayment term, but you’ll pay more money in interest.
Do I have to consolidate my student loans?
Here are the main reasons to consolidate student loans with a direct consolidation loan:
1. Organize and simplify student loan payments
2. Participate in income-driven repayment plans
3. Other federal benefits such as deferment and abstention.
Should I refinance my student loans?
Many borrowers ask: should I refinance my student loans? Refinancing a student loan also simplifies your financial life with just one monthly payment, one student loan manager, and most importantly, a lower interest rate.
The main reasons for refinancing student loans include:
1. You want to get a lower interest rate and save money
2. You want to pay off your student loans faster
3. You want the flexibility of a fixed or variable interest rate
Is Consolidation Or Refinancing Better?
Here’s a quick summary to help you make a more informed decision:
Direct consolidation: organizational tool; the same or slightly higher interest rate; federal repayment plans
Student loan refinancing: lower interest rate; to save money; pay off student loans faster
This student loan refinance calculator shows you how much money you can save when you refinance student loans.