Should I Consolidate Or Refinance My Student Loans?

Should You Refinance or Consolidate Your Student Loans? 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 is the process of 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. What Student Loans Are Eligible For Federal Student Loan Consolidation?

Most federal student loans are eligible, including direct subsidized Stafford loans, direct unsubsidized Stafford loans, direct PLUS loans, federal direct consolidation loans, and federal family education loans (FFEL).

Refinancing Student Loans: The Basics

Student loan refinancing combines your existing government student loans, private student loans, or both into a new student loan with a lower interest rate. The goal of student loan refinance 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, both federal and private student loans are eligible.

Student Loan Consolidation and Student Loan Refinance: Interest Rates

1. Student Loan Consolidation: With the consolidation of federal student loans, your interest rate does not shrink. Rather, it is a weighted average of the interest rates on your existing state student loans, rounded high to the nearest 1/8%.

2. Refinancing the student loan: Student loan refinancing rates are incredibly low right now, starting at 1.9%. With a good or strong credit history and recurring income, you can get a lower interest rate that can save you thousands or tens of thousands of dollars on your student loans. When refinancing the student loan, you can also choose between a fixed or variable interest rate and a loan term of between five and 20 years.

Student Loan Consolidation and Student Loan Refinance: Student Loan Repayment

Government student loan consolidation and private student loan consolidation offer different options for student loan repayment.

1. Student Loan Consolidation: The standard term for federal student loan consolidation is 10 years. If you’re struggling to pay off student loans, income-tested repayment plans like Income-Related Payback (IBR) or Revised Pay As You Earn (REPAYE) can lower your payments based on your discretionary income. You can get student loan forgiveness on your remaining balance after 20 or 25 years, but you are responsible for income taxes on the forgiven amount.

2. Refinancing the student loan: Most student loan refinance lenders allow you to repay your student loans over 5, 7, 10, 15, or 20 years. If you want to pay off your student loan faster, it is better to choose a shorter term for the student loan. The monthly rate will be higher, but you’ll save money with lower overall interest rates. If you want more time to pay off your student loan, you can choose a longer term for the amortizing loan, but you will pay more money in interest.

Should I Consolidate My Student Loans?

Here are the main reasons for consolidating student loans with a direct consolidation loan:

1. Organize and simplify student loan payments

2. Participate in income-based repayment plans

3. Other federal benefits such as deferral and injunctive relief.

Should I refinance my student loans?

Many borrowers ask: Should I refinance my student loan? Student loan refinance also simplifies your financial life with one monthly payment, a student loan servicer, and most importantly, a lower interest rate.

The main reasons for student loan refinancing are:

1. You want to get a lower interest rate and save money

2. You want to pay off your student loan faster

3. You want the flexibility of a fixed or variable rate

Is consolidation or refinancing better?

Here’s a quick summary to help you make a more informed decision:

Direct Consolidation: organizational tool; same or slightly higher interest rate; Federal repayment plans

Student Loan Refinancing: lower interest rate; Save money; Pay off student loans faster

This student loan refinance calculator shows you how much money you can save by refinancing student loans.

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