How to consolidate or refinance student loans - CCCU
Wednesday, October 16 CCCU
Consolidate or refinance your student loans: What's right for you?
The most common student loan repayment options are consolidating and refinancing your loans. So, what’s the difference between consolidating and your refinancing student loans? Learn about your repayment options and how CCCU can help you manage student debt.
Whether you graduated college this year, last year, or even 10 years ago, making payments toward your student loans can be a challenge. When you carry substantial student loan debt, it can put a damper on the rest of your finances, making it difficult to save money
, qualify for mortgages or loans, or even afford monthly expenses. The good news is that when it comes to student loan repayment, you’ve got choices.
Student loan repayment options
Two of the most common student loan repayment options
are consolidating and refinancing your loans. So, what’s the difference between consolidating and refinancing student loans? Consolidation is a repayment option offered to those who have multiple federal student loans. It involves combining each loan into one account, which can lower your monthly payments and make them easier to manage. Refinancing is a solution offered by private lenders. When you refinance student loans, you’ll be issued a new loan that has a new (and presumably lower) interest rate or updated payoff term.
How to consolidate your student loans
If you’re interested in consolidating your student loans, you can apply for a direct consolidation loan
through the U.S. Department of Education. If you qualify, your new interest rate will be the average of the interest rates of your previous loans. Depending on your specific field of work, you could be eligible for public service loan forgiveness. If your payments still seem too high after consolidating, you’ll then have the option of enrolling in an income-driven repayment (IDR)
Income-based repayment plans for student loans
An income-based repayment plan could be a good option for you if your current financial situation makes it difficult to pay down your student loans each month. With an IDR, your monthly payment amount will be reduced to 10 to 20 percent of your discretionary income (your remaining monthly income after taxes
and necessary expenses).
The federal government offers four income-driven repayment options
- Income-based repayment with payments around 15 percent of your annual discretionary income divided by 12
- Income-contingent repayment with payments that are either what you’d pay toward a fixed monthly plan over 12 years based on your income or 20 percent of your discretionary income divided by 12 (whichever is less)
- Pay As You Earn (PAYE) is best for low-income married borrowers with payments of about 10 percent of your discretionary income (based on your adjusted gross income and family size) divided by 12 and a forgiven balance after 20 years
- Revised Pay As You Earn (RPAYE) is best for low-income single borrowers with payments of about 10 percent of your discretionary income (based on your adjusted gross income and family size) divided by 12 and a forgiven balance after 20 or 25 years
While an IDR plan can lower your monthly student loan payments, keep in mind that you might end up paying more interest over time than you would on a standard repayment plan.
Be smart about managing your debt and set yourself up for lifelong financial health
Figuring out how to refinance student loans is the first step to finding a solution that works for you. The right repayment option will help you afford your monthly payments and better manage your personal finances. If you’re having trouble making your monthly payments, refinancing your student loans, consolidating your debt, or applying for income-driven repayment could help you solve the dilemma and get you on your way to financial freedom
Before committing to new student loan repayment terms, be sure to research all of the options available to you. Also, remember that a lower payment now could mean higher payments later and more interest overall. If you’re smart about managing your debt, you’ll set yourself up for lifelong financial health.
At CCCU, we’re all about offering hassle-free banking in Portland and the surrounding areas, which includes straight-forward bill pay
. By setting up recurring payments, you’ll be able to make your student loan payments on time each month. Learn more about the benefits and convenience of our personal banking