Millions of student loan borrowers are determining how — or if — they can fit a student loan bill back into their budget after a three-year break.
To make their monthly payments more affordable, borrowers can choose from an array of federal repayment programs, including a new approach to income-driven repayment — where payment amounts are based on the borrower’s monthly income — that will fully roll out next summer. “It’s not the same as the warm and fuzzy student loans that you started out with. It’s a bank loan,” said Stacey MacPhetres, senior director of education finance at EdAssist by Bright Horizons. The company contracts with employers, offering services like helping staff understand and repay their student loans.
For all the student-loan borrowers doing their research about refinancing, here are some points to remember. For context, consider the current rates on federal student loans, which are set by Congress every year in a method that’s tied to the yield on the 10-year Treasury note TMUBMUSD10Y . Meanwhile SoFi SOFI is currently offering 4.99% to 9.99% for a fixed rate, with a 0.25% discount for borrowers who sign up for automatic payments. Its variable rates range from 5.99% to 9.99%, and also have a 0.25% autopay discount.
Another option for borrowers is to consolidate federal loans, which merges various federal loans into one federal loan, with one hybrid rate. Rate shoppers should compare the rates they get on a refinance with the rate they could get on a consolidated federal loan “and see what feels better in the big picture,” MacPhetres said.
One repayment plan is currently getting an overhaul in order to subject less income to repayment, which should result in smaller monthly bills for borrowers. “That will become really important,” MacPhetres said. That’s not to say there’s no wiggle room if someone is suddenly struggling, he added. But the degree of leniency could depend from lender to lender. “If difficulty arises, we work with our borrowers to figure out a way forward,” he said.
If payments are more affordable in a person’s budget, that could make a refinance more useful, he said.
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