Today’s reality is that student loan debt is a big part of the average college graduate’s life. Seven out of 10 graduates accrue some form of student loan debt and carry an average balance of more than $35,000.

One way to lessen the burden of debt is to consolidate or refinance your student loans. There are a number of choices students can pursue when consolidating or refinancing student loans.

Recently, credit unions have become a popular option for those hoping to bring their monthly student loan payments to a more manageable level. Credit union refinancing is a fairly new option for former students, entering the private student loan consolidation market in late 2010.

This article will highlight the differences between traditional banks and credit loan refinancing, and the benefits of choosing a credit union for student loan refinancing.

First, let’s note that refinancing involves paying off an existing debt by taking on a new loan, with new terms. A lender will look at the borrower’s credit score and other financial factors on which to base the refinanced rate. Borrowers typically can choose between a variable-rate loan (which fluctuates with the financial markets), and a fixed-rate loan.

With all the different student loan refinancing options and rates available, you’ll need to carefully weigh them to ensure you’re making the right choice.

What is a Credit Union?

Unlike a bank, a credit union is a non-profit financial institution that exists to serve its members. Similar to banks, credit unions offer loans, checking and savings accounts, and pretty much provide the same services as banks.

However, with credit unions, the profit cycles back to its members instead of to bank stockholders. As a result, credit unions tend to have better rates and fees and can offer localized, personal customer service.

Why is a Credit Union a Good Option for Refinancing?

The fact that credit unions are not-for-profit lenders probably means you’ll get better rates than you would with traditional bank refinancing. Lower interest rates can save you thousands of dollars a year in total interest and payment expenses. In other words, with student loan consolidation, you may be able to refinance at a lower interest rate, decrease your monthly payment, or both.

Here’s an example: “Steven” is a recent business graduate, who has private student debt of $100,000 with interest rates of up to 14 percent through traditional bank loans. He decides to get a 4.75 percent consolidation loan through a credit union. By refinancing, he is saving $8,400 a year in payments without extending the term of the existing loan.

Another advantage of a credit union is that if you have a cosigner, you may get a lower interest rate, AND relieve the burden on the cosigner, if you as the borrower, have made on-time payments for 12 consecutive months.

What Happens to the Profits?

Ultimately, it’s up to you to decide where you put your cash. Both financial institutions provide similar services to consumers. The biggest difference between a bank and a credit union is whether the company exists primarily to generate profit or whether the core operations are organized around maximizing that profit for return to its ownership.

Credit union members are, in a sense, both customer and owner. Credit unions serve their members by providing affordable financial services. Instead of offering accounts to customers and large dividends to a small group of owners, as banks do, credit unions offer small dividends — and discounted loan rates, reduced fees, etc. — to a large group of members.

Making a Choice

Banks tend to have a more modern technological experience compared to credit unions. Is this a factor for you? Make a list of what matters most to you in choosing an institution. Quality customer service and great rates are probably high the list.

Unlike banks, consumers can’t open an account at any credit union they choose. Credit union membership caters to specific geographical areas, employee groups, and fraternal affiliation, for example. However, joining a credit union has gotten much easier over the last several years and student loan programs are offered even to non-members who are eligible to join based on their demographic information.