Ways to Lower Student Loan Payments — Federal & Private

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Stanley tate

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Borrowers have four options to lower their student loan payments: change repayment plans, request a forbearance or deferment, consolidate into a new loan, or refinance with a private lender. The best option for you depends on the type of loan you have and your personal situation.

Federal student loan borrowers have several repayment options to lower their student loan payments. They can change to a payment plan based on their income and family size or one that extends the repayment period. They can also pause payments temporarily or apply for loan consolidation to access plans like Pay As You Earn that offer lower monthly payments and more student loan forgiveness options.

People with private student loan debt have just two: request a forbearance or refinance with a new lender at a lower interest rate or longer repayment term.

The reason you need a lower payment and the type of loans you have help determine which option is best for you.

  • Tight-budget, unemployed, or retired: Choose one of the income-driven repayment plans — REPAYE, PAYE, IBR, or ICR. Based on your discretionary income, your monthly payment amount can be as low as $0.
  • High-earner with federal student loans: Change to the Graduated or Extended Repayment Plan. Your payment amount may be lower than what you’re eligible for using one of the IDR Plans.
  • Struggling with Parent PLUS Loans: Apply for a Direct Consolidation Loan and then choose the Income-Contingent Repayment Plan.
  • Can’t afford private student loan payments: Request interest-only payments or a deferment or forbearance to reduce or stop payments for a set period of time if you need temporary relief. If you need a permanent solution, apply for student loan refinancing to get a lower interest rate and longer repayment term.

Ahead, learn about the different ways you can lower your monthly student loan payments — depending on your situation.

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Switch to an income-driven repayment plan

Income-driven repayment plans cap payments on federal loans between 10 to 20 percent of your discretionary income. Your monthly payment could be as low as $0, depending on your income and family size. These plans also promise to forgive your remaining loan balance after you make payments for 20 or 25 years, depending on whether you borrowed federal loans for graduate school. Read more about IDR student loan forgiveness.

Those benefits make IDR plans attractive for people who need an affordable payment to avoid delinquency and student loan default.

There are two main drawbacks of income-driven repayment. The first is that interest will continue to accrue, which will cause your student loan balance to grow exponentially. Second, you may owe taxes on the amount forgiven at the end of the plan.

Each year, you’ll need to complete the student loan recertification to update your current income and family size. If not, your loan servicer will switch you to the 10-Year Standard Repayment Plan, causing your monthly payment to increase.

Learn More: When Do Student Loan Payments Resume?

Change to an Extended or Graduated Repayment Plan

The ability to make payments based on your income is a wonderful option for people with low income or a lot of dependents. But if you’re a high-earner (near six figures and more) with a small family size, your payment amount under one of those plans may be more than what you can comfortably afford. In that case, changing to the Extended or Graduated Repayment Plan may reduce your bill each month — at least for the next few years.

Both plans work by stretching the loan term from 10 to 25 years (or up to 30 years if you owe more than $60 thousand). The amount you’ll pay each month depends on the loan balance, interest rate, and what type of payment you choose —  either a fixed payment over the life of the loan or one that starts low and increases every two years.

Use the Loan Simulator on studentaid.gov to estimate your savings under different repayment plans.

Learn More: How to Pay Off Student Loans?

Use ICR for Parent PLUS Loans

Parent PLUS Loans have higher interest rates and access to fewer student loan repayment plans than other types of loans offered by the U.S. Department of Education. To get a lower payment, parent borrowers often need to consolidate the loans they borrowed for their child into a new Direct Consolidation Loan and request to make payments under the income-contingent repayment plan.

The ICR plan ties your payments to your taxable income. So as your income decreases, the amount you pay each month will decrease as well. When you retire and start drawing Social Security, your monthly bill could reduce to $0 depending on if you’re receiving taxable income from other sources like a pension or 401k dividend.

If the payments are still too high under that plan, look into the Graduated Repayment Plan. You can also request a deferment or forbearance. Refinancing is another option, but that will cause you to lose eligibility for benefits the federal government offers its borrowers (e.g., loan forgiveness). It also puts your family at risk of being stuck with your debt. Federal student loans are written off  when you die, but if you refinance, the creditor may try to go after any assets you leave behind.

Learn More: Can’t Pay Parent PLUS Loan?

Refinance some or all of your loans

If you have a good credit score and strong personal finances (or a cosigner with both) student loan refinancing may help you get a lower interest rate and monthly payment.

You can refinance private student loan debt by itself, or you can combine it with your federal student loans. If you do that, it’s important to note that you’ll lose access to the protections that the federal government offers its borrowers. Namely, you’ll no longer be eligible for programs like Public Service Loan Forgiveness or income-driven repayment. You’ll also miss out on the current student loan pause extension, which froze interest and suspended payments. And if President Biden ever does make good on his promise for blanket cancellation, you may miss out on that benefit too.

Use a website like credible.com to explore your student loan refinance options without adding hard inquiry to your credit report.

Learn More: $10,000 Student Loan Forgiveness

Need help figuring out the best repayment plan for you? Let’s talk.

If you want to go over your options, schedule a free 10-minute phone call with me. I am a student loan lawyer with years of experience helping people find ways to deal with their loans so they can achieve their personal goals: start a family, buy a house, retire, etc.

UP NEXT: Who Do You Contact If You Have Questions About Repayment Plans?

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I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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