How to Lower Private Student Loan Payments: A Guide

#1 Student loan lawyer

Updated on October 18, 2023

Are you drowning in private student loan debt?

You’re not the only one. With interest rates climbing and repayment options less flexible than federal loans, not surprisingly, countless folks find it tough to keep up with their payments.

But don’t stress – I’m here to help!

Together, we’ll dive into various strategies and options to face your private student loan debt confidently, regain control of your finances, and set the stage for a more secure financial future.

Related: Private Student Loan Repayment Options

Understanding private student loans

Let’s start with the basics: private student loans are provided by private lenders like banks, credit unions, and other financial institutions. They’re distinct from federal student loans, which the government funds. While both help pay for your education, there are important differences.

  • Private student loans often come with higher interest rates and less flexible repayment plans than federal loans, typically requiring a cosigner.

  • They’re also credit-based, meaning your credit history and score are crucial in determining whether you’ll qualify and what terms you’ll receive.

As of 2022, private student debt in the United States stands at around $130 billion. Both undergraduate and graduate students use private loans, but a larger proportion of borrowers are grad students.

Private student loans have higher default rates than federal loans, possibly because of the less forgiving repayment options or because they’re often used as a last resort when federal financial aid and other funding sources run dry.

Unlike federal loans, private loans don’t offer a one-size-fits-all solution for repayment. Every lender has its own terms. So if you need a lower payment amount, be sure to carefully review your loan agreement.

Typical repayment terms include:

  • Repayment periods that span 5 to 20 years.

  • Deferment or forbearance while in school.

  • Grace periods after graduation or leaving school when you’re not required to make payments.

Common repayment options:

  1. Deferment and Forbearance: Temporarily put loan payments on hold due to financial hardship or going back to school. Keep in mind that interest may still accrue and may even capitalize, which means you may owe more money over the life of the loan.

  2. Interest-Only Payments: Pay only the interest for a set period, usually at the start of your repayment term. This will result in a lower monthly payment, but remember, the principal amount will still need to be paid off eventually.

  3. Interest-Rate Reduction Payments: Request temporary interest rate reductions to help manage loan payments. Check with your lender to see if this option is available.

  4. Refinancing: Take out a new loan with better terms to pay off your existing loans. Be cautious, though, as you may lose benefits associated with your original loans.

To find the best solution, chat directly with your student loan servicer or lender and explore your options.

Related: How to Lower Student Loan Interest

Tactics and alternatives for tackling private student loan payments

Here are five tactics to lower your private student loan payments and make them more manageable:

1. Bargain for better loan terms

Surprisingly, you might be able to negotiate better loan terms with your lender. You could ask for a lower interest rate, a longer term, or a temporary reduction in your monthly payment. Remember, it never hurts to ask – the worst they can say is no.

2. Employer-based repayment assistance programs

Some companies offer student loan repayment assistance as an employee benefit. If you’re fortunate enough to work for one of these companies, make the most of this perk! These programs usually involve your employer making monthly payments towards your student loans, helping you pay them off faster.

3. Loan discounts, incentives, or temporary relief options

Some lenders offer discounts or incentives for actions like setting up automatic payments or making a certain number of on-time payments. Also, you could explore temporary relief options like deferment or forbearance, which we discussed earlier.

Related: What Increases Your Total Student Loan Balance?

4. Smart ways to tackle private student loans

When you’re ready to make payments, focus on paying off loans with the highest interest rates first. This will lower the total interest you pay and save you money in the long run.

Also, consider making extra payments toward your principal balance when possible.

Finally, if you have a variable-rate loan, look to refinance to move to a loan with a lower fixed interest rate. Inflation has raised rates in the past year and has caused borrowers’ monthly payments to increase and to cover the extra student loan interest being added to their balance every day.

5. Private student loan forgiveness alternatives

While federal loans boast forgiveness programs like Public Service Loan Forgiveness, private student loans typically lack similar options.

Private student loan forgiveness is hardly a thing.

But you can make your private loan debt more manageable by budgeting, using financial planning resources, and exploring state or career-based repayment assistance programs.

Remember, keeping an open line of communication with your lender is crucial.

They might have other options available to help you manage your private student loan debt.

You can’t transfer private loans to the government

You’re in good company if you’ve been pondering whether you can transfer your private student loans to federal loans. Accessing federal loan benefits, such as income-driven repayment plans and student loan forgiveness programs offered by the U.S. Department of Education, is enticing. But before you get too excited, let’s examine the possibilities and limitations.

Sadly, there’s no way to convert private student loans into federal loans. The federal government’s loan consolidation process is strictly limited to federal student loan borrowers.

Student loan refinancing as an alternative

While consolidation with the Education Department isn’t an option, student loan refinancing might be.

When you refinance, a lender pays off your existing loans with a new one at a lower interest rate. This can save you money in the long run – and even from the very first payment.

Refinancing your student loans makes sense if it would save you money, you can meet the eligibility requirements and have stable finances. To qualify for the lowest rates – and the biggest savings – you’ll need an excellent credit score, a clean credit history, and sufficient income to support your debts and expenses.

Student loan refinance might seem attractive if you have federal loans and are concerned about the interest added to your loan amount.

But keep in mind that what you’d gain in a lower interest rate would cost you eligibility for income-based repayment options based on your discretionary income and loan forgiveness after 20 to 25 years of payments.

Fallback options for unmanageable private student loan debt

When everything else falls short, and you’re still struggling to manage your private student loan debt, there are a couple of last-ditch options to consider:

Negotiating a settlement with your lender

If you’re experiencing extreme financial hardship, you might be able to strike a settlement with your lender. This usually involves offering a lump-sum payment that’s less than your total outstanding loan balance. Remember that settling student loan debt could have tax implications and add late payments and a default status to your credit report, temporarily damaging your credit score.

Related: How to Remove a Cosigner From a Student Loan

Bankruptcy as a final option

Although it’s challenging to discharge private student loan debt through bankruptcy, it’s not impossible. You’ll need to prove that repaying your loans would cause you “undue hardship.” This process can be long and costly, but it might be worth looking into if you’re in a dire financial situation.

Related: Can Private Student Loans Be Discharged in Bankruptcy?

Tips for communicating with private student loan lenders

When dealing with private student loan debt, it’s crucial to maintain open communication with your lender. Here are two tips to help you steer those conversations:

1. Embracing open communication

Be proactive and contact your lender as soon as you start struggling with loan payments. They may be more willing to work with you if you’re upfront about your situation.

2. Negotiating for better terms, temporary relief, or settlements

When negotiating with your lender, be ready to provide documentation of your financial situation, such as pay stubs or tax returns. Be polite but persistent, and don’t hesitate to ask for a supervisor if you’re not making progress with the person you’re speaking with.

Remember, your lender wants you to repay your loan, so they may be more willing to help than you think. By staying informed and maintaining open communication, you can collaborate to find a solution that suits your needs.

Related: How to Reduce Student Loan Debt

Bottom Line

Managing student loans can be daunting, but it’s not insurmountable. You can take control of your financial future by exploring various repayment options, strategies to lower your payments, and last-resort solutions.

Stay proactive and informed, and don’t hesitate to contact your lender to discuss your situation. With persistence, determination, and a touch of creativity, you can find a solution that works for you.

So, take a deep breath, roll up your sleeves, and chip away at that private student loan debt. You’ve got this!

UP NEXT: How to Check Your Student Loan Balance

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