6 Effective Ways to Lower Student Loan Payments

#1 Student loan lawyer

Updated on June 4, 2023

With the national average for monthly student loan payments teetering around $400, it’s not unexpected to see borrowers grappling to stay afloat. This financial tightrope becomes even more challenging to navigate as inflation surges.

Perhaps you’ve just stepped into the professional world with a nascent salary, or you’re transitioning between jobs, leaning on freelance work to cover expenses. In any circumstance, the standard repayment plan can seem restrictive.

As the three-year payment pause initiated by President Biden draws to a close, know there’s no need to resort to severe measures like deferment, forbearance, or even loan default, which could wreak havoc on your credit report. There are multiple legitimate avenues to lessen your student loan payments. Your optimal choice relies heavily on your personal financial situation and the type of student loans you hold – federal or private.

Related: When Do Student Loans Start Again?

Ahead, we dive into six strategies that could help lower your monthly payments. Whether you aim to free some spare cash every month or need to get the lowest payment amount, we’re here to guide you.

Key strategies include:

  1. Refinancing with a private lender

  2. Exploring income-driven repayment plans

  3. Opting for temporary payment reductions

  4. Considering loan consolidation

We’ve covered all bases covered to ensure you’re well-equipped to navigate your student loan repayment journey.

Know what type of student loan you have

There are three primary types of student loans:

Federal Loans: These are offered by the U.S. Department of Education and include options like Direct Loans, which can be subsidized or unsubsidized, and Perkins loans. Key features include:

  • Eligibility for student loan forgiveness programs

  • Flexible repayment options, such as income-based repayment plans

Parent PLUS Loans: These loans, which are a type of federal loan, allow parents to borrow on behalf of their undergraduate children. The best way to lower payments on these loans is to extend the loan term by consolidating and switching to the Graduated or Extended Repayment Plans or one of the IDR plans.

Private Loans: Provided by private lenders, these often require a cosigner. Key features include:

  • Possibility of rate discounts for automatic payments

  • Credit score may significantly influence the loan’s terms

  • Inflexible payment terms with few student loan repayment assistance options

Understanding the specifics of your loan type — including your loan balance, interest rate, and loan term — is key to managing your student loan effectively, whether you’re considering refinancing, consolidation, or other repayment strategies.

Related: How to Lower Student Loan Interest Rate

Options for Lowering Federal Student Loan Payments

Strategy 1: Income-Driven Repayment Plans

An Income-Driven Repayment Plan is a key strategy for managing your federal student loan repayment. These include plans such as:

  • Pay As You Earn (PAYE)

  • Revised Pay As You Earn (REPAYE)

  • Income-Based Repayment (IBR)

  • Income-Contingent Repayment (ICR)

Here’s what you need to know:

  • Your monthly payments are capped at a percentage of your discretionary income, typically between 10% and 20%.

  • Depending on the specific plan, the repayment term can be extended to 20 or 25 years.

  • The federal government forgives the remaining loan balance at the end of the term.

To stay in these plans, you must recertify your income annually to maintain your IDR plan. Failure to complete the annual student loan recertification could put you back on a standard plan, possibly leading to a higher monthly payment.

Although IDR plans can significantly lower your monthly payments, they often extend the repayment duration, which could result in paying more interest over the life of the loan.

New Repayment Plan Coming

Come next year, Federal Student Aid is introducing a new income-based repayment plan tailored specifically to benefit borrowers. With this change, undergraduates can anticipate their payment obligations to shrink to just 5% of any income exceeding roughly $33,000 annually, a significant dip from the existing 10%.

This plan also encompasses a safety net for borrowers, assuring that the government will forgive any residual interest if your payments don’t adequately cover the monthly interest.

Moreover, any outstanding loans are set for forgiveness after a period of 20 years or even as soon as 10 years under specific conditions.

Related: How to Change Student Loan Repayment Plan

Strategy 2: Loan Consolidation

Consolidating your federal loans is another useful strategy. Here’s what it entails:

  • Your multiple government loans are merged into a single loan.

  • This doesn’t lower your interest rate but allows you to extend your repayment term.

Extended repayment terms can make your monthly payment more manageable, but you might pay more interest over time. Also, it’s important to mention this strategy is exclusively available to federal student loan borrowers.

Double consolidation may be a lifesaver if you’re struggling with the loans you borrowed for your child’s education. This option is especially helpful when you “can’t pay Parent PLUS Loans,” even after switching to an Income-Contingent Repayment (ICR) plan.

It opens the door to other income-driven repayment plans like IBR or REPAYE, potentially providing you with lower payments. An added bonus: this strategy could put you on track for Public Service Loan Forgiveness.

Strategy 3: Deferment or Forbearance

When faced with financial hardships, consider deferment or forbearance as temporary relief options for your federal loans. Here’s what you need to know:

  • Both options suspend or reduce your monthly loan payments for a specified period.

  • Deferment could be more advantageous as interest doesn’t accrue on subsidized loans during this period.

  • Conversely, interest continues to accumulate during forbearance, which may increase your total loan amount.

To use these strategies, contact your loan servicer and discuss the best option for your circumstances. Remember, these are temporary solutions and may extend the life of your loan.

What is considered discretionary income for student loans?

Discretionary income for student loans is calculated by subtracting a percentage of the poverty guideline from your Adjusted Gross Income. This percentage varies depending on your repayment plan. For instance, in an IBR plan, discretionary income is your “student loan AGI” minus 150% of the poverty guideline for your family size and state of residence. This figure is then used to determine your monthly student loan payment. Read more about “What is discretionary income for student loans?

Options for Lowering Private Student Loan Payments

There are few options to lower private student loan payments. Private lenders typically don’t offer the range of flexible student loan repayment plans the federal government provides. Still, here are three ways you can get some relief on your bill:

Strategy 4: Student Loan Refinance

Refinancing is an effective method to reduce private student loan payments. This strategy implies:

  • Applying for a new loan with a lower interest rate or a longer repayment term to diminish your monthly payment.

  • Taking into account your credit score, income, and other financial factors that can influence your refinancing eligibility.

  • Understanding the terms of your new loan is vital, as refinancing might lead to losing certain protections offered by your original loan.

Moreover, refinancing can provide an added benefit: removing a cosigner from your loan. Lenders typically require cosigners when the borrower doesn’t have a strong credit history. By refinancing, you might be able to release your cosigner from the loan obligation, provided your credit situation has improved enough to satisfy the new lender’s requirements.

Related: How Student Loan Refinancing Works

Strategy 5: Interest Rate Reduction Programs

Private lenders might offer interest rate reduction programs. Such programs could:

  • Lower your rate for enrolling in autopay.

  • Provide a reduction for consistent on-time payments.

Strategy 6: Deferment or Forbearance for Private Loans

Private loans also offer deferment or forbearance options for temporary relief. But:

  • Specifics vary among lenders. Some might charge fees or accumulate interest during this period.

  • Reach out to your lender to understand their options and the impact on your loan.

Related: How to Reduce Student Loan Debt

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Is it possible to lower student loan payments?

Yes, there are several ways to lower student loan payments. While we’ve detailed strategies like Income-Driven Repayment plans earlier, some other methods include direct consolidation loans and student loan refinancing. These strategies can adjust your monthly payments or extend your repayment term, thereby lowering the monthly amount. Furthermore, you might consider switching to an extended or graduated repayment plan. As every financial situation is unique, it’s recommended to consult with your student loan servicer or use tools like loan simulators on StudentAid.gov to identify the best approach for you.

How can I lower my minimum payment on student loans?

Lowering the minimum payment on your student loans usually involves revising your current payment plan. Income-driven repayment plans adjust your monthly payments based on your income and family size, potentially lowering your minimum payment. Opting for a longer repayment period or pursuing a direct consolidation loan might reduce your monthly payments. But you might end up paying more in total interest over the life of the loan. Regularly recertifying your income and family size with your loan servicer ensures your payments remain accurate and manageable. Use the Loan Simulator on studentaid.gov to explore different scenarios and find the best strategy for your circumstances.

Can I pay $50 a month on student loans?

The amount you pay monthly on student loans largely depends on the total loan balance, interest rate, and repayment plan. If your discretionary income is low enough under an income-driven repayment plan, it’s possible that your monthly payment could be as low as $50 or even zero. Note that this could lengthen the repayment period and the total amount repaid over the life of the loan, which can impact the amount of student loan interest you pay over time and your overall financial health.

How can I lower my student loan payments without refinancing?

Refinancing isn’t the only method to lower monthly payments. If you hold federal student loans, you can apply for an income-driven repayment plan, which adjusts your payment based on your income and family size. You might also be eligible for loan forgiveness programs like PSLF or Teacher Loan Forgiveness, which cancel some or all of your student loan debt.