How to Lower Student Loan Payments

Student loan debt is one of the biggest challenges for those who want to attend college. When borrowers find that their student loans eat into too much of their paychecks, they might need to find ways to lower their student loan payments. Lowering student loan payments frees up money so they can afford rent or a mortgage and a car payment so they can get to work each day.

Those who are worried they won’t be able to afford their student loan payments will be relieved to know there are ways to lower them.

On this page:

• Student Loan Refinancing
• Student Loan Consolidation
• Income-Driven Repayment Programs
• Other Federal Student Loan Repayment Plans
• Other Possible Options

Student Loan Refinancing

To save money on their student loans, borrowers should consider student loan refinancing. That can help lower the payment amounts because refinancing can alter two factors that influence the payment total: interest rates and term length.

Student loan refinancing is a popular way to lower payments, with many federal student loan borrowers opting to switch to a private lender for a more competitive rate. When you refinance, you can consolidate multiple federal and/or private student loans into one new private loan.

By getting a lower interest rate, borrowers can save on the total interest paid on their loans. Borrowers also have the option to extend their repayment terms, making their monthly payments lower. Just note that if you extend your repayment term, you may end up paying more in interest over the life of the loan, even if you receive a lower interest rate.

To qualify for student loan refinancing, borrowers should strive to do their best to make timely payments on all their loans because their credit score and loan history will be considered when determining their eligibility and rate. Another key figure lenders will look at is an applicant’s income. 

Note that when you refinance federal student loans, you will lose certain benefits such as access to federal student loan forgiveness programs and income-driven repayment plans.

Student Loan Consolidation

Another popular option that borrowers can opt for to lower their student loans payments is consolidation. When you consolidate student loans, you combine multiple loan balances into one easy-to-manage loan.

Consolidation is a good choice for some borrowers because it can give them greater flexibility, often allowing them to choose the due date for their monthly payment.

It is also good for making their monthly bill paying process easier. When a person has multiple loans due each month, it can be confusing, and it’s easy to overlook a payment, which can lead to a ding on their credit score. That may not seem like a big deal, but consumers should have as high of a credit score as possible because it can save them money on everything from mortgages to insurance.

There is the Federal Direct Consolidation Loan available for federal student loans from the Department of Education. There are also private consolidation loans available through private lenders which is the same as refinancing. 

Income-Driven Repayment Programs

Those who aren’t making much money early in their careers may want to consider income-driven repayment plans. This kind of plan helps whittle down their minimum monthly payment. That can mean the difference between not having enough to meet their necessary payment each month and being able to pay it and still afford to eat.

With this type of repayment plan, a borrower’s monthly payment is based upon a percentage of their disposable income. The size of the family and any usual expenses, such as medical considerations, may also be factored in. After a certain loan term length, often 20 or 25 years, any remaining balance is forgiven. Here is information about four of these programs.

• Pay As You Earn (PAYE): Not all borrowers qualify for this program; it depends upon when they first took out federal student loans. Under this plan, a borrower’s monthly payment is capped at 10 percent of their discretionary income. (Read more: PAYE guide)
• Revised Pay As You Earn (REPAYE): This alternative to PAYE is open to borrowers no matter when they got their first federal loans. It also lets borrowers cap their monthly payment at no more than 10 percent of their discretionary income. (Read more: REPAYE guide)
• Income-Based Repayment (IBR): With this plan, a student loan borrower’s monthly payment is capped at 10 or 15 percent of their discretionary monthly income, depending upon when the loan was issued. Those who took out their student loans prior to July 1, 2014 will pay 10 percent. Those who took out their first loan after that date have a cap of 15 percent. (Read more: IBR guide)
• Income-Contingent Repayment (ICR): The calculation for this plan is a little more difficult than the others. A person’s monthly payment with this program is whichever is less between 20 percent of their discretionary income or what they would pay on a fixed repayment plan over a span of 12 years.

No matter which of the four programs a person qualifies for, under income-driven repayment plans, their monthly payment is guaranteed not to exceed what it would be under the 10-year standard repayment plan. That’s good news for borrowers who expect a huge pay hike in the first few years of their career. 

If they are at an entry-level salary but quickly rise through the ranks to a six-figure income, this option could still be a good one for them. Their monthly payment will increase, but the maximum limits in place will ensure they aren’t penalized for earning considerably more.

Other Federal Student Loan Repayment Plans

The extended repayment plan offered for eligible federal loans allows borrowers to spread their payments out for up to 25 years. While paying longer on their student loans isn’t always a great option, it does provide lower payments than borrowers would get under the standard and graduated plans. That can be an attractive option for someone who has high monthly expenses they must meet.

To be eligible for this program, a Direct Loan borrower must not have had an outstanding balance on a Direct Loan as of Oct. 7, 1998 or on the date they got their Direct Loan after that date. Plus, they must currently have more than $30,000 in Direct Loans.

FFEL loan borrowers can qualify for the extended repayment plan. They also must not have had an outstanding balance on the FFEL loan as of Oct. 7, 1998 or on the date they received their loan after Oct. 7, 1998. They must have at least $30,000 in outstanding FFEL loans.

The graduated repayment plan offers borrowers the option of having lower payments that go up every two years. This is a good choice for people who have a low income now but think their paychecks will keep steadily increasing in upcoming years.

These payments are made for a term up to 10 years, or 10 to 30 years for consolidation loans.

Other Possible Options

The options we’ve already discussed are a borrower’s best bet for lowering their student loan payments. But other avenues a borrower can consider are speaking to their employer about any special student loan repayment programs they have or talking to their bank to see if they have any attractive options available for lowering payments on student debt. 

Bottom Line

Borrowers who are just beginning to realize how little their paychecks will stretch after they factor in student loan payments should take a deep breath and relax a bit. There are other options than living on nothing but ramen noodles for the next 10 years or working 80 hours every week.

There are several ways to lower your monthly student loan payment. Before looking into refinancing and consolidation, though, borrowers should talk to their loan servicer and examine all their options to make sure they’re getting the best deal they can.