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Before you explore your options to lower your student loan payments, you’ll want to determine whether your loan are federal or private.
Funded by the government and secured by the Department of Education (DoE), federal loans come with guaranteed features for eligible borrowers, including the ability to adjust monthly payments over time. Private loans are offered by individual lenders and can fill in the tuition gap, but they lack many features and benefits.
You might have federal loans, private loans, or both. You may be able to adjust your loan repayment if you find your monthly loan obligation doesn’t work with your budget or financial goals. Here’s a look at how to lower student loan payments and what options you have.
In this guide:
- How to lower federal student loan payments
- How to lower private student loan payments
- What if you have a combination of federal and private student loans?
- Is it possible to lower student loan payments without changing any terms?
- For what length of time can I lower my student loan payments?
How to lower federal student loan payments
Federal student loans include Direct Subsidized or Unsubsidized Loans and Direct or Parent PLUS Loans. Provided through federal funding with fixed interest rates, these loans have standard repayment terms and features that can make payment more flexible.
Federal loans offer ways to adjust your monthly payment amount if the 10-year standard repayment plan doesn’t work for you.
You can use these plans in any of the following situations:
- You’re making less money.
- You encounter a financial hardship.
- You want to qualify for loan forgiveness, such as the Public Student Loan Forgiveness (PSLF) program.
Here’s how to get lower student loan payments on your federal debt and which avenues to explore first.
To ensure your federal student loan debt doesn’t account for too much of your monthly income, you can take advantage of income-driven repayment (IDR) plans. These plans allow you to adjust your monthly payment requirement according to your income and family size.
With an IDR plan, you must update your loan servicer with your income and household size every year.
This can cause your payments to increase or decrease, but they’ill never account for more than 20% of your discretionary income.
The four IDR plans are:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
How to get access to an IDR plan if you don’t have it
If you don’t have access to IDR plan options for all your federal loans but think you could benefit from it, consider a federal Direct Consolidation Loan.
You can consolidate your federal student loans into one, allowing you to make one monthly payment and track one balance. Federal Direct Loan Consolidation is free, and it locks in the combined debt with a fixed interest rate that is an average of the rates on the loans you’re consolidating.
Note: Consolidating alone won’t reduce your monthly payments, but it will give you access to IDR plans for all your federal loans. You can choose the consolidation loan repayment term you need most; with a longer term, your monthly payment will be less.
The REPAYE Plan generally sets your monthly federal loan repayment at 10% of your discretionary income. If you took out all your loans under this plan for undergraduate study, you’ll make payments for 20 years.
If you took out loans for graduate or professional educational expenses, you’ll make qualifying payments for 25 years. After that time, any remaining balance will be forgiven.
The PAYE Plan sets your monthly payment at around 10% of your discretionary income. This amount will never exceed the payment required by the 10-year standard repayment plan. Once you’ve made qualifying payments for 20 years, any remaining loan balance will be forgiven.
IBR plans set your monthly payment at 10% (if you took out your loans on July 1, 2014, or later) or 15% (if you took out your loans before July 1, 2014) of your discretionary income.
This adjusted monthly payment will never exceed the amount required by the 10-year standard repayment plan. Once you’ve made qualifying payments for 20 years (post-July 1, 2014) or 25 years (pre-July 1, 2014), your remaining balance will be forgiven.
With an ICR plan, you can adjust your monthly payment to the lesser of 20% of your discretionary income or what you’d pay on a 12-year fixed repayment plan. You must make qualifying payments for 25 years, after which time any remaining loan balance is forgiven.
Which federal repayment plan is best for me?
To understand which payment option is right for you, play around with the Federal Student Aid Loan Simulator tool.
You can enter your loan details, income, and family size to see which repayment plans will save you the most money or reduce your monthly payment the most.
Take a look at these sample options for an unsubsidized $40,000 federal student loan balance with a 2.75% interest rate.
|Loan amount||Monthly repayment||Payoff date||Total amount paid|
|Standard repayment plan||$40,000||$382||November 2032||$45,797|
|PAYE plan||$40,000||$195 to $382||November 2035||$48,678|
|REPAYE plan||$40,000||$195 to $513||April 2035||$48,554|
|IBR plan||$40,000||$195 to $382||November 2035||$48,678|
|ICR plan||$40,000||$326 to $348||September 2034||$46,945|
As you can see, the same $40,000 federal loan would cost you $45,797 after 10 years of set $382 monthly payments. If you went with an ICR plan, you would spend another two years paying off your loan and pay about $1,150 more, but your monthly payments would range from $34 to $56 less according to the loan’s amortization schedule.
Shifting to an IBR or PAYE plan, you could save significantly on your monthly payment. But with either plan, you’d get out of debt three years later and pay almost $3,000 more in interest.
You must apply online to shift to a new income-driven repayment plan. You’ll also need to recertify your income every year to keep the plan and ensure your monthly payments are correct.
Eligible borrowers can request to defer their federal student loan payments. You can pause payments on your loan balance; however, interest often continues accruing, so your loan may cost more in the long run.
- Undergoing cancer treatment.
- Encountering an economical hardship.
- Enrolled in an approved graduate fellowship program.
- Enrolled in an eligible college (or career school) and attending classes at least half-time.
- On (or called into) active-duty military service.
- Receiving unemployment benefits.
- Enrolled in a qualifying rehabilitation program (including drug abuse, mental health, vocational training, or alcohol abuse programs).
Loans that qualify for federal deferment include Direct Loans, Perkins Loans, and FFEL Program loans.
By deferring, you can reduce your monthly payment requirement to $0 for a period. This can help you through a tough financial situation, but it often results in paying more interest over the life of your loan.
Similar to deferment, forbearance allows you to pause monthly federal loan repayment if you meet certain requirements. You can also make monthly interest-only payments, helping soften the impact on your overall debt repayment.
To qualify for federal loan forbearance, you’ll need to have an extenuating circumstance such as:
- Experience a financial hardship
- Encounter unexpected or overwhelming medical expenses
- Change in employment
If approved, your loan forbearance will last no more than 12 months. If your situation persists beyond that 12-month period, you can request an extension for up to three years.
Federal loan forbearance is mandatory if your student loan repayment accounts for more than 20% of your household discretionary income. It can also occur if you’re in a medical residency program or a reservist in the National Guard who gets called to active duty.
In response to the COVID-19 pandemic, the government suspended federal student loan payments. Since March 2020, federal loan borrowers haven’t needed to make monthly loan payments, their balances are set at a 0% interest rate, and collections on defaulted loans ceased.
This lowered federal borrowers’ monthly payments to $0 while not adding to their debt with capitalized interest. However, when the pause ends, payments will resume according to the borrower’s repayment plan and financial situation.
How to lower private student loan payments
If you have private student loans, you have fewer payment-lowering options. Each lender can set its own terms and offer its own repayment programs. A private lender isn’t required to offer payment-pausing or -reducing options, no matter your situation.
But there are ways to adjust your private student loan debt to lower your monthly payments, pause payment obligations, or save money each month.
If you’re happy with your private lender and loan options but want to save money, spend time looking into rate discounts. Private lenders may offer discounts on your interest rate in exchange for signing up for automatic payments or holding other accounts it offers (such as an auto or home mortgage loan).
You may be able to reduce your monthly and lifetime loan expense without taking out a new loan or making major changes. Even a 0.50% APR discount (common for borrowers who enroll in autopay) can make a difference.
Take a look at the example below, assuming a $20,000 loan balance with a 5.5% APR and 20-year repayment term:
|Monthly payment (without autopay)||$217||Monthly payment (with 0.50% autopay discount)||$212|
|Total loan cost (without autopay)||$26,046||Total loan cost (with 0.50% autopay discount)||$25,456|
You could save $5 per month and $590 overall for seeking out a rate discount.
Perhaps the most common option for private student loans is to refinance. With a refinance loan, you can take out a new private loan to replace one or more student loans.
This new loan can then help you:
- Lower your overall interest rate
- Lock in a fixed rate (versus paying variable interest charges)
- Reduce your monthly payment requirement
- Get out of debt sooner
- Combine more than one loan to simplify repayment
- Release a previous coborrower or cosigner from the debt
With the right loan, you can accomplish multiple (or all) of these.
Most private lenders offer refinance options for private student loans. They are especially beneficial if your credit score or history has improved since you took out a private loan or if market rates have dropped, as either option can result in a lower interest rate.
Take a look at the example below, where the borrower started with a $50,000 student loan at 9.25% APR:
|Loan amount||Interest rate||Monthly payment||Payoff date||Total loan cost|
|Original loan||$50,000||9.25%||$458||20 years||$109,904|
|Refinance loan||$50,000||6.5%||$393||18 years||$84,949|
With a refinance loan locking in a lower rate, you could repay the debt two years faster with a lower monthly payment. And even better, you would save almost $25,000 in interest.
Deferment or forbearance
If you encounter a financial hardship, you may find it difficult to make your scheduled payments on time. The best refinancing terms are only available to well-qualified borrowers, and the process can take several weeks to finalize. So what can you do?
Not all private lenders offer deferment or forbearance options to student loan borrowers, but it never hurts to ask. Some lenders allow for short-term forbearance, giving you one to three months of paused or reduced payments when you need it most. While your interest will likely continue to build during this time, the option can save you from default.
Other lenders—such as Discover—may have established rules for deferment, particularly if you are enrolled in school, on active-duty military orders, or serve in a qualifying public service role. If this is the case, ask your lender how long this pause will last and what’s required along the way.
What if you have a combination of federal and private student loans?
Many borrowers take out federal and private student loans to pay for tuition and other education-related expenses. This can make keeping track of the separate debts challenging.
If you have private student loans, for example, you can’t consolidate that debt into a federal loan program. You also aren’t guaranteed income-based repayment plans on these private loan balances as with federal loans.
Your options include:
- Adjust federal loan debt according to the DoE’s income-driven repayment plans; you can handle your private loans separately.
- Consolidate all student loans (federal and private) into one private refinance loan, which will simplify repayment and may lock in a lower interest rate.
Since federal loans include built-in protections and features, it’s often wise to exhaust all federal repayment options before refinancing into a private loan.
We recommend reaching out to your private lender or loan servicer to ask what options it may offer, especially if you want to lower your payments temporarily or have other extenuating circumstances.
Is it possible to lower student loan payments without changing any of the other terms?
When it comes to lowering your student loan payments each month, there are only so many ways to accomplish your goal.
- Lower your interest rate(s) with a refinance loan or promotional rate option.
- Extend your repayment term to stretch the debt further.
- Sign up for an income-based repayment plan.
Without changing at least one of these terms, you can’t lower your monthly student loan payment requirement.
For what length of time can I lower my student loan payments?
Your ability to lower, or even pause, your monthly student loan payments depends on the type of loans you have and your circumstances.
Take a look at the timelines below if you’re considering ways to lower your monthly student loan payments:
|Repayment option||You’ll get lower monthly payments for…|
|Income-driven repayment plan||As long as the loan lasts, assuming your income doesn’t increase and your household size doesn’t decrease.|
|Federal loan forbearance||Up to 12 months at a time, not to exceed 3 cumulative years.|
|Federal loan deferment||Depends on the qualifying reason and loan type.|
|Rate discounts||The life of the loan, as long as you qualify.|
|Loan refinance||The life of the loan.|
|Private loan deferment or forbearance||Depends on the lender (and whether it offers these options).|
Author: Stephanie Colestock