Finding out how to reduce your student loan payments can be extremely helpful if you’re having trouble paying your expenses. Thankfully, you don’t have to put up with exorbitant monthly payments.
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6 Ways To Lower Your Student Loan Payments
Think carefully about your options if you’re a current or former student trying to reduce your monthly loan payment.
Consolidate Federal Student Loans
You can combine all of your federal student loans into a single monthly payment if you are eligible for a direct consolidation loan.
Repayment is made easier with consolidation, making it easier to monitor and control your debt. Usually, interest rates are changed from variable to fixed for the duration of the loan. Additionally, repayment plans that further lower your monthly payments are made available to you.
To qualify, you cannot be a full-time student. Additionally, your loans need to be in the grace or repayment period. Fill out the online form, then watch for a loan servicer to get in touch with you to walk you through the consolidation process.
Change Your Repayment Plan
Plans that are income-driven repayment (IDR) or non-IDR are the options available to you.
Income-Driven Repayment Plans
All IDR plans come with a loan forgiveness feature. The remaining amount is forgiven after 20 or 25 years of payments, and it won’t be subject to taxes until after 2025.
Every IDR plan additionally bases your monthly payments on a percentage of your discretionary income, which is E2%80%94 the difference between your income and the federal poverty guidelines for your family size and state.
For example, let’s say you’re married and make $50,000 annually. In 2023, the statewide poverty guideline is $19,720 for a two-person household. To determine your disposable income, deduct $19,720 from $50,000, resulting in $30,280.
There are four main IDR plans:
- Revised Pay As You Earn (REPAYE). Payments are limited to 10% of discretionary income.
- Pay As You Earn (PAYE). Payments are limited to 10% of discretionary income.
- Income-based repayment (IBR). Payments are either 10% or 15% of discretionary income.
- Income-contingent repayment (ICR). Payments are made either as a percentage of discretionary income or as the amount you would pay on a fixed-term contract for the year 2012.
Use the official loan simulator and plug in your relevant loan details to see which repayment plan works best for you.
Non-Income-Driven Repayment Plans
The extended repayment plan and the graduated payment plan are the two non-IDR options. The extended repayment plan has fixed monthly payments with a maximum 25-year term. The graduated repayment plan begins with modest monthly installments that rise over time. Most loans have a 10-year repayment period, but direct consolidation loans have a 30-year repayment term.
Lengthen Your Loan Term
Borrowers of private student loans can refinance for a lower monthly payment by taking out a longer repayment term. Let us assume that you owe $50,000 with an interest rate of 8% and a term of 2010 years. Should you refinance to a 6% interest rate and a 2020 year term, the new monthly payment you make will be $256% less each month.
However, longer terms will accumulate more interest. In the given example, refinancing to a 20-year term will result in a $13,175 increase in total interest paid. Once your income increases, you can refinance and make additional payments to manage the increased interest. Because there are no prepayment penalties on student loans, you can pay off the balance early.
Refinance Your Loans
In order to reduce your monthly payment, you can refinance your student loans to consolidate your debt and receive a lower interest rate. Let’s say you owe $50,000 with an interest rate of 2011 percent and a term of 2010 years. Should you refinance to a 2010 year term with a 5% interest rate, your monthly payment will be $158 less. You will also save $19,010 in total interest.
The number of times you can refinance your loans is unlimited. You will save money if you are able to get approved for a lower interest rate.
On the other hand, all associated federal benefits—such as access to loan forgiveness programs, extended forbearance options, and IDR plans—will be lost if you refinance a federal loan. Make sure to consider the benefits and drawbacks before making a choice.
Outside of the federal government, your employer can be a great source of repayment assistance. Employers are able to contribute tax-free to your student loans through 2025. Ask your HR representative if this is an option.
Legal or medical professionals may be eligible for specific Loan Repayment Plans (LRPs). Prior to being eligible for loan forgiveness, LRPs require you to work in an underserved or low-income field for a few years. They usually forgive both federal and private loan balances.
Deferment or Forbearance
If you can’t afford your payments, deferment or forbearance are good options. The interest will not accrue on direct subsidized loans during deferment.
Federal deferment is only available in circumstances of:
- Economic hardship. If you receive food stamps, welfare payments, or other types of government assistance, you qualify. Your primary job income must fall below 10% of the poverty line in order for you to be eligible.
- Cancer treatment. You are eligible for deferment both during and for six months following the completion of your treatment.
- Military service. You have to be a service member on active duty during a time of war or national emergency. Deferment ends after your return to school part-time or full-time.
- Unemployment. You can apply for this kind of deferment if you’re unemployed or seeking employment. However, unemployment deferment only lasts up to three years.
- Rehabilitation training. If you’re enrolled in a program for drug abuse, mental health, or alcohol abuse treatment, you qualify.
You can request forbearance if you are not eligible for deferment. Interest is charged on direct subsidized loans as well as direct unsubsidized loans during a period of forbearance.
Private student loan forbearance is limited compared to federal loans. Interest always accrues for private loans and may be capitalized.
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Zina Kumok is an Indianapolis-based independent personal finance writer. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins. com. lorem Is it really your intention to put your decisions on hold? The Forbes Advisor editorial staff is impartial and independent. We receive compensation from the businesses that advertise on the Forbes Advisor website in order to support our reporting efforts and keep this content available to readers for free. This compensation comes from two main sources.
FAQ
Is it possible to lower student loan payments?
With the Standard or Graduated Repayment Plans, you might be eligible for a smaller monthly payment if your total debt is less than your annual income. These are fixed repayment plans, where the amount of your monthly payment is determined by the total amount owed, the interest rate, and the length of the repayment period.
Can you negotiate student loan monthly payments?
Absolutely. However, your loans will most likely need to be in default or very close to default before you start negotiating. You can attempt to negotiate a student loan settlement if your loans are too large for hardship assistance, even though some lenders might offer an alternate repayment schedule.
What if my student loan payments are too high?
An income-driven repayment plan may be an option for you if your student loan payments seem excessive given your income level. Your payment amount is determined by your family size and income. Learn how to request a reduced monthly payment through an income-driven repayment plan.
Read More :
https://studentaid.gov/manage-loans/lower-payments
https://studentaid.gov/help-center/answers/article/how-can-i-lower-my-student-loan-payments