The Ultimate Guide To Lower Student Loan Payments
Updated On January 26, 2022
Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.
Are you paying too much for your student loans?
Student loan payments can be expensive. If you have high student loan payments, it may be challenging to save for retirement, buy a home or pay other living expenses. So, how can you lower your student loan payments?
Top Picks For Student Loan Refinancing
Here are 11 ways to lower your student loan payments:
- Enroll in an income-driven repayment plan
- Sign up for a Graduated Repayment Plan
- Sign up for an Extended Repayment Plan
- Consolidate student loans
- Enroll in automatic payments
- Apply for student loan forgiveness
- Move to a new state
- Ask your employer for help
- Choose a longer student loan repayment term
- Increase your credit score
- Refinance student loans
Enroll in an Income-Driven Repayment Plan
If you have federal student loans and want to lower your student loan payment, you can apply for an income-driven repayment plan. An income-driven repayment plan extends your Direct student loan repayment term to 20 years or 25 years, and your monthly payment is based on your discretionary income, family size and other factors. Some borrowers pay as little as $0 per month.
There are four types of income-driven repayment plans:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
While your monthly payment may be lower, interest still accrues on your student loans. So, you may pay higher total interest on your federal student loans with an income-driven plan.You also may qualify for student loan forgiveness after 20 years (undergraduate student loans) or 25 years (graduate student loans), if you meet certain requirements.
Sign up for a Graduated Repayment Plan
A Graduate Repayment Plan is an alternative to the standard 10-year repayment term for your federal student loans.If you don’t qualify for an income-driven repayment plan, consider a Graduate Repayment Plan. A Graduate Repayment Plan means that your monthly federal student loan payment starts out low, regardless of income. Your payment increases every two years. After 10 years, your federal student loans are paid off.
Sign up for an Extended Repayment Plan
An Extended Repayment Plan helps you lower your monthly student loan payment for your federal student loans. With an Extended Repayment Plan, you can extend your student loan repayment term from 10 years to as long as 25 years. To qualify for an Extended Repayment Plan, you must have Direct or FFEL federal student loans with a balance of at least $30,000.
Remember, when you increase your student loan repayment term, your monthly payment decreases, but your total interest payment increases. Interest still accrues on your student loan balance even if your monthly payment is lower.
Consolidate Student Loans
You may have different federal student loans, each with different interest rates, balances and payment due dates. How can you organize and manage all these federal student loans? Student loan consolidation may be the answer.
When you consolidate student loans, you combine your existing federal student loans into a new Direct Consolidation Loan. This Direct Consolidation Loan will have one interest rate, one monthly payment and one payment due date. The interest rate on a Direct Consolidation Loan is equal to a weighted average of the interest rates on your existing federal student loans, rounded up to the nearest 1/8%. So, when you consolidate federal student loans, you don’t necessarily save money.
However, once you consolidate, you can enroll in an income-driven repayment plan. Then, you can lower your student loan payment.
Enroll in Automatic Payments
Most lenders offer an interest rate discount when you enroll in automatic payments for your student loans. For example, if you connect your bank account to your student loan account, you could receive a 0.25% interest rate discount.
For example, let’s assume you owe $50,000 of student loans and have an 8% interest rate payable over 10 years. That means you would pay $607 each month and $72,797 total. If you receive a 0.25% interest rate discount, your new interest rate would be 7.75%. With this new interest rate, you would pay $600 each month and 72,006 total. That is a savings of almost $800.
Apply for Student Loan Forgiveness
There are many types of federal and state programs that offer student loan forgiveness and student loan assistance. For example, the Public Service Loan Forgiveness and Teacher Loan Forgiveness programs are federal student loan forgiveness programs that help public servants and teachers, respectively, pay off student loans faster. To qualify, you must satisfy certain requirements. There are also scholarships and grants that may help you lower your student loan payment.
Move to a New State
Many states offer student loan payment assistance if you move there. These incentives are available to residents who live for a certain period in the state. For example, Maine offers student loan assistance to student loan borrowers who live and work in Maine.
You can visit your state’s department of education website for more details.
Ask Your Employer for Help
Some employers now help pay off student loans. According to the Society For Human Resource Management, 4% of employers offer student loan repayment assistance to their employees. You can contact your employer’s human resources department to determine if this student loan benefit is available at your employer.
Choose a Longer Student Loan Repayment Term
You can lower your student loan payment by choosing a longer student loan repayment term. Here’s how it works. The standard student loan repayment term is 10 years. If you choose a longer student loan repayment term, such as 20 years, you can lower your monthly student loan payment. This can save money each month to help pay for other living costs, save for retirement or pay off other debt.
The disadvantage to this strategy is that interest will still accrue on your student loans. Therefore, you may pay more total interest by the end of your student loan repayment term.
Increase Your Credit Score
Having a good credit score can help you get a lower interest rate. A lower interest rate lowers your monthly payment because you owe less interest each month. If you have good credit, lenders will reward you with a lower interest rate.
If you have bad credit and do not have a co-signer, you should focus on improving your credit score. Your FICO credit score ranges from 350 (low end) to 850 (high end). Generally, a credit score of less than 550 is considered bad credit.
How do you increase your credit score? Credit score is determined by these major factors:
- Payment history (35%)
- Credit Utilization (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
While you should focus on these five major factors, the best place to begin is payment history. Payment history is the largest component of your credit score. You can improve your credit score by paying bills on time. Also, don’t skip any payments. If you can develop a positive payment history, you can show lenders that you are financially responsible and a trustworthy borrower.
Refinance Student Loans
Student loan refinance is the best way to lower your student loan payment. When you refinance student loans, you combine your existing federal student loans, private student loans or both into a new, single student loan with a lower interest rate. With a lower interest rate, you can lower your monthly payment compare to your current student loans.
For example, let’s assume that you have $60,000 of student loans with a 7% interest rate and 10-year repayment term. You would pay $697 each month and $23,598 in total interest. If you refinance these student loans and receive a 3% interest rate and same repayment term, you would lower your student loan payment by $117 each month and save $14,074 overall.
This student loan refinance calculator shows you how much you can save with student loan refinancing.
You can increase your chances of approval for student loan refinancing by applying with a qualified co-signer. The co-signer can be a spouse or relative with strong credit and income. While your co-signer is also responsible for your student loan, they can help you get approved and even receive a lower interest rate. Remember, student loan refinance has some considerations if you have federal student loans.
If you feel refinancing student loans is right for you, you can compare lenders and check the latest student loan refinancing rates.