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7 Ways to Lower Student Loan Payments

We’ve all been there. That moment when you peek at your bank statement, only to get that sinking feeling. You realize a chunk of your hard-earned money is about to vanish to your monthly student loan payment.

Whether you’re trying to refinance your student loans or maybe you’re considering an income-driven repayment plan, there are ways to help make that burden a tad bit lighter. Stick around and you might just discover the ticket to fast-track your journey to financial freedom with lower student loan payments.

What’s the Big Deal About Student Loan Payments Anyway?

When you make that monthly student loan payment, you’re not only working towards paying off your debt but also making an investment in your future.

A consistent track record of payments can be a shining badge on your credit score. Why’s that relevant? Well, a robust credit score can open doors to many financial perks. If you dream of owning a house, buying a car, or even getting a business loan, your credit score plays an instrumental role in determining whether you qualify for a lower interest rate or not.

But, just as timely payments can be your best friend, missed ones can quickly become your worst enemy. Defaulting on a loan can leave a mark on your credit history, making future financial aspirations more challenging.

Ready for Lower Student Loan Payments?

1. Let’s Talk About Refinancing

Ever wished you could just hit “restart” on your student loans? When you refinance your student loans, you’re practically doing that. By swapping out your current loan for a new one, often with a better interest rate and monthly payment, you can potentially pay off your debt faster and save money.

Refinancing can be especially beneficial if you have private student loans, which can sometimes carry higher interest rates than their federal counterparts. If your financial health has improved since you took out your loans (perhaps your credit score has gone up, or your income has increased), there’s a good chance you could qualify for a much better rate now.

The idea of refinancing might seem daunting, but resources such as Credit & Debt can help guide you, ensuring the process is smooth and beneficial.

2. Income-Driven Repayment Plans

Being bogged down by hefty student loan payments, especially during the initial years of your career, can feel like you’re in quicksand. But what if your payments could be aligned with your earning potential?

That’s where income-driven repayment plans (IDRs) can come into play.

Essentially, these plans cap your monthly payments based on your discretionary income. Instead of a fixed sum, you’ll be paying a percentage of your income, making it more in sync with your financial capacity.

When you dive into the specifics of federal student loans, you have choices with IDRs:

  • Income-Based Repayment (IBR): Instead of fixed numbers, your monthly payment is adjusted, based on a set percentage of your income. Annual recalculations ensure it’s always in line with your earnings.
  • Income-Contingent Repayment (ICR): Here, you’re looking at the lesser of two options — either 20% of your discretionary income, or what you’d be doling out on a 12-year fixed plan.
  • Pay As You Earn (PAYE): This one can be beneficial for student loan borrowers right out of school. Tailored for those with lower incomes, it can help ensure your loans aren’t a monstrous burden.
  • Revised Pay As You Earn Repayment (REPAYE): Think of it as PAYE’s evolved sibling. Not only does it adjust according to your income, but it also encompasses all federal student loans, not just the newer ones.

But here’s the golden nugget: after making consistent payments for 20 or 25 years, depending on your IDR plan, any remaining balance might be waved off. The thought of a loan forgiveness program is nothing short of a dream, isn’t it? Though, remember, the forgiven sum might be considered taxable income, so there’s a little math to do before celebrating.

3. Automatic Payments

In today’s fast-paced digital world, there’s a nifty feature that can not only save time but also potentially lower student loan payments: automatic payments. You may wonder why this seemingly simple action is getting so much emphasis when discussing student loans. Let’s dive into the numerous advantages.

First and foremost, automatic payments ensure consistency. With life’s daily hustle and bustle, it’s all too easy to forget a due date. But, setting your student loan payments to “auto” means they’re made like clockwork, ensuring you never miss a deadline.

This consistency not only benefits the lender but can also help bolster your credit score. As established earlier, timely monthly student loan payments can have a positive impact on your credit history.

But there’s a cherry on top! Many lenders, recognizing the benefits of automatic payments (such as lower administration costs and a reduced risk of late or missed payments), often incentivize borrowers.

It’s common for them to offer a small interest rate discount to those who opt for automatic payments. This might seem trivial at first, but over the course of a loan term, even a 0.25% reduction can result in noticeable savings. And who doesn’t want to save money on their debt?

4. Consolidate Student Loans

Navigating the realm of student loans can sometimes feel like being lost in a maze, especially when juggling multiple loans. That’s where a consolidation loan enters the scene.

The primary goal of consolidating your student loans is simplification. Imagine merging several loan payments into a single monthly student loan payment. Not only does this streamline your finances, but it also reduces the chances of accidental missed payments.

But how does this process work?

When you choose to consolidate, especially with federal student loans, you’re essentially bundling multiple loans into one consolidation loan. The interest rate for this new loan is typically the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest one-eighth of a percent.

This means that while you might not necessarily qualify for a lower interest rate, you do lock in a fixed rate that won’t fluctuate over the loan term.

However, while the allure of a single monthly payment is strong, consolidation isn’t for everyone. If you consolidate, you might lose out on borrower benefits associated with your current loans, like interest rate discounts or loan forgiveness programs. And if you’re considering the income-driven repayment plan, consolidating can reset the clock on any progress made toward those 20- or 25-year forgiveness terms.

5. Ask Your Employer

The modern workspace is evolving. Recognizing the burden that student loans place on young professionals, many forward-thinking companies are leveraging a new tool to attract and retain talent: employer-sponsored student loan assistance.

This might sound too good to be true, but as the student debt crisis deepens, an increasing number of employers have taken note. By offering student loan repayment assistance, they not only alleviate a significant pain point for potential employees but also set themselves apart in the competitive job market.

Here’s how it typically works: an employer agrees to contribute a set amount towards an employee’s student loan payments. This might be a monthly contribution or a yearly lump sum. Some programs might have caps on the total contribution, while others could increase their contributions based on tenure.

It’s a win-win scenario. As a student loan borrower, you receive assistance in chipping away at your debt, potentially clearing your debt faster and saving money in the long run. And for employers? They get the satisfaction of aiding their workforce and, more tangibly, often see increased loyalty and reduced turnover.

Moreover, given the rise of remote work and the global talent pool, many companies are offering unique perks to attract the best. If you’re job hunting or considering a switch, it might be worth inquiring about student loan repayment assistance. And if you’re content in your current role, consider discussing the possibility with HR – you might be surprised at the response.

6. Temporary Payment Decrease

When facing economic turbulence or personal financial hardships, meeting regular financial commitments can be daunting. For student loan borrowers, the pressure to continue meeting loan obligations can sometimes become unbearable. Thankfully, some reprieve options exist, particularly if your loan is with a private lender.

Private lenders are increasingly recognizing that life’s unpredictability can temporarily affect borrowers’ capacity to pay.

In response, several of them have introduced mechanisms to allow for a temporary decrease in monthly student loan payments. Unlike federal loans that come with an array of repayment plans and forgiveness options, private student loans tend to be more rigid. However, this flexibility in payment reduction during trying times signifies a commendable shift.

How does this work? Generally, if you’re undergoing financial distress, you can reach out to your private lender and discuss your situation. Many are willing to negotiate a reduced payment amount for a set period, say a few months to a year. This does not mean your interest stops accruing; it simply eases your immediate monthly financial obligation.

While it’s an excellent relief mechanism, approach this option with full awareness. First, understand that interest continues to accumulate on your loan even with reduced payments, so you’d be paying a smaller amount toward the principal balance.

Second, once the agreed-upon period ends, you can return to your regular monthly student loan payment, or possibly a recalculated amount that might be higher, factoring in the lower student loan payments made earlier.

7. Extended Repayment Plan

The federal government acknowledges that not everyone can fit their student loan repayments comfortably into the standard 10-year plan. This recognition gave birth to the extended repayment plan, a strategy particularly useful for those with hefty loan balances.

So, what is this plan? An extended repayment plan allows borrowers to extend their loan terms, typically up to 25 years. This can significantly reduce your monthly student loan payment since you’re spreading it out over a longer period.

Now, let’s talk eligibility. This isn’t a plan that every borrower can just opt into. If you have more than $30,000 in federal direct loans, you might find yourself in the pool of eligible candidates.

The rationale here is simple. The government understands that a more substantial loan amount can be burdensome under a standard term, thus the provision for an extended timeline.

The benefits of an extended repayment plan are clear.

First and foremost, your monthly payments are lower, helping alleviate immediate financial strain. For those who have multiple financial commitments or are just starting their careers, this can be a sigh of relief. Additionally, since this is a federal provision, it comes without the penalties or higher interest rates that some private student loans might impose for extended terms.

However, it’s important to recognize the long-term implications. Stretching your loan over 25 years means you’ll be in debt for an extended period.

Plus, while your monthly student loan payments are lower, the total interest paid over the loan term might be higher than under a standard plan. Run the numbers and consult financial advisors or loan counselors to ensure this strategy aligns with your long-term financial goals.

Get Free Financial Advice with Credit & Debt

Navigating the world of student loans can feel like wandering through a maze without a map. But hey, wouldn’t it be great if someone experienced could guide you through it? That’s where the certified financial coaches from Credit & Debt come in.

These folks aren’t just experts on paper; they’ve spent countless hours helping people just like you find the fastest, most efficient routes to lower student loan payments. They know the terrain, they’ve seen the challenges, and they’re here to help.

The best part? You can get their expertise without emptying your pockets. Credit & Debt works with their nonprofit partners to provide nationally certified debt management coaches for free.

Bottom Line: Lower Student Loan Payments

Okay, so let’s quickly recap what we’ve ventured through. Student loans, while a necessary part of many people’s education journey, can come with their own set of puzzles. From figuring out if refinancing is right for you to understanding the nuances of different repayment plans, there can be a lot to wrap your head around.

Credit & Debt has a range of resources and services tailored to help guide you through every step of your journey:

You’re not on this journey alone. Credit & Debt is here, ready to give you the map, the compass, and the expert advice to make your journey a lot smoother. Because at the end of the day, it’s all about getting you to your financial “happily ever after” to lower your student loan payments in the most stress-free way possible.

Credit & Debt does not provide debt relief or loans and is not a lender. A Credit & Debt coach will guide you through a free financial evaluation, help you understand your options and connect you with a qualified partner.

Madison Ervin

financial coach with clipboard

Get financial freedom! Talk to a financial coach for free!