Staying on top of student loan repayments is an important part of your overall financial health. If you’re concerned about making payments on time or just evaluating your budget, you may be wondering how to lower student loan payments.
From changing your repayment term to signing up for an income-driven repayment plan, you may be eligible for options that can lower student loan payments. Here are seven tips to help you find the choice that’s right for you.
Can I Lower My Student Loan Payments?
There are a number of ways you may be able to lower student loan payments. For starters, it’s important to know the type of student loans you have since this can affect your repayment options.
If you have federal student loans from the U.S. Department of Education, you may be able to apply for federal plans that can help lower monthly student loan payments. If you have private student loans from a bank or another financial institution, there are fewer options available to help with repayment.
If you only need temporary relief, consider contacting your loan servicer to see if you are eligible for student loan deferment or forbearance. Both options let borrowers temporarily pause or lower loan payments for reasons such as unemployment or being enrolled as a student. Depending on your loan, interest may still accrue during this time.
How to Lower Student Loan Payments
1. Find Out How Much You Owe
When you’re looking at how to lower student loan payments, the first step is to assess how much debt you have in total. By calculating what you owe, you can get a better understanding of your current repayment plan and whether you want to consider changing it.
You’ll also want to make a note of your loan servicer. Your loan servicer may be a private company, or if you have federal loans, one of several student loan servicers. You can find all of your federal student loans, and the individual loan servicer, by logging into My Federal Student Aid .
2. Calculate Your Interest Rates and Payoff Dates
Once you have all of your loan information, you can use a student loan payoff calculator or contact your servicer to find your current payoff dates for your student loans.
If you haven’t selected another plan, federal loans are placed by default on the Standard Repayment Plan. The Standard Repayment Plan sets your monthly payments at a static amount so you will have your loans paid off in 10 years, if not less. Some private loans also follow the 10-year repayment timeline, but it varies depending on your lender.
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You can check which repayment plans you qualify for by using the Federal Student Aid Repayment Calculator. Keep in mind that if you change to a longer term to lower monthly student loan payments, you’ll need to take more time to pay off your loans, and you may end up paying more over the life of the loan, since interest will continue to accumulate.
3. Sign up for Automatic Payments to Stay on Time
Some student loan servicers offer incentives if you elect to make automatic payments, such as a 0.25 percent interest rate reduction. Auto-payments can also help you incorporate your student loan payments into your budget as a fixed expense which must be accounted for every month. On-time payments may also help your overall credit score.
With most federal student loans, if you don’t make a payment in more than 270 days, you’ll default on the loan. Private loans are often placed in default as soon as after 90 days.
Defaulting can impact your credit score, and have other negative consequences, including losing eligibility for deferment, forbearance, and other valuable repayment options. Another consequence of default is loan acceleration, when the unpaid balance on your loan immediately comes due.
Setting up automatic payments can help you stay on track. If you’re looking to lower loan payments because you’re struggling financially, however, there are other options. Those with federal loans, for example, can consider an income-driven repayment plan.
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4. Contact Your Loan Servicer About Your Repayment Plan
If you’re interested in changing federal repayment plans to help lower student loan payments, contact your loan servicer to learn more about your options.
One option is the Graduated Repayment Plan, which can keep your payment timeline to 10 years (depending on how much you owe), but starts out with lower payments and then increases the payment amount over time (usually every two years).
If you have more than $30,000 in eligible outstanding student debt on most loans, you can also ask about the Extended Repayment Plan, which extends your loan repayment timeline to 25 years.
5. Apply for Income-Driven Repayment for Federal Loans
Most federal student loans are eligible for at least one income-driven repayment plan:
• Income-Based
Payments are generally 10% or 15% of your discretionary income, depending on when you first received your student loans. Any outstanding balance is forgiven after 20 or 25 years, but you may have to pay income tax on that amount. You must have a high federal student loan debt relative to your income to qualify.
• Income-Contingent
Payments will be either 20% of your discretionary income, or the amount you would pay on a fixed 12-year repayment plan adjusted to your income, whichever is less.
Many borrowers can qualify for this plan, including parents, who can access this option by consolidating their Parent PLUS loans into a Direct Consolidation Loan. Outstanding balances may be forgiven after 25 years.
• Revised Pay As You Earn
Payments are generally 10% of your discretionary income, and outstanding balances will be forgiven after 20 years for undergraduate loans.
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• Pay As You Earn
Also generally sets payments at 10% of your discretionary income and caps at 20 years for forgiveness, but never more than what you’d pay on the Standard 10-year plan. You must be a new borrower on or after Oct. 1, 2007 to qualify.
• Income-Sensitive
Monthly payments will be based on your income, but based on a 10-year repayment timeline.
These plans require borrowers to reapply every year. If you are employed by certain government agencies or a qualifying not-for-profit and are seeking Public Service Loan Forgiveness, you must repay your student loans under one of these income-driven repayment plans (there are other qualifying factors, too). Keep in mind, it’s always free to apply for these federal student loan assistance programs.
6. Learn About Loan Repayment Assistance Programs
If you’re eligible, a Loan Repayment Assistance Program (LRAP) can provide funds to help you lower student loan payments. Since private loans are not eligible for the federal income-based repayment plans mentioned above, an LRAP could be helpful for those with private student loans.
LRAPs also often include a requirement that you work in your eligible job for a certain number of years, typically in public service — and the assistance may or may not count as taxable income. If your income after graduation is modest, an LRAP can help to repay loans, whether federal, private, or parent PLUS.
You may want to investigate limitations such as which of your loans are eligible and income caps. You can also research private grants that can help cover the cost of your student loans and lower loan payments after graduation.
7. Refinance Your Student Loans with a Private Lender
Refinancing is option that may be most helpful if you have student loans with high interest rates or private student loans.
When you refinance a student loan, a lender pays off your existing loans and gives you a new loan with new terms. So you will have one private refinanced loan to pay back.
Refinancing could save you money in the long run if you get a lower interest rate, or you could change your term to get more time to pay off your loan and lower monthly student loan payments.
Keep in mind, however, that if you refinance a federal student loan, you’ll lose access to federal benefits and protections, such as income-driven repayment plans or Public Service Loan Forgiveness.
Refinancing Student Loans With SoFi
If you’re considering refinancing, SoFi offers student loan refinancing which can help lower your monthly payments, shorten your loan term, or save money on total interest.
With competitive rates, flexible terms, and no fees, you can find the student loan repayment plan that’s right for you.
FAQ
Can you negotiate student loans down?
You generally can’t negotiate student loans unless you’ve stopped making payments and your loans are delinquent or in default, a situation which has serious financial consequences, such as impacting your credit score or having your wages garnished. There are other options to lower student loan payments, however. If you only need temporary relief, you can contact your loan servicer to see if you’re eligible for deferment or forbearance. If you have federal loans, you may be able to change your loan term or enroll in an income-driven repayment plan. Borrowers with private loans can see if they qualify for a Loan Repayment Assistance Program or explore refinancing student loans with a private lender.
How do I negotiate student loan payoff?
If your student loans are delinquent or in default, you may be able to negotiate a settlement for a lower amount, but this is generally seen as a last resort because of the negative financial consequences. Contact your lender to see what other options may be available to you.
What is average student loan debt?
The average student borrower has $28,400 in student loans to pay off, according to The College Board.
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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