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 if you’re just reevaluating your budget, you may be wondering how to lower student loan payments.
Many borrowers may be eligible for options that can lower their student loan payments, from changing your repayment term (which may result in paying more interest over the life of the loan) to signing up for an income-driven repayment plan. Here are some tips you might want to consider if you’re looking to lower your loan repayment costs.
Can I Lower My Student Loan Payments?
While there’s no magic wand that can wipe away your student loans, there are some ways you may be able to lower your monthly payments. The Department of Education offers a number of income-driven repayment (IDR) plans. With an IDR plan, the amount you pay will be determined by your income, the size of your family, and where you live, and it won’t be more than 10 to 15% of your income.
You may also have the option to refinance your loans at a lower interest rate or with a longer loan term, both which may lower your monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.) There are many factors to consider before refinancing, but if you’re struggling with your monthly payments, it’s worth doing the research to see if it works for you.
Understanding Your Current Student Loan Payments
Before you can determine if you can lower your student loan payments, it’s important to know the type of 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 your monthly student loan payments. You can find all of your federal student loans and the individual loan servicers, by logging into My Federal Student Aid . If you have private student loans from a bank or another financial institution, there are fewer options available to lower your monthly payments.
Federal loans are placed by default in the Standard Repayment Plan, which 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.
The next 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.
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. The calculator can also help you determine which repayment plans you qualify for. 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.
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 the type of loan you have, interest may still accrue during this time.
How to Lower Student Loan Payments
1. 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 that must be accounted for every month. On-time payments may also help your overall credit score.
2. 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.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
3. Apply for Income-Driven Repayment for Federal Loans
Most federal student loans are eligible for at least one income-driven repayment plan. If you’re on an income-driven repayment plan, and you need to defer your loans because of economic hardship or if you make so little you qualify to pay nothing toward your loans each month, the months when you’re in deferment or paying $0 still count toward your total repayment period.
On an IDR plan, how much you owe each month is based on your discretionary income, which the federal government defines as “the difference between your annual income and 150% of the poverty guideline for your family size and state of residence.” You can use the Department of Education’s Loan Simulator to get a better sense of how much you would owe with one of these plans and how long it will take you to pay them off.
All of the IDR options offer loan forgiveness after borrowers make consistent payments for a certain number of years, ranging from 10 to 25, depending on the type of program you qualify for. You may have to pay income tax on the amount that’s forgiven, though there’s a temporary tax rule that exempts any forgiven debt from federal income taxes through 2025.
Here are the four IDR plans offered by the Department of Education:
• 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 the amount that’s forgiven. 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.
• Saving on a Valuable Education (SAVE) Plan: The SAVE Plan is the new name of the Revised Pay As You Earn (REPAYE) Repayment Plan. Payments are generally 10% of your discretionary income. (It will be dropping to 5% in July 2024.) Outstanding balances may be forgiven after 20 to 25 years, depending on whether the loans were for undergraduate or graduate study. There is no income requirement to qualify for the SAVE plan, and it’s available to all Direct Loan borrowers with eligible loan types.
• 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: This repayment plan is open to low-income borrowers who have Federal Family Education Loan (FFEL) Program loans. If you qualify for this program, your monthly loan payment will go up or down based on your annual income and will be discharged after 10 years.
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 (PSLF) , 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, and they are the easiest and best way to lower your monthly federal loan payments if you qualify.
4. 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.
5. Refinance Your Student Loans with a Private Lender
Refinancing is an 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 the cost of your monthly student loan payments (though you may pay more in interest in the long run).
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.
You can choose to refinance just your private loans while putting your federal loans into an income-based repayment plan to get the best of all options.
What Happens if You Can’t Pay Your Student Loans
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.
With the end of the student loan pause, the Department of Education is giving those whose loans are in default a chance at getting back on track with the Fresh Start program. Borrowers in default must apply for the Fresh Start program and then enroll in an income-based repayment plan. Their loans will be removed from “defaulted status” and the record of the default will be removed from their credit report.
Refinancing Student Loans With SoFi
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
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 potentially damaging 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 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 $37,338 in student loans to pay off, according to The Education Data Initiative.
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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