10 Ways to Lower Student Loan Payments

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How lower student loan payments can help you

Are your student loan payments making it hard to pay your other bills? Get our 10 tips to lower student loan payments and make monthly budgeting easier. If you also have credit card debt – and most student loan borrowers do – get the free 7-Step Credit Card Debt Slasher here.

How student loan payments make life hard today

You dread going to the mailbox and you dread even more opening the envelope. And every month you get the same feeling.

“Ugh! How will I ever pay off these student loans?!”

Every month you get a reminder of how much your student loan debt is and it’s as if the Post Office and your lenders are in cahoots to ruin your day.

As if that wasn’t bad enough, your damn student loan payments make it hard to pay your other bills . . . like electric, WiFi and, maybe even sometimes, food.

You think, “If only I could get a little breathing room each month, I wouldn’t be stressing. But can I even lower my student loan payments?”

Can I lower my student loan payments?

Yes. In fact, there are several ways you can lower your student loan payments, and there are several reasons to do so.

One of the benefits of lowering student loan payments is having more money to pay your other bills. If you’re always stressed about how you’ll pay all your bills every month, having an extra $20 to an extra $120 could be a lifesaver.

One of the best reasons to lower student loan payments is to pay off other, more expensive debt.

For example, Student Loan Hero found that 60% of graduates with student loan debt have other types of debt (auto or home loans, personal loans and credit card debt). And 79% of graduates with other types of debt have credit card debt . . . typically the most expensive kind of debt.

Hear all the options available to you to lower student loan payments:

Before we dive deep into this discussion, let’s be sure we’ll all on the same playing field.

What are the different kinds of student loan debt?

There are both federal and personal student loans. Many students have a combination of both types, and that’s something to consider with some of the student loan payment strategies below.

Federal student loans often have more favorable terms and conditions such as not needing a credit history, obtaining a fixed rate, often lower interest payments, especially for those with poor credit, and forbearance and deferment option, the latter of which many used during the height of the COVID-19 pandemic.

Private student loans have their advantages, too. Those with good credit scores can sometimes find more favorable interest rates. There are also higher borrowing limits – which after graduating may feel more like a Ponzi Scheme – and there are statutes of limitations if you default on your private student loans.

There are statutes of limitations for federal student loans; Uncle Sam will get his money.

How can I lower my student loan payments?

Consolidate federal student loans
Refinance private student loans
File for an income-based repayment plan
Sign up for a graduated repayment plan
Get an extended payment plan
Talk with your employer
Check w/your state
File for your student loan interest deduction
Sign up for auto-payment
File for student loan forbearance or deferment

1. What’s student loan consolidation?

Student loan consolidation is a way for student loan borrowers to reduce their number of student loans to one loan (with one monthly payment) and lower their net total student loan interest rate to a fixed rate that’s an average of their student loan interest rate.

Who should consolidate student loans?

Student loan borrowers who have more than one student loan, want to lower their student interest loan payment and want to lock in a fixed interest rate should consider consolidating their current student loans.

What are the pros of consolidating student loans?

By the time many folks graduate college, especially if they’ve gone to graduate school, they have multiple student loans. Piles of bills on the counter only increase stress and financial anxiety. Consolidating all your student loans into as few loans as possible, ideally, one single loan is easier to manage and waaaay less stressful.

Student loan consolidation can also often lower your net monthly student loan payment if, as with federal student loan consolidation, your new student loan interest rate is the average of all your current student loan interest rates. Another way your monthly payment may be lowered is if the term – or duration of your loan – is extended beyond your current terms.

Another benefit of student loan consolidation is that it’ll afford you the chance to convert any variable-rate student loan into a fixed-rate loan. This will also reduce financial anxiety because there’s no risk that your rate will increase today, tomorrow or next year.

There are other benefits to student loan consolidation, but these are the three main benefits.

What are the cons of consolidating student loans?

If there are pros, there are cons.

One of the pros above is that you may extend the term or duration of your student loan payments, which will lower your required minimum monthly payments. But it will also increase the total number of payments you’ll have to make and, likely, increase the net cost of your student loans beyond what they otherwise would be if you didn’t do a student loan consolidation.

When you consolidate student loans, your terms and conditions will change, and they won’t all change for the better. You could lose interest rate discounts, principal rebates or some loan cancellation benefits and other perks you currently have – and may not even be aware of. This is why it’s critical to understand your current terms and conditions and what your new terms and conditions will be if you execute your student loan consolidation.

Most surprising to people, consolidating your current loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness or Public Service Loan Forgiveness. For this reason, you want to calculate the value of the benefits you currently have and weigh them against what you’re signing up for with your student loan consolidation.

There are other cons, such as the fact that your new, consolidated loan will also include any interest you currently owe, but these are the main drawbacks.

When can I consolidate my student loans?

You can consolidate your student loans any time after you graduate, leave school or drop below half-time enrollment.

How can I consolidate my student loans for lower student loan payments?

This all may sound complicated and, to be fair, it’s not the easiest process in the world. Student loan consolidation certainly isn’t as easy as taking out student loans.

As Howard Dvorkin shared on the Queer Money® podcast episode above, he and his team are experienced with student loan consolidation and can guide you in the right direction to lower your monthly student loan payments and make your life easier.

2. What’s student loan refinancing?

Student loan refinancing lets you consolidate all your student loans, federal and private, into a singular loan at a better interest rate if you have a good credit score.

Can I lower my student loan interest rate with student loan refinancing?

Whereas student loan consolidation may lower your net student loan interest payments to your average student loan payment, student loan refinancing can lower your interest rate based on your credit score and current market conditions.

What do I need to refinance my student loans?

To refinance your student loans, you’ll need your credit score, income, job history and educational background. All this plus a few other variables will determine your new student loan interest rate.

To make your refinance advantageous, you’ll need a credit score in the high 600s. If you have a lower credit score, you’ll need to weigh all the pros and cons to decide if refinancing your student loan or loans truly makes sense. In some cases, you’re better leaving well enough alone.

For help to get your credit score over 750, click here.

3. How can I file for an income-driven repayment plan?

There are four different kinds of income-driven repayment plans (IDR). They are:

Income-Based Repayment (IBR)
Income-Contingent Repayment (ICR)
Pay As You Earn (PAYE)
Revised Pay As You Earn (REPAYE)

IDRs are ways to lower student loan payments if you have federal Direct Loans. IDRs extend the term or duration of your loans from the standard 10 years to 20 – 25 years and your loan servicer will peg your minimum monthly payment to a percentage of your discretionary income. For some folks, this can be as little as $0 a month.

To be clear, this isn’t free money. Interest is always compounding on your balance and must be paid in full. So, the total you’ll pay for your student loans will be higher when you take advantage of IDRs than it will be under your current terms.

Income-Based Repayment (IBR)

Borrowers who were issued their loans before July 1, 2014, will have their payments set at 15% of their discretionary income and receive loan forgiveness after 25 years of consistent repayment.

Borrowers who were issued their loans after July 1, 2014, will have their payments set at 10% of their discretionary income and receive loan forgiveness after 20 years of consistent repayment.

Income-Contingent Repayment (ICR)

With ICR, your minimum monthly payment is the lesser of:

• 20% of your discretionary income or
• What your payment would be on a fixed, 12-year plan, adjusted for income

Your term is set at 25 years and your interest rate is fixed. Any remaining balance after the 25 years is forgiven. Any amount of your student loans that are forgiven is also taxed as income.

Another advantage of ICRs is that there are no income eligibility requirements.

Pay As You Earn (PAYE)

PAYE sets your payments at 10% of your discretionary income and extends your term to 20 years, at which point any remaining balance is forgiven.

This is different from IBRs because depending on when your loans were issued, PAYE may set your interest rate lower than IBR would.

It’s a little harder to qualify for PAYE. But for those who do, they’ll benefit from having lower monthly payments at the start of their careers and those payments will grow as their incomes (hopefully) grows.

Revised Pay As You Earn (REPAYE)

REPAYE was created to provide similar benefits to borrowers as PAYE did, but for a larger group of people. REPAYE is available to borrowers, regardless of when their student loans were issued. Parent Plus Loans and consolidated loans that include Parent Plus loans, however, don’t qualify.

REPAYE caps minimum monthly payments at 10% of your discretionary income, using your adjusted gross income (AGI) minus 150% of the state poverty guidelines for your family and state.

It’s important to note that while your minimum monthly payment could be 0%, there are no caps on payments – unlike with IBR and PAYE.

4. How do I sign up for a graduated repayment plan?

Each IDR has its pros and cons, and each has qualification requirements. All hope isn’t lost, though, if you have federal student loans, earn too much money to qualify for an IDR and you still need to lower student loan payments.

In this case, consider a graduated repayment plan.

A graduated repayment plan sets your term at 10 years, and with Direct Consolidation Loans can be extended to 30 years. Payments start very low, usually under $50 a month, and increase every two years regardless of your income.

While the lower minimum monthly payments might be nice, you again risk paying much more over the life of your graduated repayment loan than you would’ve with your standard loan. Also, your minimum monthly payments will increase every two years even if your income doesn’t increase.

5. How do I get an extended repayment plan?

If you have more than $30,000 in federal direct loan, want to lower your minimum monthly payment, signing up for an extended payment plan may be a good option for you. There are two caveats, though.

The first caveat is that your term or the duration of your loan may increase up to 25 years, so making payments will last considerably longer than they would with your current loan. The second caveat is because your term may be extended, you’ll pay more in interest than you otherwise would.

With an extended repayment plan, you can choose between a fixed and a variable interest rate, but neither your interest rate nor your minimum monthly payment is contingent on your income.

This will, however, make the cost of your education even more expensive. This is why if you’re looking to lower student loans payments you may want to consider an IDR. An IDR may be cheaper for you.

6. How can my employer help me repay my student loans?

Especially in today’s job market, employers are doing whatever they can to attract top talent – even helping the best of the best pay off their student loans. Many employer-assisted student loan repayment plans act like 401(k)s in that your employer may match up to a certain dollar amount or percentage of what you put towards your student loans yourself.

Employers today are incentivized to help their employees with student loan repayments with the Employer Participation Repayment Act or EPRA. EPRA is a provision of the CARES Act that lets employers use up to the $5,250 they would normally use for tuition reimbursement to instead pay for already acquired education via payments to the employee like tuition reimbursement or directly to the loan servicers.

We discussed EPRA in-depth on episode 262 of the Queer Money® podcast.

If you’re in the market for a job, consider student loan repayment assistance as one of your requirements for taking a job. If you’re already employed and not interested in bouncing, talk with your human resources department about adopting this benefit.

7. How can my state help me with my student loans?

Some – not all – states have student loan repayment assistance programs to retain and attract the best talent to them. You can find more information on your state’s education department’s website.

If you find that your state doesn’t offer this benefit, it may be a reason to consider a move. Of course, after you crunch all the expenses for a move, you may be better off staying put and using our other recommendations to lower student loan payments.

8. Are there tax deductions to help with my student loans?

The Student Loan Interest Rate Deduction is a tax deduction of up to $2,500 on your federal and private student loan interest and is available to you whether you itemize your deductions or not. This tool won’t lower your monthly student loan payments but will make the cost of your education a little less expensive.

Talk with your accountant about how the Student Loan Interest Rate Deduction works and might apply to you.

9. Are there any other tips for lowering my student loan payments?

You know how some billers, like your cell phone company or insurance company, will give you a bit off our interest rate discount if you let them auto-deduct your payments for you? Well, some student loan lenders do the same thing, offering as much as 0.25% off your student loan interest.

No, this won’t save you a ton of money. But every little bit helps here! Plus, auto-payments will help with our next tip.

That is . . . make all your payments in full and on time every single month. This, too, won’t save you money month-to-month, but it will save you on penalties and fees. Plus, many of the student loan forgiveness programs above are contingent on you not missing or being late on payments for up to 15 to 25 years. 25 YEAR! That’s a long time to not make a mistake.

In some circumstances, depending on your career, you might be able to eliminate your federal student loans. The trick is, you’ve got to register. - Howard Dvorkin of Debt.comClick To Tweet

Finally, making your payments – all your payments for all your bills – on time and in full every single month will help earn you a good credit score. A good credit score can save you tens of thousands of dollars over your lifetime considering all the loans you’ll take out in your life.

10. What can I do if no way to lower student loan payments helps me?

Finally, finally, if you don’t qualify for any of the options above to lower student loan payments, you might consider forbearance or deferment, either of which can stop or lower your minimum monthly payments between three to 12 months.

The process to file and qualify for forbearance or deferment for private student loans varies from private lender to private lender. File federal forbearance or deferment when you have overbearing medical expenses, you’ve lost your job or you’re having another financial challenge.

As with all the options above, your student loan interest will continue to accrue when you’re in forbearance or deferment. This will make the cost of your education more expensive as you’re not making payments and may be added to your principal when your payments resume.

So, if you’re looking to lower student loan payments, these are most of the options you have available to you.

For most people who want to lower student loan payments, student loan refinancing or consolidation is the best solution. If you consider these options, consider contacting our friends at Debt.com. They know the ins and outs and step-by-step of these solutions, and they can save you a lot of time and mistakes.

Whichever option you choose, be sure to research the pros and cons in-depth and talk with your accountant about what your taxable consequences with each option will be.

Resources from this episode to help lower student loan payments

More tools to help with your debt:

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