5 Ways You Could Lower Your Student Loan Payments

With student loan payments resuming, many are worried what it will mean for their personal finances. Adding a hefty bill back into your monthly expenses can throw a wrench in your budget. While it seems student loan forgiveness is off the table for now, you may have options to make your payments more manageable.

Some plans are only available for those who qualify. Others are open to a broader range of borrowers. The right choice will depend on your unique situation, so research your best course of action — it just might help lighten the load.

1. Apply for Income-Driven Repayment Options

You can apply for income-driven repayment plans online. There are four main types of income-driven repayment plans available, though you may not qualify for all of them. Your personal financial situation will help you decide which is right for you.

Keep in mind that under these plans your payments will be calculated based on your income and family size. To be eligible, the amount you would pay must be lower than what you would pay under the standard 10-year repayment plan. You also can’t be in default.

Pay As You Earn (PAYE). The PAYE Plan caps your federal student loan payment at 10% of your discretionary income. To be eligible you must also meet the following criteria:

  • You took out a loan after October 1, 2007.
  • You were a new borrower when you took out the loan. (You didn’t have an outstanding balance on a different federal student loan.)
  • You got a loan disbursement after October 1, 2011.

Saving on a Valuable Education Plan (SAVE) — formerly the REPAYE Plan. Any Direct Loan borrower with an eligible loan type may qualify for this plan. This plan also caps your payments at 10% of your discretionary income. One of the major differences is that this plan will consider you and your spouse’s income (whether or not you file taxes separately or jointly).

Income-Based Repayment Plan (IBR). This plan caps your monthly payments at 10% or 15% of your discretionary income (depending on when you received the loans). Be aware that you may need to have a high amount of debt relative to your income to qualify.

Income-Contingent Repayment Plan (ICR). This plan caps your monthly payments at either 20% of your discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income. Any direct borrower with an eligible loan type can choose this plan.

Income-Sensitive Repayment Plan. This is only available to those with Federal Family Education Loans (FFEL) and using this means you cannot also qualify for Public Service Loan Forgiveness (PSLF). Your monthly payment will be based on your annual income, but your loan will be paid off in full within 15 years.

2. Choose a Longer Repayment Plan to Lower Individual Payments

If you don’t qualify for the income-based repayment plans, you may have other options. These payments won’t be calculated according to your income, but you may be able to lower your monthly payments if you opt for the graduated or extended plans — just keep in mind that an extended loan term could mean that you pay more in interest.

  • Standard Repayment Plan. If you don’t choose a different repayment plan this is the plan that will be set. The Standard Repayment Plan allows you to pay off your loan through fixed payments over 10 years. With this option you’ll likely see higher monthly payments, but you could save on interest.
  • Graduated Repayment Plan. If you expect your income to rise over the next few years, the Graduated Repayment Plan could be an option. You can still pay off your loan within 10 years, but the payments start out smaller and increase every two years.
  • Extended Repayment Plan. The Extended Repayment Plan allows you to lower your monthly payment by increasing the amount of time you pay over. By extending the loan term to up to 25 years, your monthly payment will drop. This could mean you’re paying more interest.

3. Qualify for Deferment or Forbearance

If you think you won’t be able to make your student loan payment, you can reach out to your loan servicer and see if you qualify for deferment or forbearance. Both of these options allow you to suspend your loan payments for a period of time. Depending on your circumstances, interest may still accrue during this time period, so you may want to consider making small payments to reduce the interest expense. Keep in mind, if you’re working toward loan forgiveness this won’t count towards the qualifying payments you need to make.

Deferment. There are many different circumstances that may qualify you for deferment. A few include if you’ve gone back to school, are undergoing treatment for cancer or are active-duty military. You may qualify for economic hardship deferment if you’re receiving a means-tested benefit like welfare, you work full time but you earn below 150% of the poverty guideline for your family size and state, or if you’re serving in the Peace Corps.

Forbearance. Unlike deferment, forbearance doesn’t need to be tied to a specific event. You can request a general forbearance if you’re facing financial difficulties. You may qualify for mandatory forbearance. A few examples that qualify you for mandatory forbearance are if you’re volunteering for AmeriCorps, in a medical or dental internship or residency or in the National Guard. Forbearance can last up to 12 months and you can request another forbearance after that ends. Be aware there is a limit of three years in total on general forbearance.

4. Qualify for Public Service Loan Forgiveness

If you work for the government or a non-profit, you may qualify for the Public Service Loan Forgiveness (PSLF) Program. With this program, the remaining balance of your federal student loans will be forgiven after 120 qualifying monthly payments (10 years). You must be a full-time employee of an eligible organization and the 120 payments must be made under the accepted repayment plan. (This can be one of the income-driven repayment plans.)

Here are a few examples of eligible employers.

  • U.S.-based government organizations. If you work for a government organization at any level (federal, local, state or tribal) you may be eligible. This includes the military. You must be a direct employee, meaning government contractors are excluded.
  • Nonprofit organizations. Employees of 501(c)(3) nonprofit organizations are eligible. If you work for a nonprofit that isn’t tax-exempt under 501(c)(3), you could still be eligible if your organization provides qualifying public services.
  • AmeriCorps or Peace Corps. If you’re a full-time volunteer for AmeriCorps or Peace Corps, you can also qualify for the PSLF Program.

5. Refinance

Refinancing is an option, but you should consider the pros and cons carefully. If you refinance with a private lender, you’ll lose out on some benefits. Most private lenders don’t offer loan forgiveness or income-driven repayment plans. Keep in mind that if federal student loans are forgiven, private student loans may be excluded.

Refinancing can help you lower your monthly payments, but you should consider your current interest rate, what interest rates you could qualify for and how fast you’ll pay off the loan. When you refinance you may be able to extend the term of the loan, meaning you could pay more in interest.

What if You Still Can’t Pay?

If you can’t make your student loan payment, be sure to contact your loan servicer beforehand — they may be able to help find a solution. There are measures in place that help protect individuals who qualified for the Covid-19 payment pause that may have a hard time restarting payments. This “on-ramp plan” specifies that for the first 12 months of loan payments resuming, missed, partial or late payments won’t be reported to the credit bureaus. Until September 30, 2024, missed payments won’t be reported as delinquent, put into default or referred to a collection agency. If you have a hard month, that can relieve some of the worry — just be sure to have a plan in place to make up the difference.

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