4 ways to lower your monthly student loan payments right now
When you're struggling to make your student loan payments, it can feel like there's no way out, especially when you have other financial obligations chipping away at your income.
While you may not be able to magically erase your student loan debt, there are several ways to reduce your monthly payment to a more manageable amount that fits your budget. Here are four of the best options.
Switch repayment plans
If you have federal student loans, you can choose between several different repayment plans. And if you’re currently on the standard plan, you may be able to pay hundreds of dollars less each month by switching to a different plan.
Related: 4 signs you should refinance your student loans
Borrowers with federal student loans have access to four different income-driven repayment (IDR) plans, which will calculate the monthly payment as a percentage of their income. Family size and state of residence will also impact the monthly payment. IDR plans have a 20- or 25-year repayment term, depending on the plan and loan type.
After the 20- or 25-year mark, the government will forgive your remaining balance. And through 2025, the forgiven balance will not be subject to taxation.
If you’re unemployed or significantly underemployed, you may have $0 monthly payments. Your loan will still be in good standing even if you have $0 monthly payments, and those payments will still count as part of your repayment term.
The federal government also offers two other repayment options: extended and graduated plans.
The graduated plan has monthly payments that start out low and gradually increase every two years. The graduate plan has a 10-year term for most Direct Loans and a 30-year term for Direct Consolidation Loans.
The extended plan has a 25-year term, and payments may be either fixed or graduated. Borrowers can choose which kind of payment system they want. Neither the graduated plan nor the extended plan has any loan forgiveness component.
If you’re wondering how to choose the right repayment plan, use the official loan simulator to see which will result in the lowest monthly payment.
Investigate loan repayment programs
Many borrowers with federal loans are eligible for Public Service Loan Forgiveness (PSLF). PSLF allows government and nonprofit employees to have their remaining loan balance forgiven after making 120 monthly payments. You won’t be required to pay taxes on the forgiven balance.
Related: You shouldn't pay off your student loans ASAP. Here's what to do instead.
Borrowers must work full-time for a qualifying employer to have their payments counted. They must also be on an IDR plan during that time.
Some professions also have access to loan repayment programs (LRP) that will forgive large chunks of debt in exchange for a few years of employment with a specific organization.
These LRPs are usually only available for medical professionals and lawyers. Unlike other loan forgiveness programs, LRPs require that borrowers work for a few years in a specific area, often an underserved or low-income community.
After fulfilling their contract, borrowers typically receive tens of thousands in loan forgiveness. Some LRPs allow borrowers to renew their contracts until their loans are forgiven entirely.
Pursue deferment or forbearance
If changing your repayment plan doesn’t make repayment any more manageable, your next best option is to apply for loan deferment or forbearance.
Related: I paid off all my student loan debt in 3 years. Here’s what I wish I did differently.
If you have federal Direct Subsidized Loans, interest will not accrue during the deferment. However, interest will accrue if you have Direct Unsubsidized Loans or Direct PLUS loans.
Deferment is only available during certain periods — while you’re in school, for instance, or during military deployments and while you’re unemployed. You may still be eligible for forbearance if you don’t qualify for deferment.
Refinance private loans
If you have private student loans, the only way to lower your monthly payment is to refinance the loan. When you refinance, you enter into a new loan contract. This lets you find a lower interest rate, which can result in a lower monthly payment.
Let’s say you owe $50,000 with a 10-year term and a 12% interest rate. Your current monthly payment is $717.35. If you refinance to a 10-year term and a 6% interest rate, your new monthly payment will be $555.10.
If your main priority is to reduce your monthly payment, consider refinancing to a longer repayment term. The longer the term, the more dramatic the difference you’ll see.
Now, let’s say you owe $50,000 with a 10-year term and a 12% interest rate. If you refinance to a 20-year term and an 8% interest rate, your new monthly payment will be $418.22, down from $717.35.
Qualifying for a better interest rate depends on your credit score, income, loan amount and current overall interest rates. If you have bad credit or are unemployed, it may be very difficult to refinance with a new lender.
Those with poor credit or low incomes may need to add a cosigner to qualify for a refinance. A cosigner is an adult with a good credit score and a stable source of income. They will take full legal and financial responsibility for your loans if you default.
Borrowers with federal loans should be wary of refinancing. Refinancing federal loans converts them into private student loans, which have fewer borrower protections and perks. Private student loans do not offer income-based repayment options, loan forgiveness programs or long forbearance periods.
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