5 ways to permanently lower your monthly student loan payments
The CARES Act put federal student loan payments on pause for the time being but that relief won’t last forever. It also doesn’t apply to private student loans.
Fortunately, if you’re struggling to keep up with your student loans — now or after the CARES Act expires — there are several ways you can lower those payments and make staying afloat more manageable. Just try these five strategies:
1. Student loan refinancing
Refinancing your student loans can help you lower your monthly payments. This essentially replaces your existing loans with a new one — ideally one with a lower interest rate. You can also refinance into a longer-term loan, which also lowers your payments.
Keep in mind that rates vary greatly between lenders, so be sure to use a tool like Credible to both shop around and view rates tables from several lenders.
You should also use a reliable student loan refinancing calculator to get a sense of what your new payments might be — and if the move is worth it. You can also plug your information into Credible's free online tools to determine what kind of rates you currently qualify for.
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2. Consolidate your loans
If you have several loans — or just a mix of federal and private ones — consolidating them could help reduce your costs. This lets you roll all your loans into one, potentially lowering your interest costs and your monthly payment with it.
Like with refinancing, it’s important you shop around before consolidating your loans. Student loan interest rates can vary wildly from one lender to the next.
If you decide debt consolidation is the right step for you, use Credible to search for the best type of personal loans, rates, and terms.
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3. Get on an income-driven repayment plan
If you have federal student loans, an income-based repayment (IBR) plan might be an option. This provides you a personalized monthly payment based on your exact income and household size — not just your balance.
There are three types of IBRs, including:
Pay as You Earn: This sets your payment at 10% of your discretionary income. The repayment terms are 20 to 25 years.
Income-based Repayment: On this plan, your payment will be 10 to 15% of your discretionary income, depending on when you took out the loans. These come with 20- to 25-year terms as well.
Income-contingent Repayment: With ICRs, your payment is typically 20% of your discretionary income. You’ll have 25 years to pay it off.
Discretionary income is based on your earnings and the local poverty guidelines in your area. Use this calculator to determine yours. When you’re ready to apply, file an Income-Driven Repayment Plan Request with the Department of Education’s Office of Federal Student Aid.
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4. Student loan repayment assistance programs
You can also look into repayment assistance programs, which can help you lower your payments or even pay your loans off completely. These are typically offered through various state and local agencies, as well as through non-profits and community organizations. In some cases, your employer might offer one as a benefit.
If you need help finding an assistance program in your area, this state-by-state guide can point you in the right direction.
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5. Graduated or extended repayment plans
For any federal student loans, there’s yet another option: graduated and extended repayment plans. These allow you to lower your payments by either spreading them out over a longer period of time or by moving higher-cost payments toward the end of the loan — when you will presumably make more money.
Here’s how each option works:
Graduated repayment plan: Using this option, your payments start off small, increasing incrementally every two years.
Extended repayment plan: With this method, you can spread your payments over a period of 25 years to make them more manageable.
To transition into one of these plans you’ll need to contact your loan servicer.
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Keep paying down your balances
Once you’ve lowered your payments, you should still make efforts to pay those student loans down aggressively, if at all possible. Start with the highest-interest loans first, and if you get any windfalls (like a second stimulus check, for example), consider putting them at least partially toward your debts.
The faster you can pay down those balances, the less you’ll pay in interest over time. Reducing your debts will also help your credit score, as well as your future financial options.
Don’t forget to research rates from different private student loan refinance companies to ensure you save as much money as possible, if that's the direction you choose to go.