8 Effective Strategies To Lower Your Student Loan Payments

According to the Federal Reserve, 45 million Americans owe a total of $1.75 trillion in student loan debt. If you’re like many student loan borrowers, you may be trying to figure out how to budget for your monthly student loan payments along with your other bills and expenses.  

If you’re struggling to pay your student loans, you may want to look into lowering your monthly payment. Getting a lower student loan payment can help you manage your finances and ensure you don’t miss loan payments.

The best option for you depends on your financial goals and the type of loans you have. Here are eight strategies to lower your student loan payments.

1. Sign Up for an Income-Driven Repayment Plan

If you’re struggling to make your monthly payments on your federal student loans using a Standard Repayment Plan (SRP), you can apply for an income-driven repayment (IDR) plan. IDR plans cap your federal student loan payments at 10% to 20% of your discretionary income while lengthening your repayment term to 20 or 25 years. Both help lower your monthly payment.  

Also, under an income-driven payment plan, once you make payments for your term of 20 or 25 years, you’re eligible to receive student loan forgiveness. In other words, the remaining loan balance will be forgiven. 

Depending on your income, family size, and loan balance, your monthly payment could be as low as $0 under an IDR plan.

What Are the Different IDR Plans?

Four different income-driven repayment options are available to federal student loan borrowers:

• Pay As You Earn (PAYE): Borrowers pay 10% of their discretionary income for 20 years.

• Saving on a Valuable Education (SAVE): Borrowers pay 10% of their discretionary income for 20 years for undergraduate student loans or 25 years for graduate student loans. (The SAVE Plan has replaced the Revised Pay As You Earn (REPAYE) Plan.)

• Income-Based Repayment Plan (IBR): Borrowers who took out loans on or after July 1, 2014, pay 10% of their discretionary income for 20 years. All other borrowers pay 15% of their discretionary income for 25 years.

• Income-Contingent Repayment Plan (ICR): Borrowers either pay 20% of their discretionary income for 25 years or have a 12-year repayment plan adjusted to their income.

The downside of income-driven plans is it will take you longer to pay off your student loans than it would under the 10-year Standard Repayment Plan. This means you’ll end up paying more interest over the life of the loan. You may also have higher monthly payments as your income increases.

Remember, income-driven plans apply only to federal student loans, not private student loans. 

2. Use a Graduated Repayment Plan

If your income is too high to get a lower payment with an income-driven plan but you still can’t afford your monthly payment, consider applying for a graduated repayment plan. Payments for these plans start low and gradually increase every two years. 

Under a graduated repayment plan, you pay your loan off within 10 years. If you consolidate your loans then apply for graduated repayment, your repayment term will be 10 to 30 years.

Graduated repayment plans do have some downsides, though. Because payments start low at the beginning, you pay more interest over the life of the loan than you would with the SRP. Also, payments increase every two years regardless of your income. So you still have to pay more every two years even if your income doesn’t increase.

3. Consider an Extended Repayment Plan

If you owe more than $30,000 on a Federal Family Education Loan (FFEL) or any loans in the Federal Direct Loan Program (see a full list on StudentAid.gov), you may qualify for an Extended Repayment Plan. 

With an extended payment plan, you can take up to 25 years to repay the loan. Because the repayment term is longer in an extended plan, your monthly payments will generally be lower than they would be under the Standard Repayment Plan or a graduated repayment plan. With these plans, you choose between fixed and graduated payments. 

Extended repayment plans are not income-dependent, so you might have lower monthly payments with an income-driven plan. The downside of extended student loan repayment plans is that you could pay more in interest since the repayment term is longer than other plans. 

Check with the U.S. Department of Education to see if your loan qualifies for an extended repayment plan.

4. Enroll in Autopay

Enrolling in autopay has several advantages. Federal student loan borrowers get up to a 0.25% interest rate discount by enrolling in autopay. Many private lenders also offer interest rate discounts if you sign up for automatic payments. This discount may feel small, but it reduces the total amount you pay over the life of the loan. 

Another advantage of enrolling in autopay: You don’t have to worry about missing a payment, which can hurt your credit score.

5. Refinance Your Student Loans

If you have a solid, steady income and a good credit score, refinancing your loan could get you a lower interest rate and lower monthly payments. Student loan refinancing can also shorten or lengthen the repayment term, depending on your financial goals. 

You can refinance federal student loans,  private student loans, or a combination. But keep in mind that refinancing a federal student loan always transfers your loans to a private lender. So if you refinance a federal loan, you’ll no longer qualify for federal income-driven plans, federal student loan protections, and federal forgiveness programs like Public Service Loan Forgiveness.

You can learn more about the pros and cons of refinancing your student loans in our popular Guide To Refinancing Student Loans.

6. Consolidate Your Federal Student Loans

With a Direct Consolidation Loan, you combine all of your federal student loans into one new loan with one monthly payment. You can also extend your repayment term, which can lower your monthly payment. Depending on how much you owe, the repayment term can be from 10 to 30 years. The new interest rate for your consolidated loan will be a weighted average of the interest rates for all of your federal student loans. 

The downside of consolidation is that whenever you lengthen your repayment term, you end up paying more in accrued interest over the life of the loan. Also, consolidation is only available for federal student loans. If you have private student loans, consider refinancing. 

7. Look Into Loan Forbearance or Deferment

If you have federal student loans and need to temporarily pause your monthly payment, you can apply for deferment or forbearance. Though these are temporary programs to help with financial hardship, you can apply for a three-, six-, or 12-month reprieve, until your financial situation gets better. You can also often apply to extend or renew the forbearance or deferment period.

Deferment for Federal Student Loans

Federal student loan borrowers can get up to 36 months of unemployment deferment and up to 36 months of economic hardship deferment throughout the life of their loan. 

Deferments are also given to borrowers who are:

• In school at least half-time

• In graduate fellowships 

• In active military service

• In a rehabilitation training program for the disabled

• In treatment for cancer (they also qualify for up to six months after treatment)

• Perkins Loan recipients who qualify for deferment under the loan terms

• Parent PLUS loan borrowers with a student who’s enrolled at least half-time

Although forbearance and deferment temporarily stop your payments, interest on the loan continues to accrue during the no-payment period. The interest is added to the loan principal when payments restart. If you have subsidized loans and you defer your loans, the federal government pays the interest during the deferment. If your loans are unsubsidized (and in deferment) or you have any federal loans in forbearance, you’re responsible for paying the accrued interest. 

If your head is spinning at all these different loan types, you’re not alone! Check out our article on the easiest way to get your federal loan information.

General and Mandatory Forbearance for Federal Student Loans

Federal student loan lenders may choose to grant general forbearance if you’re facing:

• Financial hardship

• Financial strain because of medical expenses

• Employment changes

• Other reasons your loan servicer approves

Federal student loan lenders must grant a mandatory forbearance if you:

• Have a medical or dental residency or internship

• Have a total student loan balance of more than 20% of your gross monthly income

• Are in an AmeriCorps program

• Are working in a job that qualifies you for teacher loan forgiveness

• Qualify for partial loan repayment under the U.S. Department of Defense Student Loans Repayment Program

• Are in the National Guard called to service by a governor and don’t qualify for a military deferment

Forbearance on a loan can be granted for up to 12 months at a time. If you’re still facing financial hardship after the forbearance period ends, you can ask for another forbearance. Forbearance can be renewed for up to three years.

8. Request a Temporary Payment Decrease or Deferral — If You Have Private Student Loans

Many of the options we’ve mentioned so far apply only to federal student loan borrowers. The truth is that federal loan borrowers often have more options for lowering their monthly payments than private loan borrowers do. Private lenders get to set the terms of their loans, including whether or not they offer any kind of hardship programs or other options for borrowers who are struggling to make their monthly payments. 

But that doesn’t mean you’re without options! The pandemic forced a lot of private lenders to rethink their policies and financial hardship offerings. Some private student loan lenders will allow you to temporarily suspend your payments or will agree to reduce your payments (usually temporarily). The best way to find out about your options is to contact your loan servicer or lender.

Is Bankruptcy the Answer? Exploring Alternative Solutions for Overwhelming Student Loan Payments 

If you’ve looked into all of these options and they don’t work for your financial situation, you may feel like you’re out of options. But don’t despair! There’s one option you may not have considered yet: filing bankruptcy to erase your student loans. 

Many people who could otherwise benefit from the financial fresh start bankruptcy provides don’t apply because they either feel ashamed or don’t think it can help them get rid of student loans. But the truth is, you can get rid of student loans in bankruptcy, and there’s no shame in filing for bankruptcy. It’s a legal tool created precisely to help people (and companies) who’ve fallen into overwhelming debt and need help to get a financial fresh start. If you want to learn more about what it’s like to file for bankruptcy, read our popular 10-Step Guide To Filing Bankruptcy.

When it comes to getting rid of student loans in bankruptcy, yes, you must meet certain eligibility criteria. But it’s well worth taking the first step to see if you qualify. You can take that first step right now by filling out our five-minute eligibility screener to see if Upsolve can help you for free. Upsolve has helped thousands of people erase over $600 million in debt since 2017. You could be next.