How To Lower Your Student Loan Payments (2024)

The Department of Education’s student loan forbearance program, established during the Covid-19 pandemic has ended. Interest resumes on September 1, 2023 and payments start back up in October. As layoffs continue to rise, some borrowers are worried about handling monthly payments.

Regardless of your employment status, reducing your monthly student loan payments could save time, money and stress.

6 Ways To Lower Your Student Loan Payments

If you’re a current or past student looking to lower your monthly loan payment, carefully consider your options.

1. Consolidate Federal Student Loans

If you qualify for a direct consolidation loan, you can merge your federal student loans into one monthly payment.

Consolidation simplifies the repayment process, allowing you to track and manage your debt. Interest rates are typically switched from variable to fixed, lasting the life of the loan. You also gain access to repayment plans that further reduce your monthly payments.

To qualify, you cannot be a full-time student. Your loans must also be in the repayment or grace period. Complete the online application and wait for a loan servicer to reach out and guide you through the consolidation process.

2. Change Your Repayment Plan

You can choose between income-driven repayment (IDR) plans and non-IDR plans.

Income-Driven Repayment Plans

All IDR plans come with a loan forgiveness feature. After 20 or 25 years of payments, the remaining balance is forgiven and won’t be taxed until after 2025.

All IDR plans also base your monthly payments on a percentage of your discretionary income—the difference between your income and 100% of the federal poverty guidelines for your family size and state.

For example, let’s say you’re married and make $50,000 annually. For a two-person household, the statewide poverty guideline is $19,720 in 2023. To calculate your discretionary income, subtract $19,720 from $50,000, which equals $30,280.

There are four main IDR plans:

• Revised Pay As You Earn (REPAYE). Payments are limited to 10% of discretionary income.
• Pay As You Earn (PAYE). Payments are limited to 10% of discretionary income.
• Income-based repayment (IBR). Payments are either 10% or 15% of discretionary income.
• Income-contingent repayment (ICR). Payments are either 20% of discretionary income or what you would pay under a 12-year fixed term.

Use the official loan simulator and plug in your relevant loan details to see which repayment plan works best for you.

Non-Income-Driven Repayment Plans

There are two non-IDR plans: the extended repayment plan and the graduated payment plan. The extended repayment plan has a maximum 25-year term with fixed monthly payments. The graduated repayment plan starts with low monthly payments that gradually increase. There’s a 10-year repayment term for most loans and up to 30 years for direct consolidation loans.

3. Lengthen Your Loan Term

Private student loan borrowers can refinance to a longer repayment term for a lower monthly payment. Let’s say you owe $50,000 with an 8% interest rate with a 10-year term. If you refinance to a 6% interest rate and a 20-year term, your new monthly payment will be $256 less each month.

However, longer terms will accumulate more interest. In the example above, you’ll pay $13,175 more in total interest by refinancing to a 20-year term. To manage the increased interest, you can refinance and make extra payments once your income increases. Student loans do not have prepayment penalties, so you can pay off the balance ahead of schedule.

4. Refinance Your Loans

You can refinance your student loans to consolidate your debt and get a lower interest rate to decrease your monthly payment. Let’s say you owe $50,000 with an 11% interest rate and a 10-year term. If you refinance to a 5% interest rate and a 10-year term, you will pay $158 less each month. You will also save $19,010 in total interest.

There’s no limit to how many times you can refinance your loans. If you can qualify for a lower interest rate, you’ll save money.

However, if you refinance a federal loan, you will lose all related federal benefits, including access to loan forgiveness programs, longer forbearance options and IDR plans. Be sure to weigh the pros and cons before you decide.

5. Employer Assistance

Your employer can be an excellent source or repayment assistance outside of the federal government. Through 2025, employers can make tax-free contributions to your student loans. Ask your HR representative if this is an option.

Healthcare or legal workers may qualify for specialized Loan Repayment Programs (LRPs). LRPs require you to work in an underserved or low-income field for a few years before you’re eligible for loan forgiveness. They usually forgive both federal and private loan balances.

6. Deferment or Forbearance

If you can’t afford your payments, deferment or forbearance are good options. The interest will not accrue on direct subsidized loans during deferment.

Federal deferment is only available in circ*mstances of:

• Economic hardship. You’re eligible if you’re receiving welfare payments, food stamps or other forms of government assistance. With your primary job, you must earn below 100% of the poverty line to qualify.
• Cancer treatment. You qualify for deferment while undergoing treatment and six months after treatment ends.
• Military service. You must be an active duty service member in connection with war or national emergency. Deferment ends after your return to school part-time or full-time.
• Unemployment. This type of deferment is available if you’re out of work or looking for work. However, unemployment deferment only lasts up to three years.
• Rehabilitation training. You’re eligible if you’re in a rehabilitation program that provides drug abuse, mental health or alcohol abuse rehabilitation.

If you don’t qualify for deferment, you can apply for forbearance. During forbearance, interest accrues on both direct subsidized loans and direct unsubsidized loans.

Private student loan forbearance is limited compared to federal loans. Interest always accrues for private loans and may be capitalized.