6 Effective Ways to Lower Student Loan Payments

With the national average for monthly student loan payments teetering around $400, it’s not unexpected to see borrowers grappling to stay afloat. This financial tightrope becomes even more challenging to navigate as inflation surges.

Perhaps you’ve just stepped into the professional world with a nascent salary, or you’re transitioning between jobs, leaning on freelance work to cover expenses. In any circumstance, the standard repayment planStandard Repayment PlanThe default federal repayment plan, which spreads loan payments evenly over 10 years — or up to 30 years for consolidation loans. It usually results in the lowest total interest paid among federal plans. can seem restrictive.

As the three-year payment pause initiated by President Biden draws to a close, know there’s no need to resort to severe measures like deferment, forbearance, or even loan defaultDefaultThe status of a federal student loan after the borrower has failed to make required payments for 270 days. Default can trigger collection actions such as wage garnishment, tax refund offset, and damage to credit reports., which could wreak havoc on your credit report. There are multiple legitimate avenues to lessen your student loan payments. Your optimal choice relies heavily on your personal financial situation and the type of student loans you hold – federal or private.

Related: When Do Student Loans Start Again?

Ahead, we dive into six strategies that could help lower your monthly payments. Whether you aim to free some spare cash every month or need to get the lowest payment amount, we’re here to guide you.

Key strategies include:

1. RefinancingRefinancingTaking out a new private loan to pay off one or more existing student loans, usually to lower the interest rate or change the repayment term. Refinancing federal loans into a private loan eliminates federal benefits like IDR and PSLF. with a private lender
2. Exploring income-driven repaymentIncome-Driven Repayment (IDR)A category of federal student loan repayment plans that calculate monthly payments based on income and family size rather than loan balance. Any remaining balance can be forgiven after 20–25 years of qualifying payments. plans
3. Opting for temporary payment reductions
4. Considering loan consolidation

We’ve covered all bases covered to ensure you’re well-equipped to navigate your student loan repayment journey.

Know what type of student loan you have

There are three primary types of student loans:

Federal Loans: These are offered by the U.S. Department of EducationU.S. Department of Education (ED)The federal agency that oversees federal student aid programs, issues regulations for federal student loans, and is the ultimate lender on Direct Loans. and include options like Direct Loans, which can be subsidized or unsubsidized, and Perkins loans. Key features include:

• Eligibility for student loan forgiveness programs
• Flexible repayment options, such as income-based repaymentIncome-Based Repayment (IBR)A federal income-driven repayment plan that caps monthly payments at 10% or 15% of discretionary income, depending on when the loans were taken out. Remaining debt is forgiven after 20 or 25 years of qualifying payments. plans

Parent PLUS Loans: These loans, which are a type of federal loan, allow parents to borrow on behalf of their undergraduate children. The best way to lower payments on these loans is to extend the loan term by consolidating and switching to the Graduated or Extended Repayment Plans or one of the IDR plans.

Private Loans: Provided by private lenders, these often require a cosignerCosignerA person who signs a loan agreement alongside the primary borrower and becomes equally responsible for repayment. Cosigners are common on private student loans when the student has limited credit or income history.. Key features include:

• Possibility of rate discounts for automatic payments
• Credit score may significantly influence the loan’s terms
• Inflexible payment terms with few student loan repayment assistance options

Understanding the specifics of your loan type — including your loan balance, interest rate, and loan term — is key to managing your student loan effectively, whether you’re considering refinancing, consolidation, or other repayment strategies.

Related: How to Lower Student Loan Interest Rate

Options for Lowering Federal Student Loan Payments

Strategy 1: Income-Driven Repayment Plans

An Income-Driven Repayment Plan is a key strategy for managing your federal student loan repayment. These include plans such as:

• Pay As You EarnPay As You Earn (PAYE)A federal income-driven repayment plan that caps monthly payments at 10% of discretionary income and forgives remaining debt after 20 years. It is only available to borrowers who took out their first federal loans on or after October 1, 2007. (PAYE)
• Revised Pay As You Earn (REPAYERevised Pay As You Earn (REPAYE)A former federal income-driven repayment plan that capped payments at 10% of discretionary income, with forgiveness after 20 or 25 years. REPAYE was replaced by the SAVE Plan in 2023.)
• Income-Based Repayment (IBR)
• Income-Contingent RepaymentIncome-Contingent Repayment (ICR)The oldest federal income-driven repayment plan, with payments generally set at 20% of discretionary income or a fixed 12-year amount, whichever is lower. It is the only IDR plan available to Parent PLUS borrowers after consolidation. (ICR)

Here’s what you need to know:

• Your monthly payments are capped at a percentage of your discretionary income, typically between 10% and 20%.
• Depending on the specific plan, the repayment term can be extended to 20 or 25 years.
• The federal government forgives the remaining loan balance at the end of the term.

To stay in these plans, you must recertify your income annually to maintain your IDR plan. Failure to complete the annual student loan recertification could put you back on a standard plan, possibly leading to a higher monthly payment.

Although IDR plans can significantly lower your monthly payments, they often extend the repayment duration, which could result in paying more interest over the life of the loan.

New Repayment Plan Coming

Come next year, Federal Student AidFederal Student Aid (FSA)The office within the U.S. Department of Education that manages federal grants, work-study, and student loans. It runs the FAFSA, the StudentAid.gov website, and oversees the federal loan servicers. is introducing a new income-based repayment plan tailored specifically to benefit borrowers. With this change, undergraduates can anticipate their payment obligations to shrink to just 5% of any income exceeding roughly $33,000 annually, a significant dip from the existing 10%.

This plan also encompasses a safety net for borrowers, assuring that the government will forgive any residual interest if your payments don’t adequately cover the monthly interest.

Moreover, any outstanding loans are set for forgiveness after a period of 20 years or even as soon as 10 years under specific conditions.

Related: How to Change Student Loan Repayment Plan

Strategy 2: Loan Consolidation

Consolidating your federal loans is another useful strategy. Here’s what it entails:

• Your multiple government loans are merged into a single loan.
• This doesn’t lower your interest rate but allows you to extend your repayment term.

Extended repayment terms can make your monthly payment more manageable, but you might pay more interest over time. Also, it’s important to mention this strategy is exclusively available to federal student loan borrowers.

Double consolidation may be a lifesaver if you’re struggling with the loans you borrowed for your child’s education. This option is especially helpful when you “ can’t pay Parent PLUS Loans,” even after switching to an Income-Contingent Repayment (ICR) plan.

It opens the door to other income-driven repayment plans like IBR or REPAYE, potentially providing you with lower payments. An added bonus: this strategy could put you on track for Public Service Loan ForgivenessPublic Service Loan Forgiveness (PSLF)A federal program that forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for a government or qualifying nonprofit employer..

Strategy 3: Deferment or Forbearance

When faced with financial hardships, consider deferment or forbearance as temporary relief options for your federal loans. Here’s what you need to know:

• Both options suspend or reduce your monthly loan payments for a specified period.
• Deferment could be more advantageous as interest doesn’t accrue on subsidized loans during this period.
• Conversely, interest continues to accumulate during forbearance, which may increase your total loan amount.

To use these strategies, contact your loan servicerLoan ServicerThe company that manages a borrower's federal student loan account, processes payments, and handles applications for repayment plans, deferment, forbearance, and forgiveness on behalf of the U.S. Department of Education. and discuss the best option for your circumstances. Remember, these are temporary solutions and may extend the life of your loan.

What is considered discretionary incomeDiscretionary IncomeFor federal income-driven repayment plans, a borrower's adjusted gross income minus a set percentage of the federal poverty guideline for their family size. Monthly IDR payments are calculated as a percentage of this amount. for student loans?

Discretionary income for student loans is calculated by subtracting a percentage of the poverty guideline from your Adjusted Gross IncomeAdjusted Gross Income (AGI)A borrower's total taxable income minus specific deductions, as reported on a federal tax return. Federal income-driven repayment payments are generally calculated using AGI.. This percentage varies depending on your repayment plan. For instance, in an IBR plan, discretionary income is your “ student loan AGI” minus 150% of the poverty guideline for your family size and state of residence. This figure is then used to determine your monthly student loan payment. Read more about “ What is discretionary income for student loans?”

Options for Lowering Private Student LoanPrivate Student LoanA student loan issued by a bank, credit union, or other private lender rather than the federal government. Private loans generally lack federal protections like income-driven repayment and broad forgiveness programs. Payments

There are few options to lower private student loan payments. Private lenders typically don’t offer the range of flexible student loan repayment plans the federal government provides. Still, here are three ways you can get some relief on your bill:

Strategy 4: Student Loan Refinance

Refinancing is an effective method to reduce private student loan payments. This strategy implies:

• Applying for a new loan with a lower interest rate or a longer repayment term to diminish your monthly payment.
• Taking into account your credit score, income, and other financial factors that can influence your refinancing eligibility.
• Understanding the terms of your new loan is vital, as refinancing might lead to losing certain protections offered by your original loan.

Moreover, refinancing can provide an added benefit: removing a cosigner from your loan. Lenders typically require cosigners when the borrower doesn’t have a strong credit history. By refinancing, you might be able to release your cosigner from the loan obligation, provided your credit situation has improved enough to satisfy the new lender’s requirements.

Related: How Student Loan Refinancing Works

Strategy 5: Interest Rate Reduction Programs

Private lenders might offer interest rate reduction programs. Such programs could:

• Lower your rate for enrolling in autopay.
• Provide a reduction for consistent on-time payments.

Strategy 6: Deferment or Forbearance for Private Loans

Private loans also offer deferment or forbearance options for temporary relief. But:

• Specifics vary among lenders. Some might charge fees or accumulate interest during this period.
• Reach out to your lender to understand their options and the impact on your loan.

Related: How to Reduce Student Loan Debt

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