5 ways to permanently reduce your monthly student loan payments
The CARES Act has suspended federal student loan payments for now, but this relief will not last forever. It also does not apply to private student loans.
Fortunately, if you’re struggling to keep up with your student loans – now or after the CARES law expires – there are several ways to reduce those payments and stay 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 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 widely from lender to lender, so be sure to use a tool like Credible to shop around and view rate tables from multiple lenders.
You should also use a reliable student loan refinance calculator to get an idea of what your new payments might be – and if the move is worth it. You can also insert your information into Credible’s free online tools to determine what type of rates you are currently eligible for.
WHAT ARE THE REFINANCING RATES FOR STUDENT LOANS?
2. Consolidate your loans
If you have multiple loans – or just a mix of federal and private loans – bundling them together could help keep your costs down. This allows you to consolidate all of your loans into one, potentially lowering your interest charges and monthly payments.
As with refinancing, it is important that you shop around before consolidating your loans. Student loan interest rates can vary widely from lender to lender.
If you decide that debt consolidation is the right step for you, use Credible to research the best personal loan type, rates, and terms.
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3. Adopt an income-based repayment plan
If you have federal student loans, an Income Based Repayment Plan (IBR) may be an option. This gives you a personalized monthly payment based on your exact income and household size, not just your balance.
There are three types of IBR, 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 Refund: On this plan, your payment will be 10-15% of your discretionary income, depending on when you took out the loans. These also come with terms of 20 to 25 years.
- Reimbursement according to income: With ICRs, your payout is typically 20% of your discretionary income. You will have 25 years to pay it off.
Discretionary Income is based on your income and local poverty guidelines in your area. Use this calculator to determine yours. When you’re ready to apply, file an income-based repayment plan application with the Federal Student Aid Office at the Department of Education.
WHAT IS AN INCOME-BASED STUDENT LOAN REPAYMENT PLAN?
4. Student loan repayment assistance programs
You can also turn to repayment assistance programs, which can help you reduce your payments or even pay off your loans completely. These are typically offered by various state and local agencies, as well as nonprofit and community organizations. In some cases, your employer may 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. Progressive or extended repayment plans
For any federal student loan, there is yet another option: phased and extended repayment plans. These allow you to reduce your payments by spreading them out over a longer period of time or by moving more expensive payments towards the end of the loan – when you will likely make more money.
Here’s how each option works:
- Progressive repayment plan: By using this option, your payments start small, gradually increasing every two years.
- Extended repayment plan: With this method, you can spread your payments over a 25-year period to make them more manageable.
To switch to any of these plans, you will need to contact your loan officer.
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Keep paying your balances
Once you’ve lowered your payments, you should still make an effort to repay those student loans aggressively, if possible. Start with the highest interest rate loans, and if you get windfall profits (like a second stimulus check, for example), consider allocating them at least partially towards your debts.
The faster you can pay off these balances, the less interest you will pay over time. Reducing your debt will also help your credit score, as well as your future financial options.
Remember to research the rates of different private student loan refinancing companies to make sure you save as much money as possible if that is the direction you choose to go.
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