10 ways to lower student loan payments
Whether you’re a recent graduate or you’ve been paying back debt for years, these strategies can make your student loan payments a little more manageable.
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Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.
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Renee Fleck is a student loans editor with over five years of experience in digital content editing. Her work has been featured in Fast Company, Morning Brew, and Sidebar.io, among other online publications. She is fluent in Spanish and French and enjoys traveling to new places.
Updated May 8, 2024, 11:37 AM EDT
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Since federal student loan payments resumed in October 2023, many borrowers are struggling to manage repayment. In fact, approximately 13 million borrowers with due payments missed the initial payment deadline according to the Department of Education. If you’re feeling overwhelmed, there are several ways you can lower your monthly payments and get some financial breathing room.
1. Consolidate federal student loans
Best for: Graduated borrowers with over $60,000 in federal student debt
Consolidating can lower your monthly payments by extending the repayment period of your loans — often up to 30 years, depending on how much you owe. While this might mean paying more interest over time, it does ease your immediate financial burden.
Consolidating your federal student loans essentially merges multiple loans into one. This process can also simplify your payments, replacing multiple due dates with one that has a single interest rate.
To start the consolidation process, you must complete a Direct Consolidation Loan application. Continue to make your regular payments until the consolidation is complete. Also note that consolidation is only available to federal student loan borrowers who have graduated, left school, or dropped below half-time enrollment. Private student loans require a different approach called refinancing.
2. Refinance private student loans
Best for: Private student loan borrowers with strong credit and stable finances
A student loan refinance involves taking out a new private loan with different terms to pay off one or more existing loans. For borrowers with good credit and a steady income, refinancing may help you qualify for a lower interest rate. In most cases, you’ll also have the option to extend your loan term which could lower your monthly payments even further (though interest will accrue for longer).
Let’s say you owe $30,000 in private student loans with a 7% interest rate and a 10-year loan term. If you refinance to a 5% rate and extend your term to 15 years, you’ll pay $111 less each month. However, you’ll end up paying $904 more in interest over the life of your loan.
Before refinancing, make sure it aligns with your financial situation and your type of loan. For example, you may not want to refinance your federal student loans if you plan on taking advantage of federal income-driven repayment plans or forgiveness options, since you’ll lose access to federal protections if you refinance.
To refinance your private student loans, shop around with various lenders to compare rates and terms. Once you find the right option, the application process typically involves a credit check.
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3. Switch to income-driven repayment plan
Best for: Borrowers with federal student loans who earn a low income
Income-driven repayment (IDR) plans adjust your monthly federal student loan payments according to your income and family size, ensuring they’re more in line with what you can realistically afford to pay. These plans also forgive the remaining balance on your student loans after making a certain number of payments.
Under these plans, your monthly payments are calculated based on a percentage of your discretionary income — typically 10% to 20%. They can also extend your repayment term up to 25 years:
- Income-Based Repayment (IBR) plan
- Paye As You Earn (PAYE) plan
- Saving on a Valuable Education (SAVE) plan
- Income-Contingent Repayment (ICR) plan
To switch to an income-driven repayment plan, apply online or send a physical copy of your application to your loan servicer. The application process involves providing information about your income and the number of people in your household. You need to recertify this information each year, as your payments may change with fluctuations in your income or family size.
Tip:
To see which repayment plan can save you the most money, use Federal Student Aid’s loan simulator using your specific loan details.
It’s important to remember that while these plans significantly reduce your monthly payments, they also extend the term of your loan, which could result in more interest paid over time.
4. Sign up for the Extended Repayment plan
Best for: Federal student loan borrowers who can’t benefit from income-driven repayment plans.
Consolidation isn’t the only way to extend your repayment period. If you have federal student loans, you can also switch to the Extended Repayment plan. The Extended Repayment plan allows you to change from the standard 10-year repayment plan to a 25-year term, reducing your monthly payment amount. You’ll be paying more in interest over the life of the loan, but it’ll make your monthly payments more manageable.
To extend your repayment timeline, contact your loan servicer. They can provide information on the different repayment plans available and guide you through the process of switching to a longer-term plan.
5. Sign up for the Graduated Repayment plan
Best for: Federal student loan borrowers who expect their income to increase in the future.
The Graduated Repayment plan starts with lower monthly payments that gradually rise every two years. The idea is to match your payments with your expected income growth, making it easier to manage payments early in your career when your earning potential is lower.
The Graduated Repayment plan may keep the same 10-year repayment term as the Standard Repayment plan or extend your repayment timeline up to 30 years for Direct Consolidation Loans.
It’s important to keep in mind that while your payments will start lower than they would be under a standard 10-year repayment plan, they will increase. You may also end up paying more in total interest over the life of the loan compared to the Standard Repayment plan for Direct Consolidation Loans.
6. Apply for deferment or forbearance
Best for: Borrowers facing temporary financial hardship and are struggling to make monthly payments
Deferment and forbearance can temporarily pause or reduce payments, providing relief when making regular payments becomes a challenge.
- Deferment is a period during which your loan servicer postpones payments under specific circumstances, such as unemployment, economic hardship, military service, or re-enrolling in school. Both federal and private student loans typically offer deferment, but private lenders have their own qualifying criteria.
- Forbearance allows you to stop or reduce payments for up to 12 months at a time. However, unlike deferment, interest continues to accrue on all federal student loans during forbearance. This can end up increasing your total loan balance.
Whether you have federal or private student loans, contact your loan servicer to see what your options are for deferment or forbearance. They can provide the necessary forms and guide you through the application process.
Important:
In most circumstances, interest continues to accrue during periods of deferment and forbearance. But if you have subsidized student loans, the government will cover interest charges during a deferment.
7. Research forgiveness options
Best for: Borrowers who qualify for federal loan forgiveness programs
Having a student loan forgiven means you’re no longer required to repay some or all of your loan. There are various student loan forgiveness programs available for federal borrowers, each with its own criteria.
- Public Service Loan Forgiveness: The PSLF program is available for people working full-time for the government, not-for-profit organizations, and in other qualifying public service jobs. Under this program, your remaining loan balance is forgiven after making 120 on-time payments under an income-driven repayment plan.
- Income-Driven Repayment forgiveness: If you have eligible federal student loans, you also have access to four different income-driven repayment plans that clear your remaining loan balance after making 10 to 25 years of payments.
- Teacher Loan Forgiveness: The TLF program is designed for teachers who work full-time for five consecutive years in certain elementary and secondary schools or educational agencies. Eligible teachers can have up to $17,500 of their federal student loans forgiven.
To find out if you qualify for a loan forgiveness program, contact your loan servicer or check the eligibility requirements for each program to see if you meet the criteria. Note that private student loans don’t qualify for federal forgiveness programs.
Related: How to get student loan forgiveness in 2024
8. Get support from your employer
Best for: Federal and private student loan borrowers with employers that offer educational assistance
In recent years, more employers have offered educational assistance programs as part of their benefits package. Federal law allows employers to offer up to $5,250 in annual tax-free educational assistance per employee. These benefits can be used to cover tuition, books, and other education expenses, and to help pay off student loans.
If your employer offers this benefit, they may make payments directly to your lender or reimburse you for payments you made to your lender. To take advantage of this benefit, ask your HR or employee benefits department if your employer offers such a program and how to enroll.
9. File taxes separately from your spouse
Best for: Married borrowers with federal student debt on an income-driven repayment plan
If you’re married, filing taxes separately from your spouse while enrolled in an income-driven repayment plan can potentially lower your student loan payments. Your monthly payment will be based solely on your income rather than the combined income of you and your spouse.
This strategy can be especially beneficial if your spouse earns a lot more than you do.
You and your spouse would need to file separate income tax returns and switch to an income-driven repayment plan — all of these plans consider only your own income when you file separately from your spouse. It’s a good idea to discuss this strategy with a tax adviser, as filing separate tax returns could mean losing out on certain tax deductions and credits.
Tip:
Eligible borrowers can also benefit from a student loan interest tax deduction of up to $2,500 each year. This deduction can significantly reduce your annual tax burden while freeing up funds to apply towards your student loan payments.
10. Get an autopay discount
Best for: Anyone with federal or private student loans.
Signing up for autopay on your student loans means allowing your loan payments to be automatically deducted from your bank account each month. This ensures you never miss a payment, and many lenders offer an interest rate discount for those who enroll.
The autopay interest rate reduction for most student loans is around 0.25 percentage points, which may seem small but can add up to significant savings over the life of your loan.
To sign up for autopay, log in to your account on your loan servicer’s website. Enrolling is usually fairly quick; it involves providing your bank account details and authorizing the monthly deductions from your account. Just make sure you have sufficient funds in your account each month to cover the payment and avoid potential overdraft fees.