Reducing Student Loan Payments: Simple Strategies

Last Updated on June 22, 2022 by Laura Turner

If you are struggling to repay your student loans, you may have several options to choose from. However, it is important to first prioritize your finances before incorporating any of these options, as having a strong financial foundation is an important part of successfully reducing student loans. Once you are aware that you are having a challenging time paying your debts, you should look at whether you are living above your means or if you can reduce unnecessary expenses, such as eating out. It is a good idea to modify your lifestyle until you eliminate your student debt. The outlined strategies in this guide can help you lower your student loan payments, both federal and private, especially if you have:

• A low paying job
• No job
• Difficulty in searching for a job

Apply for an income-driven repayment plan​

Do you have federal student loans? If you do, then you are automatically enlisted in the standard repayment plan after graduation. This repayment plan fixes and divides your payments over ten years. With a standard repayment plan, you pay the least amount of interest and pay back your student loans faster. The downside can be that your monthly payments can be high. Fortunately, other student loan payments are available that may be more suitable for your financial situation, such as income-driven repayment (IDR) plans.

The federal government offers four IDR plans, where your payments are based on your income. The IDR plans are composed of:

• IBR plans
• ICR plans
• PAYE plans
• RePAYE plans

If you choose to use an IDR plan, then the loan lender extends your repayment term to 20 to 25 years. However, it caps your payment every month at a percentage of the discretionary income. Depending on your family size, student loan balance, and income, your payment could be as low as zero dollars a month. You can use the federal repayment estimator to know your monthly payment under each IDR plan to help you determine if this is right for your financial situation.

Payments will reflect your financial situation

Keep in mind that when your financial situation changes, then your payments will be modified accordingly. In other words, the authorities will adjust your payments based on factors like your family size increasing or your income increasing or decreasing. Even though your monthly payments can be considerably smaller with an IDR plan, you will end up paying more interest over the loan lifetime. However, if you are struggling to make your monthly payments, an IDR plan can give you some space in your budget as you develop your career.

Enlist in a graduated repayment plan

Occasionally your income can be high enough to qualify for an IDR plan, but you may still be struggling to make payments on your federal student loans. In such a situation, you can opt for a graduated repayment plan (GDR). The graduated repayment plan is quite different from an IDR plan. While an IDR plan bases your monthly payments on your loan balance, family size, and income, the graduated repayment plan starts small and gradually increases every two years.

After ten years of regular payments, your student loans are then paid off. A con of this method is that you will end up paying more interest over your loan length than you would on a standard repayment plan, as your payments gradually increase in amount. Additionally, as your income is not factored into the graduated payments, your payments will continue to increase every two years, regardless of your income. You may have to make high monthly payments on a low income, and this is an important factor to consider before enlisting in a graduated repayment plan.

Consider an extended repayment plan

If your federal direct loan is over $30,000, you might qualify for an extended repayment plan. This repayment plan gives you the option to pay back your loan for up to 25 years. The next step is to choose between graduated and fixed payments. Your monthly payments will usually be lower due to the long-term period of the extended repayment plan. However, the critical point to note here is that the payment is lower than a graduated repayment plan or standard repayment plan. As the lower payment is not dependent on your income, it may be more cost-effective in the long run to choose an income-driven repayment plan instead. Also, even though your payments will be lower on a monthly basis, you can end up paying more money than you borrowed in the end due to interest charges over time. This is a factor to consider with all plans that offer lower monthly payments.

Research loan consolidation

Do you have several federal student loans, each with their respective repayment terms, interest rates, and minimum monthly payments? It may be a wise decision to consolidate your student debts with a direct consolidation loan.
The direct consolidation loan combines all the overall balances of your federal student loans into a single loan. The primary benefit of this is that you have only one monthly payment to focus on, one due date, and one deadline to manage. This convenience may reduce your financial stress in the long term.

As for the new interest rate, it will be the weighted average of your previous student loans’ interest rates. You may not necessarily get a lower rate, but you can opt for an income-driven repayment plan after you consolidate your direct loans. This will decrease your payments overall, in addition to only having one payment to focus on.

Make all of your monthly payments on time

It is important to make your payments on time to protect and improve your credit score while preventing late fees. Another benefit to doing so is that you could be eligible for an additional discount on your interest rate if you demonstrate a consistent track record of paying all of your monthly payments on time. Some loan servicers are able to offer you a 0.25% rate reduction if you make on-time monthly payments for 36-48 months. When you combine that rate reduction with an automatic payment discount, then you can end up saving a considerable amount of money. This will enable you to devote more energy towards your other financial goals, like building your savings.

Sign up for automatic payments

Most loan servicers give you discounts for registering for automatic payments. If you link to your bank account, you could be eligible for a 0.25% rate discount; although, rates will likely vary. Every small amount will decrease the amount you pay over time, even though it might not sound like a significant decrease at the time. Another benefit of signing up for automatic payments is that you would be less likely to forget to make a payment and would be more likely to make all of your payments on time, which will boost your credit score among other financial benefits.

Ask about employer assistance

It is a good idea to ask your employer whether they provide employer assistance with paying off student loans. Many employers offer student loan repayment assistance to attract top talents. With numerous programs out there, employers may match your payments on your student loans, just like a 401(k) match. With your employer’s help, you can get rid of your student loans quickly and save money. If you don’t know where to begin, ask your human resource office whether the company offers such repayment benefits and which further steps need to be taken.

Consider moving to another state

While moving to another state to reduce or eliminate student debt may sound extreme, it is worth considering, if you are able to do so. Your state of residence can have a positive effect on your loan repayment, as some states provide loan repayment assistance programs, including incentives for new residents. These programs and incentives may help you to reduce your student loans or even pay all of them off more efficiently. The repayment assistance programs in states like Minnesota and Texas for example mean that enough money remains in your pocket. This will enable you to achieve other financial goals and to be free of the student debt load, even partially so. Every bit of assistance helps to make a difference in the long run.

Refinance your student loans

If you have private student loans, then you don’t qualify for government-based payment plans such as income-driven repayment plans. However, if you have a mix of private loans and federal loans, you can consider refinancing your student loans. When you refinance your student loans, you’re borrowing a new loan with a new interest rate. This option enables you to look for more favorable terms in addition to helping you to lower your interest rate and save more money in the long run.

Refinancing your student loans can also result in lower monthly payments if you go for a longer loan term. The benefit of streamlining different student loans into one monthly payment may be the right option for you, but first, you need to ensure that you quality for refinancing. Not everyone does. In order to increase your chances of approval, you could ask a family member or relative with a stable income and good credit score to act as a cosigner. However, keep in mind that when you refinance your federal loans, you lose any federal benefits.

Final Thoughts

Ultimately, there are many options to choose from if you want to reduce your student loan payments. However, it can be confusing to know the available options and which ones would work best for you. Hopefully, this guide will help you take a step in the right direction and clarify this. If you would like further help and guidance in this matter, then you can get in touch with a student loan professional. They can help you make an informed decision and guide you along the process to successfully reduce and work towards eliminating your student loan debt.

This article was contributed by Student Loans Resolved (SLR). SLR specializes in tackling student loan debt and helping graduates all around the US reduce their financial obligations. Check them out whether you have private or federal student loans, or if you are working in the public sector and are struggling to make ends meet.