How To Lower Your Student Loan Payments
Student Debt burden can become stressful. Here’s how to reduce your monthly student loan payments with a number of strategies.
Student loan debt is a major burden for many college graduates. There are a number of students and parents who often feel overwhelmed by student loan payments, so they’re desperately seeking ways to move away from the standard ten-year loan payment plan. If that’s your case, there are several strategies you can use to help reduce the amount of money you owe on your student loans each month.
Lowering Student Loan Debt
A high student loan debt can leave you at a disadvantage, preventing you from progressing in life in areas such as financing a house. With this in mind, it is critical to lower your student loan payments and make them more bearable every month to avoid consequences such as defaulting on the loan, in addition to the other associated penalties that directly impact your ability to take out more loans in the future.
Lowering your student loans has the ability to improve your debt-to-income ratio, opening more room for other life goals and minimizing financial worry – all resulting in a better quality of life. Take a look at the following options that will help you to lower your student loan payments.
#1 Assess Your Finances
Assessing your finances is necessary, especially if you want to make your student loan payments more manageable. Being aware of where you stand financially allows you to plan better and make informed decisions regarding spending, savings, and investments.To achieve financial stability, the best way to assess your finances is to calculate your monthly income and expenses.
Calculate your Monthly Income and Expenses
Staying on top of your finances requires you to create a budget and track how you spend your money every month. The first step in creating a budget is to list all your sources of income, including salaries, business profits, and pension. Ensure that you only use your net or take-home pay in your budget. The next step is to estimate all your expenses, including student loan payments, rent, utilities, groceries, gas, and entertainment. Then, add up all your income as well as the sum of your expenses. If your expenses surpass your income, you may need to reevaluate your finances and cut costs to ensure that you stay within your means. If it turns out that you have more money left over after your expenses, then those funds can be used to increase your loan payments, which could lessen the amount of payments in the long run.
#2 Analyze Your Options for Repayment
With federal student loans, you have multiple repayment options so when figuring out the best repayment option, use your financial need and goals to avoid getting a plan that carries more monthly payments and interest than you can afford. Before settling on a repayment plan, conduct thorough research on the available options, monthly payments, and interest rates associated with the repayment plan.
If you have federal student loans, then you are automatically put on the standard ten-year repayment plan. Regardless of this, you still have the option to shift to another repayment plan such as the Income-Driven Repayment-, Graduated Repayment-, or Extended Repayment plan.
Income-Driven Repayment Plan
An income-Driven repayment (IDR) calculates your monthly payments based on income and family size. There are four IDR plans available:
– Revised Pay As You Earn Repayment Plan (REPAYE)
– Pay As You Earn Repayment Plan (PAYE )
– Income-Based Repayment Plan (IBR)
– Income-Contingent Repayment Plan (ICR).
Graduated Repayment Plan
With the graduated repayment plan, your monthly loan payments increase every two years. Typically you are given ten years to repay your loan, however, this period can be extended to thirty years if you have consolidated loans.
Extended Repayment Plan
The extended repayment plan stretches your repayment period up to 25 years. As a result, you will have considerably lower monthly payments.
#3 Lower Your Interest Rate
Taking active steps towards lowering your interest rate can have a positive effect on your student loan payments. Consider the following strategies to help you achieve this:
Automated Payments
Signing up for autopay ensures you don’t miss payments and gets you interest rate discounts. With auto-payments, you can get up to a 0.25 percent interest rate discount for both federal and private student loans. Automated payments are directly withdrawn from your bank account every month. You can set it up by logging in to your student aid account for federal loans, or going to your lender’s website if you have private loans. Ensure you are up-to-date on your loan payments and read autopay policies before completing the enrollment.
Loan Consolidation
Loan consolidation combines all your federal student loans into one loan. Consolidation extends your loan’s repayment period, reducing your monthly payments. It also minimizes the risk of late payments and defaults, as it is much easier to keep track of one loan payment. One of the main benefits of the oan consolidation route to lowering your student loan payments is that it does not disqualify you from repayment plans or forgiveness programs.
State Program Enrollment
Individual states have financial aid programs available to students to help make the cost of tuition more bearable. In addition to grants and scholarships, there are state-specific interest-free loans, as well as forgiveness and repayment assistance programs such as the SHARP Program (SHARP), Joyce Holsey’s ALL (Arizona’s Legal Legacy) Loan Repayment Assistance Program, Colorado Health Service Corps, and Alabama Math and Science Teacher Education Program (AMSTEP).
#4 Refinancing
Student loan refinancing enables you to roll all your student loans, federal and private, into a new loan. Students tend to refinance their loans, hoping to get lower interest rates, longer repayment and ultimately lower student loan payments. When you refinance a student loan, the private lender pays off all your existing loans in exchange for a new loan with new terms. Refinancing is free and, in some cases, allows you to pay less overtime. However, it is difficult to qualify for refinance as the eligibility requirements rely heavily on credit scores. Most private lenders require a credit score of at least 620 and a debt-to-come ratio of less than 50 percent.
Considerations for Refinancing
When refinancing, remember to consider the following factors:
- Credit score and income requirements
- Interest rates options
- Terms and conditions
- Co-signer options
- Student loan balance
6 Best Companies for Refinancing Student Loans To Lower Student Loan Payments
| Lender | Scholaroo rating | Fixed rates starting (APR) | Variable rates starting (APR) |
|---|---|---|---|
Laurel Road Best for Low Interest Rates with Discounts Visit website | 4.99% | 4.74% | |
College Ave Best for Flexible Repayment Options Visit website | 5.99% | 5.99% | |
SoFi Best for Refinancing Parent Plus Loans Visit website | 4.99% | 5.99% | |
Earnest Best for Refinancing without Cosigner Visit website | 4.96% | 5.32% | |
LendKey Best for Mid-Income Earners Visit website | 4.49% | 5.02% | |
ISL Education Lending Best for In-School Refinancing Visit website | 6.50% | N/A |
Laurel Road
Best for Low Interest Rates with Discounts
College Ave
Best for Flexible Repayment Options
SoFi
Best for Refinancing Parent Plus Loans
Earnest
Best for Refinancing without Cosigner
LendKey
Best for Mid-Income Earners
ISL Education Lending
Best for In-School Refinancing
FAQs
How do I lower student loan payments?
You can lower your student loan payments by selecting a repayment plan that fits your financial situation, lowering interest rates through automated payments, or loan refinancing. Other options include signing up for automatic payments, as well as looking into state-specific loan forgiveness and repayment assistance programs.
How do I get student loan forgiveness?
You can get student loan forgiveness by logging on to StudentAid.gov. On the website, you will complete a short form with your name, birthday, social security number, and contact information.
What increases your total loan balance?
High variable interest rates, late or missing payments, and frequent deferments are some of the factors that contribute to having a high loan balance.
Final Thoughts
Lowering your student loan payments is crucial if you are on a journey to repay your student loans fully. There are various strategies you can implement to make your monthly loan payments more manageable, including selecting a repayment plan that fits your financial capabilities, lowering your interest rate through automated payments, refinancing, or applying to loan forgiveness and repayment assistance programs in your state. Make sure to familiarize yourself with the terms and conditions involved before deciding on the best option for your financial situation. With these strategies in mind, a life free of debt will be within your reach.
