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Getting a handle on your student loan repayments is an important step in staying financially healthy. There are a number of simple ways to help you lower your student loan payments.
Whether you are struggling to make your monthly payments or just want to evaluate your overall repayment plan, here are seven tips to help you potentially reduce your student loan payments.
1. Finding out how much you owe and what kind of loans you have
The first step towards potentially lowering your student loan payments is to actually assess how much debt you have in total. By calculating what you owe exactly, you can get a better understanding of how your monthly payment has been calculated.
The type of loans you have will also determine some of the repayment options that are available to you. If you have private student loans from a bank or other company, there are not as many options available to help with repayment.
However, if you have federal student loans from the U.S. Department of Education, you might be able to apply for different kinds of federal plans that could help lower your student loan payments.
You could start by gathering up your paperwork and online logins—typically during your initial grace period, your student loan servicer will contact you about when your first bill will be due and how to pay.
A loan servicer can be a private company, as mentioned before, but for federal loans, there are also multiple other servicers, so make sure you account for all of your student debt. It might be hard to understand how to best lower your payments if you don’t have a good grasp on what you owe, and a handle on which companies you will need to contact.
2. Calculating your interest rates and payoff dates
Once you have all of your loan information, you can use a student loan payoff calculator or contact your servicer to find your current payoff date(s) for your student loans. For federal loans, if you have not selected another plan, you’ll be placed by default on the Standard Repayment Plan.
This plan sets your monthly payments at a static amount so you will have your loans paid off in 10 years, if not less. Lowering your payments means that you would need to take more time to pay off your loans, and you may end up paying more, since interest will continue to accumulate
. Some private loans also follow the 10-year repayment timeline, but it varies depending on your lender.
You can find all of your federal student loans, and the individual loan servicer, by logging into My Federal Student Aid . Once logged in, you can also check which repayment plans you personally qualify for by using the Federal Student Aid Repayment Calculator .
3. Signing up for automatic payments to stay on time
Some student loan servicers may reduce your interest by 0.25% if you elect to make automatic payments. Plus, making auto-payments on your loans can help you incorporate your student loan payments into your budget better as a fixed expense which must be accounted for every month. On-time payments could also help your overall credit score.
With most federal student loans, if you don’t make a payment in more than 270 days, you’ll default on the loan. Defaulting can impact your credit score, but it can also result in other problems including losing your eligibility for deferment, forbearance, and other valuable repayment options.
Furthermore, one of the consequences of default is loan acceleration, which is when the unpaid balance on your loan immediately comes due.
Let’s be real, it’s probably something you’d rather avoid at all costs. While setting up automatic payments can help you stay on track, if you’re worried about default because you’re struggling with your monthly payments, there are other solutions. You could, for example, look into ways to make your federal loan payments more manageable, like using an income-driven repayment plan .
4. Contacting your loan servicer re: your repayment plan
If you call your federal loan servicer—the company in charge of managing your loan repayments—they may be able to put you on a plan to help lower your payments.
One such plan is the Graduated Repayment Plan, which can keep your payment timeline to 10 years (depending on how much you owe), but starts out with lower payments at first and then increases the payment amount over time (usually every two years).
If you have more than $30,000 in eligible outstanding student debt on most loans, you can also ask about the Extended Repayment Plan, which extends your loan repayment timeline to 25 years.
5. Applying for income-driven repayment for federal loans
Most federal student loans are eligible for at least one income-driven repayment plan:
Payments are generally 10% or 15% of your discretionary income , depending on when you first received your student loans. Any outstanding balance is forgiven after 20 or 25 years, but you may have to pay income tax on that amount. You must have a high federal student loan debt relative to your income to qualify.
Payments will be either 20% of your discretionary income, or the amount you would pay on a fixed 12-year repayment plan adjusted to your income, whichever is less. Many borrowers can qualify for this plan, including parents, who can access this option by consolidating their Parent PLUS loans into a Direct Consolidation Loan . Outstanding balances may be forgiven after 25 years.
• Revised Pay As You Earn
Payments are generally 10% of your discretionary income, and outstanding balances will be forgiven after 20 years for undergraduate loans.
• Pay As You Earn
Also generally sets payments at 10% of your discretionary income and caps at 20 years for forgiveness, but never more than what you’d pay on the Standard 10-year plan. You must be a new borrower on or after Oct. 1, 2007 to qualify.
Monthly payments will be based on your income, but based on a 10-year repayment timeline.
These plans require borrowers to reapply every year. If you are employed by certain government agencies or a qualifying not-for-profit and are seeking Public Service Loan Forgiveness , you must repay your student loans under one of these income-driven repayment plans (there are other qualifying factors , too). Remember, it is always free to apply for these federal student loan assistance programs.
6. Learning about the Loan Repayment Assistance Program
This program, known as LRAP , offers you funds to help you make the monthly payments on your loans. Since private loans are not available for the federal income-based repayment plans mentioned above, LRAP could be helpful for those with private student loans.
You may want to investigate limitations such as which of your loans are eligible and income caps.
LRAPs also often include a requirement that you work in your eligible job for a certain number of years, typically in public service—and the assistance may or may not count as taxable income. If your income after graduation is modest, LRAP can help to repay loans, whether federal, private, or parent PLUS.
You can also research private grants that can help cover the cost of your student loan repayments after graduation.
7. Refinancing your student loans with a private lender
Refinancing is another student loan relief option that may be most helpful if you have student loans with high interest rates, or private student loans.
Student loan refinancing would get you a new loan entirely, at a new interest rate and new term, so you can use that money to pay off your existing student loans. And then you just have one private, refinanced loan to pay back. So, refinancing could potentially save you money in the long run if you get a lower interest rate, or you could even get more time to pay off your loan.
SoFi offers student loan refinancing which can help you lower your monthly payments, shorten your loan term, or save money on total interest. With a variety of options available, getting a handle on your student loans doesn’t have to be so overwhelming.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF JANUARY 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
This article is originally on SoFi.