12 Ways You Can Lower Your Student Loan Payments Today

There’s over $1.3 trillion in student loan debt in the U.S. as of the end of 2016, according to a report by the Federal Reserve (source). The same report adds that high levels of student debt are stunting the financial growth of millions, causing them to delay home ownership, marriage, and even having kids.

Student loan expert and bankruptcy attorney, Jay Fleischman of the Student Loan Show, says mounting student loan debt has come about for many reasons. Rising college tuition costs and diminishing job prospects are two of the biggest factors adding to this increase.

“Nowadays, college is nothing more than preparation for more education, except it’s not free, ” Fleischman adds.

Though the cost of college is rising, the income prospects for a college degree has dropped significantly. Jay estimates that his dad made about $70,000 (adjusted for inflation) with one year of an almost-free city college, while today’s college graduates aren’t nearly as fortunate.

But you don’t need statistics or experts to tell you that student loan debt has gotten out of control. In fact, you might be reading this right now wondering if there’s something or someone that can help you with your own student loan situation. If that’s the case, then read on.

If you’re ready for some student loan relief, you need to know your options. Here are 12 for you to consider right now.

1) Apply for income-driven repayment plans

Income-driven repayment plans are designed to create payment schedules based on your discretionary income.

In order to enroll, you’ll have to submit an application to see if you qualify (some loan servicers accept the online version of the application). Currently, there are four options you can choose from:

What you should know:

  • Each program has a different payment structure, so find the one that best applies to your situation.
  • To qualify for income-driven plans your loans cannot be in
  • You can switch plans at any time, provided you qualify for the new plan you’d apply for.

Downside:

  • You may end up paying more over the life of your loan due to extended terms, increased interest rates, or negative amortization (an increase in the amount you owe as a result of not paying interest—the unpaid interest is added to your principal balance).
  • These payments apply to federal student loans only (not private loans.)
  • Any forgiven loan amounts may be taxable unless you can prove insolvency.

There are a few other repayment options, which are not income-driven, that could also help reduce your loan payments. These include the Graduated Repayment Plan, Extended Repayment Plan, forbearance/deferment, Public Service Loan Forgiveness, and federal loan consolidation.

2) Graduated Repayment Plan

Your monthly payments start low and then increase gradually.

What you should know:

Downside:

  • The lower payments will cause your loan period to be extended, meaning you’ll pay more than you would under the Standard Repayment Plan.

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3) Extended Repayment Plan

Under this plan, your payments could be fixed or graduated. The loan term can be extended up to 25 years.

What you should know:

  • You must have more than $30,000 in outstanding Direct Loans.
  • You’ll generally have lower payments than you would with the Standard or Graduated Repayment plans.

Downside:

  • With some exceptions, you cannot have had any Direct Loan or Federal Family Education Loan (FEEL) balances before  October 7, 1998.

If you’re still unsure of which program to apply for based on your needs, the Federal Student Aid website has a Repayment Estimator tool to help you figure out your eligibility and options regarding income-driven repayment plans.

4) Deferment/forbearance

Under these options, you can get temporary relief from your federal student loans with either lower payments or the option to stop making payments altogether.

What you should know:

  • You have to meet qualifications and submit a form to be considered for either deferment or forbearance payment options.
  • With a deferment, you may not be required to pay the interest that accrues while your payments are postponed.

Downside:

  • You could still be responsible for paying accrued interest, even though your payment might be lowered or postponed.
  • You might fare better under an income-driven plan with no repayment (if your income qualifies) and counts towards your “forgiveness clock.”

5) Public Service Loan Forgiveness

Under the Public Service Loan Forgiveness (PSLF) program, your federal student loan may be forgiven based on your employment with an organization that meets the qualifications.

What You Should Know:

  • With some exceptions, to obtain forgiveness, you must be employed full-time by either a government, nonprofit, or organization otherwise classified as tax-exempt under the 501c3 IRS.
  • You need to make at least 120 qualifying payments on your loan before you can apply for forgiveness.
  • Your 120 qualifying payments do not need to be consecutive to qualify for loan forgiveness under the PSLF.

Downside:

  • You are not eligible for loan forgiveness if you are contractor or sub-contractor with any of the organization types mentioned above.
  • You must be in an income-driven repayment plan to take advantage of loan forgiveness (because, under the standard 10-year plan, you would not have a balance to forgive.)
  • If your loans have been consolidated and are on the Standard Repayment Plan, then these payments do not qualify for PSLF purposes.

6) Federal student loan consolidation

If you can’t get your student loan payment lowered under one of the plans above, then you could consolidate your Federal student loans under the Direct Consolidation Loan program.

What you should know:

  • There is no fee to consolidate your federal student loans.
  • You can consolidate your loans even if they are in default.
  • You’ll be able to switch your variable interest rate to a fixed one.
  • The consolidation could make your loans eligible for more income-driven repayment plans than before.
  • You’ll be able to consolidate all of your federal loans into one place for one monthly payment.

Downside:

  • You could end up paying more over the life of your loan (your loan period could be extended, increasing your payments and interest).
  • You could reset the clock on a previous income-driven repayment plan or a PSLF plan (your previous payments towards forgiveness may not count).
  • There is a specific list of federal loans that are eligible for consolidation, which you can find on the application.
  • Consolidation does not cover your private loans.
  • You could lose borrower benefits like interest rate discounts, principal rebates, or some loan cancellation benefits under your current loan repayment plans.
  • You can only consolidate your federal loans one time.

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7) Refinance your student loans

Refinancing your student loans allow you to pay off your existing student loans with a new loan and new terms. Many times, borrowers can find private lenders who offer lower interest rates and, perhaps, longer repayment periods.

Companies like SoFi, UpStart, Lendkey, and CommonBond offer loans specifically for this purpose.

What you should know:

  • Some private lenders will allow you to consolidate both your private and federal student loans into one loan.
  • You can refinance to obtain either a fixed or variable interest rate.
  • If you don’t qualify for a refinanced loan with a private lender, you can add a co-signer to your loans.

Downside:

  • Borrowers can only qualify for these loans based on their income and credit score.
  • You could end up paying more over the life of the loan if you choose an extended repayment period.
  • You lose the protections and options you would have had under federal loan programs (reducing your payment or obtaining forbearance and deferment is not an option with private funds).

8) Work for a company with student loan repayment benefits

Under various student loan assistance programs, your employer may be able to give you additional monies to help cover your student loan payments.  

What you should know:

  • The amount and types of student loan repayment benefits vary from company to company.
  • Receiving student loan payment assistance could increase your tax liabilities.
  • You should run through the numbers to see if the tax implications would negate the employer assistance.

Downside:

  • Although student loan assistance is increasing in popularity, they are still pretty rare with only a small percentage of employers offering them.
  • Legislation is still pending on the tax implications for both employers and employees. It’s unclear if federal or local laws will provide tax incentives, penalties, or relief for anyone involved.

9) Obtain a loan modification from your private lender

If your private loan payment is still burdensome, you can appeal to your lender for a loan modification. This can lower your interest rate, principal balance, monthly payment, or all three.

What you should know:

  • You could get your payments reduced temporarily or permanently.
  • Even if there is no formal modification program in place with your private lender, you can suggest a modification to see if they will accommodate your request.
  • This appeal process can also work if you have a loan directly from a private institution.

Downside:

  • Neither your lender nor your school is obligated to consider or grant modification requests.
  • Depending on the modification type, it could take longer to pay your loan down, which could result in more payments and interest paid.

10) Student loan debt settlement

Just like you’d settle a debt in collections for anything else, you could do the same with your student loan. Debt settlement is available for both private and federal loans. For federal loans, you’ll only have three options to settle with the U.S. Department of Education, which include:

  1. Waiver of collection charges (pays only the current principal balance and accrued but unpaid interest).
  2. The current principal balance, plus half of the accrued but unpaid interest.
  3. At least 90% of the current principal and interest balance.

What you should know:

  • You can only settle your debt if you have defaulted on your loans.
  • You’ll usually be dealing with a collection agency.

  Downside:

  • For federal loans, you will never pay less than what was disbursed.
  • Settling a debt can have a negative impact on your credit.

11) Check the statute of limitations

Each state has a statute of limitations for delinquent debt. This means that after a certain amount of time has passed, a lender can no longer sue you for a delinquent debt. Once the statute of limitations has passed on a debt it is called a time-barred debt. Check your state’s attorney general office for the statute of limitations on delinquent debt.

What you should know:

  • In some states, you can restart the statute of limitations time clock if, for some reason, you make a full or partial payment on a delinquent debt.
  • This strategy would only work for promissory notes from a private lender or private institution.
  • You cannot be sued for a time-barred debt, but the lender can still attempt to collect on this debt.
  • An institution that carries your time-barred debt may not have to respond to your requests for transcripts or other documentation.
  • The time-barred debt can remain on your credit report beyond the statute of limitations time period.

12) Get your debt discharged in bankruptcy court

Your student loans can be discharged if you file bankruptcy.

What you should know:

  • You’ll need to work with an attorney to file bankruptcy.
  • You’ll need to prove an undue hardship for yourself and your dependents.

Downside:

  • Bankruptcy can stay on your credit for at least seven years.
  • It is very unlikely that a court will grant you a discharge under bankruptcy.

Discharge your loan under other qualifying circumstances

There are other circumstances under which you can get a student loan totally or partially discharged, including:

  • Veteran Student Loan Discharge (must prove total and permanent disability)
  • Total and Permanent Disability
  • Closed school
  • Unpaid refund from a school
  • Fraud or Identity Theft (someone takes a loan out in your name)
  • Death of the borrower (and/or parents in the case of a Parent PLUS loan)
  • Borrower Defense (a school engaged in fraudulent or illegal activity)

Dealing with student loans can be an intensely frustrating ordeal, but knowing your options for both federal loan repayment plans and private student loan lending can lessen the frustration.

Once you’ve got your student loan payments under control, consider creating a plan to reduce or eliminate all of your debt. When the heat is off in other financial areas of your life, you’ll have more wiggle room when it comes to the debt that will take longer to pay off.

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Variable: 2.56% – 6.73%*

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Fixed APR (Refinancing): 3.35% – 6.46%*
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