One might take several approaches to reduce monthly student loan payments. Your current financial standing and whether or not you have federal or private student loans will determine which choice is most suitable for you. If you have a secure financial situation but would still want a lower monthly payment on your student loans so that you have more discretionary income each month, one of the following options may be ideal for you:
- Student loan refinance: When you work with a private lender, you may negotiate a new term and a reduced interest rate.
- Federal student loan consolidation: Consolidating numerous federal student loans into one with the Department of Education can allow you to get a new term, which may reduce your required monthly payment.
Refinance Some or All of Your Loans
Through student loan refinancing, if you have a stable income and a high credit score, you may qualify for a reduced interest rate, which would result in a lower monthly payment.
You will also have the ability to alter the length of your loan when you refinance. Your monthly payment will be greatly reduced if you take out a loan with a longer term and a lower interest rate. If you choose a longer loan period, however, you will pay more overall interest payments than a shorter loan term.
Both federal and private student loans are eligible for refinancing; however, refinancing with a private lender is the sole option. It is impossible to convert private debts into loans from the federal government.
Suppose you decide to refinance your federal student loans. In that case, you will no longer be eligible for the safeguards accompanying them, such as the current payment and interest freeze on your federal student loans.
Consolidate Your Federal Loans
Consolidating your different federal debts into one monthly payment is possible via the federal loan consolidation program. Your interest rate will not go down, but you can prolong the time you have to make payments. The amount of time you have to repay your loan might vary from ten to thirty years. Borrowers with federal student loans are the only ones who can take advantage of this clever move. Refinancing is an option to consider if you already have private student loans.
Choose Income-Driven Repayment Plan
This will limit the federal loan payments you must make to percentage of discretionary income, ranging from 10 to 20 percent. They will extend the loan's repayment time to 20 or 25 years. When this time period is over, any outstanding debt on your loan will be canceled. A few private lenders only offer an income-driven repayment option, thus only accessible for federal student loans.
Your regular loan payment can drastically decrease, going as low as zero dollars per month if your income is sufficiently high. This will depend on the quantity of your regular paycheck. If lowering your monthly payment is your primary objective, you should enquire with your servicer about the income-driven plan that would provide the best possible results.
To remain on an income-driven repayment plan, you must recertify your yearly income. If you do not, you will be moved back to a regular plan, which will almost certainly increase your monthly payment.
Ask For a Temporary Payment Decrease
If you have trouble making the monthly payment on your student loan, you have the option of approaching your private lender about temporarily decreasing your payments to prevent defaulting on your loan.
Your private lender may be able to alter your loan by lowering your interest rate or monthly payment for a certain period to help you out. Get in touch with the company that services your loan to learn more about the short-term payment modification alternatives they provide, the requirements that must be met to apply, and the steps that must be taken to get the process started.
Your loan servicer will not temporarily reduce your payment if you have a federal loan. They do not provide shorter-term alternatives, such as those made accessible by income-driven repayment plans.
Use Forbearance or Deferment
If you cannot keep up with the payments on your student loans and need a solution that is effective for a longer period, you may contact the company servicing your loans and ask for a deferral or a forbearance.
Both choices will put a hold on your payments for a certain amount of time (often in increments of three, six, or twelve months), but how interest is accrued differs for the two choices. Deferring the repayment of certain loans, such as subsidized and Perkins loans, will prevent the accrual of interest on such loans. However, interest will continue to be charged on all student loans throughout forbearance.