The prospect of paying off student loan debt can be confusing at best and soul-crushing at worst. But take heart: There are perfectly legal ways to make your monthly payments more manageable while preserving—or even improving—your credit rating along the way.
Look outside the Standard Repayment Plan
Everyone who gets a federal student loan is automatically signed up for a generic repayment plan, also known as the Standard Repayment Plan (SRP). Typically, you'll pay the same amount each month over a 10-year period. And while the SRP may work for you, it might be well worth it to explore one of the following five ways to lower your student loan payments.
1. Apply for an extended repayment plan
If you have more than $30,000 in federal student loans, the extended repayment plan lets you stretch out your repayment term up to 25 years.
The upside: You can significantly reduce your monthly payments compared with the SRP, and you can choose between fixed or graduated payments.
The downside: You'll pay considerably more interest compared with the SRP.
2. Check out income-driven repayment plans
Income-driven repayment is the umbrella term for four similar-sounding plans for repaying federal student debt.
Let's look at what makes each plan unique:
True to its name, this program determines your monthly payment by your income (and family size). Your payments would be limited to 15% of your income—or 10% if you're a new borrower.
Benefit: This is a good option if you have a high debt relative to your income and intend to seek Public Service Loan Forgiveness at some point.
The key word here is "contingent." Although income is definitely a factor, your monthly payment is also determined by your tax-filing status and family size. Your payments would be limited to 20% of your discretionary income or the fixed monthly payment on a 12-year loan term, whichever is less.
Benefit: Gives parent borrowers a way to consolidate their Parent PLUS Loans into a Direct Consolidation Loan
Pay as you earn
This program limits your monthly payment to 10% of your discretionary income and can never exceed what you would have paid with the SRP. To qualify, you're required to show that you have a financial hardship.
Benefit: Provides one of the lowest percentage monthly payments relative to your discretionary income of the four income-driven repayment plans
Revised pay as you earn
Your payments would still be less than what you would've paid with the SRP but—unlike the pay-as-you-earn program—there's no financial hardship requirement. However, even though payments are capped at 10% of your discretionary income, if your income increases significantly, so would your payments.
Benefit: Available to any Direct Loan borrower with an eligible loan type
3. Consolidate your federal student loans
Do you have more than one federal student loan with different interest rates, repayment terms and due dates? By consolidating those loans, you can choose a repayment option ranging from 10 to 30 years, which can significantly lower your monthly payments.
Be aware that consolidating your loans won't result in a lower interest rate. Your new rate would be a weighted average of your previous rates plus a small percentage, so this option won't save you money in the long run.
4. Look into refinancing your private loans
Student loan refinancing is one of the few debt-reduction options available to people with private loans. The idea is to replace your old student debt with a new loan through a private student loan refinancing lender. You're looking to get a lower interest rate, smaller minimum monthly payment and longer repayment term.
To prequalify you, most private student loan companies will perform what's called a "soft" credit check, which won't affect your credit score. You can increase your chances of getting approved for refinancing by asking a friend or relative with good credit to act as a co-signer on the new loan.
5. Ask about repayment assistance or forgiveness
Student loan repayment assistance programs (LRAPs) are offered by a number of states, government agencies, nonprofits and other organizations. This is a free service, so it's probably worth exploring, especially if you have private loans and don't qualify for income-driven repayment plans.
Your employer may also have a program in place to help you with your student loan payments. Repayment assistance programs have become more and more popular among employers in recent years—primarily as a recruitment tool. Consider checking with your human resources department to see if this benefit is available or may become available in the future.
If you work for a government or not-for-profit organization, you might qualify for loan forgiveness under the Public Service Loan Forgiveness Program(opens in a new tab).
Ready to get started?
The US Department of Education has a wealth of information on how to repay your federal student loans(opens in a new tab), including ways to find the right payment plan for you and what to do if you can't afford your payments.
As mentioned in #4, private loans have far fewer repayment programs—and no forgiveness options. Still, it's worth talking with your lender to explore what options are available to you.
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