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Tips To Lower Monthly Payments For Your Student Loans

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Tips to lower monthly payments

Did you know that recent college graduates rack up an average of $37,000 in loan debt?

Once the initial grace period ends, you can find yourself facing student loan payments of hundreds of dollars per month. That's not a problem for the small group of graduates who land a good right out of the gate. 

It's a much more serious problem for anyone who gets a lesser-paying job or is still looking for work. Finding a way to lower monthly payments on your loans can take the financial and psychological pressure off.

The good news is that there are numerous paths to bringing that bill down to a more manageable level. 

So let's jump and look at some tips to help!

Lower Monthly Payments with a Forbearance or Deferment

Lower Monthly Payments with a Forbearance or Deferment

Federal student loans have two options for short-term relief from payments. You can get a forbearance or a deferment.

Both options allow you to either suspend or reduce your payments for an agreed on period of time up to 12 months. The primary difference is how interest is handled.

With many deferments, you won't be responsible to pay accumulated interest on the loans. You are typically required to pay the accumulated interest when you get a forbearance.

So let's say you graduated six months ago and you've been working in retail to make ends meet. You've been hired for a better job, but it won't start for three months. You can't possibly pay the student loan bill, buy food, and cover rent. 

Assuming you qualify, a deferment or forbearance can let you put off those payments until after you start the new job. You avoid defaulting on your loans. Plus, you get to keep eating and paying rent.

Income-Based Repayment

Income-based repayment is a straightforward way to lower monthly payments.

Your monthly payment is based on your actual income. So, if your current income is below the poverty threshold, you'll see a dramatic reduction in your monthly payments. 

Those making decent money will see more moderate reductions, but it will still likely be less than their current payments.

There are a few hoops to jump through. You'll need to apply and provide proof of your financial situation, such as pay stubs or tax forms. You'll also need to submit financial information on a yearly basis to stay in the repayment program.

If you stay in the program for 20 or 25 years, depending on when you borrowed, the balance on your loans will be forgiven.

Graduated Repayment

lower monthly payments graduated repayment plan

Graduated repayment is a good way to lower monthly payments in the short-term.

The program works by gradually stepping up the size of your payments over ten years. You can generally expect to see an increase in payment size every two years.

This option is good if you're very confident that you're going to see a steady rise in your income over the next ten years.

If you aren't confident about your income prospects, you're probably better off with one of the other options.

Extended Repayment

Extended repayment plans let you stretch the normal 10-year repayment schedule out to as much as 25 years.

This approach will lower your monthly payment, but it does come at a cost.

Interest still gets charged on the loans for that entire period. For instance, if you're two years into loan repayment and shift to a 25-year payment plan, you could be looking at paying out a lot more in interest over the life of the plan.

This option requires you to balance current needs against your future expectations. If you believe that your income won't go up much over the next two decades, this option makes sense.

If you have good reason to expect better income down the road, this likely isn't the best way to lower monthly payments.

Private Loan Forgiveness Programs

Some students need to take out private loans in addition to federal loans to cover college costs.

You can lower those private loan payments by seeking out private loan forgiveness programs. There isn't one model for these programs, but there are a few common approaches.

A state government might help pay those loans if you go into a particular career and will work in a specific location. For example, a teacher willing to work in a low-income or extremely rural area might qualify.

A state might also help pay loans if you take a public service position.

The best place to start looking is in your current state. Many forgiveness programs only available after you become a state resident, which typically takes a year.

Loan Consolidation and Refinancing

Loan consolidation is available for federal loans and refinancing for private loans.

Refinancing private loans lets you lower monthly payments by securing better interest rates. As a general rule, you can also extend the payment period which goes a long way towards lowering your payments.

Federal loan consolidation is a little more complicated.

All of your individual loans got lumped together into one big loan. Unlike refinancing, you don't get to wait for better interest rates. Your interest rate is an average of all the rates on all of your loans.

The lower payments come out of opting for a longer repayment period. You'll likely end up paying more on the loans in the long run, but it'll free up some money on a month-to-month basis.

Parting Thoughts

notebook and pen

Student loan payments often tax or exceed the finances of recent college graduates.

Lowering monthly payments on those loans is often necessary simply to continue paying survival bills, like rent. The important thing to remember is that you have many paths to lowering that loan bills.

You can enroll in income-based repayment, graduated payment programs, or extended payment programs. If you're just having short-term financial difficulties, a deferment or forbearance can give you a year's breathing room.

You can seek out loan forgiveness programs in your state or, if you're willing to relocate, in other states. Plus, you can always consolidate or refinance your loans.

Forgiveness Processing specializes in helping you find the right student loan forgiveness options. If you're feeling overwhelmed by your student debt, contact us today!