- Congress has suspended federal student loan payments for six months under a massive relief bill, but lowering your monthly student loan payment for the long term may be wise if your income has been affected by the coronavirus pandemic.
- There are a few ways to lower your payment, including applying for an income-driven repayment plan, consolidating or refinancing your loans, or extending the length of your loan term.
- You could also pause your payments after the six months are up if you need additional relief, or set up a graduated payment plan that raises your monthly payment as your income rises.
- Read more personal finance coverage.
Many folks have had their hours reduced or lost their jobs entirely as a result of the coronavirus crisis, which understandably puts a squeeze on monthly finances.
Congress has passed a massive relief bill that freezes federal student loan payments for six months, but your finances might not be totally back to normal by that time.
If you’d like to get a jump on lowering your monthly student loan payment now, you have a few options. In some circumstances, you could even get your monthly payments down to zero while still remaining in good standing.
Pause monthly payments
Due to the disruption caused by COVID-19, President Trump announced on Friday that beginning retroactively on March 13, all Americans with federal student loans can pause their payments without accruing additional interest for the next 60 days. (And potentially six months.) This benefit is expected to kick in automatically if the bill is passed.
Consider a graduated payment plan
If you’re looking for a longer-term option that extends past the forbearance period, consider the Graduated Repayment Plan.
The federal government automatically places borrowers in the Standard Repayment Plan, which consists of 10 years of fixed monthly payments. Switching to a graduated plan keeps the time period the same, but starts you out with smaller payments in the early years, ramping up over time as you (presumably) start to make more money.
Extend your repayment plan
Those with $30,000 or more in federal loans can also opt for the Extended Repayment Plan, which keeps the fixed payments of the Standard Repayment Plan, but expands the timeline.
Choosing this plan — and as a reminder, you can change your plan at any time by contacting your lender — means you get 25 years to repay your loans. This change shrinks your monthly payments, but does mean you’ll pay more in interest over time.
Pin your monthly payments to your income
Income-Driven Repayment (IDR) plans are of particular interest right now, when so many are facing reduced hours, or out of work entirely.
Each of the four different types of payment plan, which you can apply for through Federal Student Aid, takes your income and family size into account when calculating your monthly payments.
Each month, you’ll put between 10 and 20% of your income toward your loans. (Or potentially even qualify for $0 payments.) After 20 to 25 years of on-time payments, you’ll become eligible for student loan forgiveness for the remaining sum.
An IDR plan can be particularly compelling for those at or close to the poverty line, because it protects you against slipping into delinquency or default, which can damage your credit long term.
But it’s important to note that interest will continue to pile up, and current tax law dictates that any forgiven balance is taxed as income. So make sure you’re doing the math to see if this is a good option for you.
Opt for consolidation
If you’re facing several federal loans, you can bundle them together by applying for a Direct Consolidation Loan at StudentLoans.gov. That newly consolidated loan will have a single monthly payment, which can help streamline your finances.
Even more crucially, it can lower your interest rate, since it takes the weighted average of the interest rates on your formerly disparate loans rounded up to the nearest one-eighth of a percent. (That said, outstanding interest on any given loans is applied to your principal balance post-consolidation, so you could end up paying more over time.)
Look into refinancing
Many of the payment-reducing strategies on this list apply only to federal loans, but refinancing is one that can be used for private loans as well. Typically favored by those with sky-high interest rates, refinancing involves taking out one new loan with a lower interest rate from a private lender, like SoFi or Earnest, to replace your old loan(s).
This new loan will be a private loan, however, so if you originally had a mix of both private and federal loans, you’ll be giving up the benefits of the latter, including borrower protections and lower interest rates.