Student loans can be a huge financial burden. If you’re struggling to handle your monthly payment, you have some options.
AES is one of the lenders that services federal student loans. If you have federal loans serviced through them, here are four steps you can take to reduce your monthly payment.
1. Enroll in income-driven repayment
When you first start paying your federal student loans, you’re enrolled in a standard repayment plan that takes ten years to pay off. But if your monthly payment is too high under that plan, you can enroll in income-driven repayment.
There are four income-driven repayment plans, with some differences between them—and slightly different requirements for qualifying. But all of them give you a new monthly payment over a payment period of 20 to 25 years.
Your new monthly payment will be based on what you earn—usually it’s 10-20% of your discretionary income. And once the term of your loan ends, your balance gets forgiven—although you do have to pay taxes on the forgiven balance.
You can enroll in income-based repayment by going to the Federal Student Aid website or by calling AES.
2. Enroll in income-sensitive repayment
Income-sensitive repayment is one of the lesser-known alternatives to income-based repayment. However, it's important to know that federal Direct Loans are not eligible for this plan, only Federal Family Education Loans (FFEL).
As with income-based repayment, this plan ties your monthly payment to your income—usually between 4% and 25%. Your resulting payment has to be at least equal to the interest on your loan.
You have to reapply for this program every year, and your payment will go up or down based on changes in your income. The plan keeps you on a 10-year term, which means that if your monthly payment is reduced now, it will go up later to compensate.
That’s why this plan is generally better for people who think they’ll need reduced monthly payments only for a year or less. If you need a more long-term solution, look into income-based repayment, consolidation, or refinancing.
You can enroll in income-sensitive repayment by downloading the form from the AES website.
3. Consolidate your loans through AES
You can also consolidate your federal loans with a Direct Consolidation Loan through AES, replacing multiple loans with a single loan with a single payment.
When you do this, your loan is still eligible for income-drive repayment. However, if you’re currently making payments toward Public Service Loan Forgiveness, you’ll have to start over with your qualifying payments.
Consolidation has its pros and cons. It can reduce your monthly payment by extending the term of your loan. However, it doesn’t reduce your interest rate—in fact, it can actually increase it slightly, as the new interest rate is set by calculating the weighted average of all your loans and rounding up by an eighth of a percent.
You can find out more about consolidation on AESsuccess.org.
4. Refinance through a private lender
Refinancing through a private lender is similar to consolidating through the federal government, with a few key differences.
Unlike consolidation, refinancing can reduce your monthly payment by reducing your interest rate—not just by extending the term of your loan. Although you can also extend the term; this will result in a lower monthly payment, but more interest paid over time.
Let’s say you have $40,000 in student loans—close to the current average—and 4.45% interest rate on those loans; the same as today’s rate for Direct Subsidized and Unsubsidized loans for undergrads. Your payment is $348 per month.
So, if you have good credit, you can score an interest rate of 3.48% and reduce your monthly payment to $232 per month—putting more than $100 extra in your pocket each month.
Each of these options has its pros and cons—but they’re all better than default.
See how much you could save by refinancing. Check out this Refi Ready calculator.