The Ultimate Guide to Lower Student Loan Payments

2 quick, easy things to do first

Before we jump in, there are a couple things that you can and should do, no matter what kind of loans you have:

1. Make sure you're enrolled in autopay

Most loan servicers will knock a quarter percentage point off your interest rate just for enrolling in automatic payments.

That 0.25% discount may sound small, but it can yield significant savings over the life of your loan. The larger your balance and the longer your loan term, the more you'll save. 

2. Check with your employer

Check with your employer to see if they offer any loan repayment incentive programs. In an effort to recruit and hold on to high-quality employees, some employers are adopting loan or tuition assistance programs. It never hurts to ask!  

See also: The Ultimate Guide to Companies That Pay Off Student Loans

Now, on to some specifics ...

If you have one federal loan

If you have one federal loan, you can lower your monthly payments by using one or more of these three options:

1. Enroll in an income-driven repayment plan.
2. Extend your loan term.
3. Refinance to a lower interest rate.

Option 1: Enroll in an income-driven repayment plan

One of the most straightforward ways to reduce your monthly payment is by signing up for an income-driven repayment plan.

There are four income-driven repayment plans, but they all have the same purpose: to allow you to continue paying back your student loans without inhibiting your ability to afford basic things like food and rent.

That means your lender needs to understand how much you spend on the non-negotiable things in your life so that they know how much you have left over (your "discretionary income").

The idea is that, while you absolutely have to pay the heat bill and the rent check, you could skip the new purse or the fancy vacation.

Of course, everyone on an income-driven repayment plan isn't submitting their monthly budget to the Department of Education. Instead, you provide documentation of your current annual income, and the government calculates your discretionary income using federal poverty guidelines for families of your size in your geographic location. 

Once they've calculated your discretionary income, they'll set your monthly payment at 10-20% of that number, depending on the specific plan you've chosen. 

What is your eligibility for an income-driven repayment plan?

If you have federal student loans, you can enroll in an income-driven repayment plan. 

If you checked out NSLDS or your credit report, then you already know whether you have federal loans. 

How to enroll in an income-driven repayment plan 

Great news: you can enroll in an income-driven repayment plan in less than 15 minutes. 

You'll need to gather some information, like your social security number, your federal student aid ID, proof of income, and similar information about your spouse (if you're married).

There are two ways to apply:

1. Call your lender, or 
2. Complete the online form at the Federal Student Aid website. (We've laid out the entire process for how to enroll in an income-driven repayment plan so you can apply with no surprises.)

An important thing to note with income-driven repayment plans is that while they may reduce the amount you pay in the short-term, they can significantly increase the amount you pay in the long-term. Most income-driven payment plans come with a term of 20-25 years, so you'll be paying interest over a longer period of time. Plus, lower payments mean that less of your payment will be going toward your principal every month, so it will take longer to whittle down your balance. 

However, if you're still paying after 20-25 years, any remaining balance will be forgiven (although you'll have to pay taxes on any unpaid debt).

The one exception: Public Service Loan Forgiveness(PSLF). This program is available only to borrowers with federal student loans working in eligible public service positions. PSLF comes with a 10-year term and tax-free loan forgiveness after 120 qualifying payments. 

Want to see if you qualify for PSLF? Check out What is Public Service Loan Forgiveness?

Option 2: Extend your loan term

If you're not interested in an income-driven repayment program but still want to maintain federal benefits, you can simply lengthen the term of your loan to an extended plan, which sets your repayment term at 25 years.

You'll need to contact your loan servicer to ask about extending your term. 

Remember that extending your repayment term may lower your payments now but will ultimately result in your paying more over the life of the loan. 

Option 3: Refinance your loan

If you don't intend to use federal loan benefits like the PSLF, or if income-driven repayment isn't going to lower your payment all that much, refinancing may be a smart idea. 

Refinancing to a lower interest rate is a supe- effective way to lower your monthly payments. And ... if you refi and also opt for a longer loan term, you may be able to lower your payments by as much as $250 a month. 

While refinancing is a big money saver for a lot of borrowers, you'll want to think very carefully about any actions that would reduce your monthly payments but remove your eligibility for federal student loan benefits. 

For example, refinancing your student loans is a great way to reduce your interest rate, but it's not an option if you're counting on a federal loan forgiveness program or if you want to maintain the ability to ask for a period of deferment or forbearance in the future. (We'll talk more about this in a minute.)

If you have one private loan

The best way to get lower payments on a private student loan is to refinance.

Your private loans don't offer loan forgiveness or income-driven repayment, so you don't need to worry about losing any federal loan benefits. That means, you're not locked into a particular program or servicer, so you might as well shop around for the best deal. 

Why refinancing can help 

Refinancing to a lower interest rate can transform your loan payment from panic territory to completely manageable.  In fact, refinancing your student loans is one of the only ways to reduce your monthly payments without potentially increasing the amount you pay in the long-term.

When you refinance your student loans, you basically get to start with a clean slate. You choose a new lender, get a new interest rate, and agree to new loan terms.

Private lenders are currently offering interest rates as low as 2.8%. If you have current loans with 6% or 7% interest rates, that reduction in interest could save you hundreds of dollars each month.

Over the life of the loan, you could save thousands.

In fact, the average borrower who refinances lowers their payment by $253 a month or saves over $16,000 over the life of the loan. 

By swapping out your existing loan for one with a lower interest rate, you’ll automatically direct a bigger portion of your monthly payments towards your loan principal instead of interest, allowing you to pay down your debt faster.

See: If Your Credit Score is Over 700, There's Something Your Student Loan Lender Doesn't Want You to Know.

How to refinance your private student loan

Considering the huge financial benefit you could get, refinancing your student loans is a pretty easy process.

There are just three simple steps:

1. Choose a lender
2. Complete an application, and
3. Wait for the application to be processed.

After you're approved, your new lender will pay off your old loan and you'll begin making payments on your new, lower-interest loan.

To choose a lender, start by creating a basic spreadsheet so you can get a side-by-side view of different banks to compare interest rates, loan terms, and other factors. If the thought of making a spreadsheet gives you hives, no problem. Check our Best Banks chart for an easy comparison.

Many lenders provide the option to get a quote on their website. This will result in a "soft pull" on your credit, which allows the lender to give you a relatively accurate quote without dinging your credit score. 

To apply, fill out the application on the lender's website. Typically, you'll need about 20 minutes to complete an application. When you're done, it's reviewed by your lender and processed for approval.

Wait for approval, which can take as little as a few days or as long as two to three weeks. You should continue to make payments on your existing loans until your new lender notifies you that the old loans have been paid off.

Most people who are approved for refinancing are able to start saving in about three weeks.

How to lower your payments if you have multiple loans — federal and/or private

If you have multiple student loans — especially if they're a mix of both federal and private loans — you may have experienced some overwhelm at trying to figure out how to manage them. You're definitely not alone there. Getting one student loan bill is bad enough. Battling multiples would send anyone into a tailspin.

If you're dealing with multiple student loans, there are two ways to lower your payments:

1. Consolidate your federal loans through the federal government.
2. Refinance several loans (federal or private) into one private loan.
3. Refinance several private loans into one private loan.

Consolidate your federal loans through the federal government

You may have already considered consolidation — the process of combining all your separate student loans and paying them off with a single new loan. 

Consolidating won’t reduce your debt, but it will mean fewer bills.

If you have multiple federal student loans, you can consolidate them through a federal Direct Consolidation Loan.

The federal government doesn't consolidate private loans, so if you're carrying both private and federal student loans, read on for information about how to consolidate them all together. 

The advantages of federal loan consolidation

Consolidation helps you pay back your student loans more efficiently while allowing you to:

• Avoid the risk of default by combining your federal loans through a Direct Consolidation Loan.
• Lower your monthly payments by opting for a longer payment term (though this will ultimately increase the amount of interest you pay during the life of the loan).
• Remain eligible for government programs that help manage student loan debt — including some repayment plans, deferment and forbearance, and loan forgiveness opportunities.

The drawbacks of federal consolidation

While there are significant benefits to consolidating your federal student loans, make sure you're aware of the potential cons. 

• If you get a new, longer loan term from the government, you may be making smaller individual payments but you’ll end up paying more in interest over the long term.
• You could lose benefits that come with specific loans. For example, if you consolidate federal Perkins Loans – which are forgiven gradually for some teachers who work in low-income areas, for law enforcement officers, and for other public servants – you will lose these forgiveness benefits.
• If you’ve already been making qualifying payments toward Public Service Loan Forgiveness, the clock resets when you consolidate. That is, you’ll need to make 120 new qualifying payments after consolidation before your loan balance is forgiven. 

One important note: consolidating some of your federal loans doesn't mean you have to consolidate all of your loans. For example, say you have 10 federal loans. Two of the loans have really low interest rates – less than 3%. The others are 7% and above.

When you consolidate with the federal government, your lender will average your interest rates and create a new single-payment schedule based on the weighted average of all your loans, rounded up 1/8%.

In our example, if you consolidate, you'd lose that super low interest rate on two of your loans. In that case, it might make sense to keep those separate and only consolidate the rest. 

How to consolidate your federal student loans

Once you've decided to consolidate your student loans, follow these steps. 

1. Find your Federal Student Aid (FSA) ID — You got an FSA ID when you applied for FAFSA (Free Application for Federal Student Aid). Can’t remember yours? Find out what to do.
   
2. Apply for consolidation online — Or call the Federal Loan Consolidation Information Call Center at 1-800-557-7392. Set aside at least 30 minutes to complete the application and have all loan information handy.
3. Decide on a repayment plan – See what your monthly payments would be on each payment plan with Federal Student Aid’s Repayment Estimator. You can also call your loan servicer and ask which plan will save you the most money over time or give you the lowest monthly payment.
4. Start paying it off – If you’re past your six-month, post-graduation grace period, repayment of your new direct loan will start within 60 days. Your servicer will contact you with your first payment due date and instructions for submission. Be sure to keep paying on your old loans until you have confirmation that they have been zeroed out. 

Refinance several loans (federal and private) into one loan

Many borrowers have a mix of both federal and private loans that they'd love to consolidate. While you can't consolidate private loans with the federal government option we outlined above, there is another way to combine multiple loans into one. If you want to simplify your loan payments for federal and private loans — and get a lower monthly payment while you're at it — consider refinancing through a private lender. 

Remember, if you refinance your federal loans along with your private loans, you’ll lose access to those specific benefits we mentioned earlier that are available only for federal student loans. Depending on your particular situation, the lower interest rate may be a worthwhile trade.

If you do refinance your federal and private loans together, you'll follow the steps we'd laid out above under How to refinance your private student loan.

See: Should You Refinance Your Federal Loans Through a Private Lender?

Refinance several private loans into one loan

If you have private loans you want to consolidate into one loan, you'll need to refinance with a private lender. Follow the steps we'd laid out above under How to refinance your private student loan.

Summary and next steps

Whew. That was a lot of information.

Let's recap. 

You're ready to pay less on your monthly student loan bills (way to take control of your finances!). We've got a few steps to help you do that. 

1. Log into NSLDS or download your credit report (or both) to find out exactly how much you owe and to whom. 
2. If you have one federal loan, consider enrolling in an income-driven repayment plan. If you know you're not interested in retaining federal benefits (like loan forgiveness or the ability to defer), consider refinancing with a private lender. 
3. If you have one private loan, research lenders and refinance for a lower interest rate. 
4. If you have multiple loans, consider consolidating them and extending your repayment term if they're federal loans and you want to retain federal benefits. Or, refinance them if they're private loans (or a mix of both). 
5. Start saving money. 

Whenever you're about to put some work into making positive change for yourself, it helps to have the motivation of a really great result at the end. Use one of these calculators to find out how much you could save by refinancing, consolidating, or choosing an income-based repayment program.