- The Ultimate Guide to Lower Student Loan Payments
- Option 1: Enroll in an income-driven repayment plan
- What is your eligibility for an income-driven repayment plan?
- How to enroll in an income-driven repayment plan
- Option 2: Extend your loan term
- Option 3: Refinance your loan
- 15 Secrets To Refinance Student Loans
- 1. Have a good to excellent credit score
- 2. Be employed
- 3. Have stable and recurring income
- 4. Earn enough income to pay debt and living expenses
- 5. Pay down other debt
- 6. Consolidate credit card debt
- 7. Watch your debt-to-income ratio
- 8. Get a cosigner if you need one
- 9. Compare student loan refinancing rates first
- 10. Apply to multiple lenders
- 11. Check your credit report
- 12. Refinance your private student loans
- 13. Refinance your federal student loans
- 14. Do this to get the lowest interest rate
- 15. Use a student loan refinancing calculator
- Student Loans: Resources
- How To Pay Off Your Student Loan Debt
- Organizing your student loan debt
- Determining how much student loan debt you have
- Affording your student loan payments
- Making your student loans manageable
- Getting by with really big student loan payments
- Making a student loan payoff plan
- Reducing your student loan payments
- Federal loan assistance programs
- Pause payments with deferment or forbearance
- Reduce payments with income-based repayment
- Consolidate payments
- Student loan refinancing
- How much could you save by refinancing your student loans?
- Paying off student loans early
- Pros of paying off student loans early
- Cons of paying off student loans early
- Read more:
- Can You Change Student Loan Repayment Plans?
- How to change your student loan repayment plan
- How often can you change student loan repayment plans?
- How to change your payment amount
- Should you refinance your student loans?
- How much could refinancing save you?
- 8 Tips For Paying Off Student Loans Fast
- 8 ways to pay off your student loans fast
- 1. Make additional payments
- 2. Establish a college repayment fund
- 3. Start early with a part-time job in college
- 4. Stick to a budget
- 5. Consider refinancing
- 6. Apply for loan forgiveness
- 7. Lower your interest rate through discounts
- 8. Take advantage of tax deductions
- How long should it take to pay off student loans?
- Types of repayment plans
- Why pay off student loans fast?
- Is it worth it?
- Learn more:
The Ultimate Guide to Lower Student Loan Payments
If you have one federal loan, you can lower your monthly payments by using one or more of these three options:
- Enroll in an income-driven repayment plan.
- Extend your loan term.
- 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 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, 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:
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 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.)
15 Secrets To Refinance Student Loans
If you want to save money on student loans, pay attention.
Here’s what you need to know.
Student loan refinancing helps you to consolidate your existing federal or private student loans, or both, into a new, single student loan with a lower interest rate. When you refinance student loans, you can get a lower interest rate, lower monthly payment and pay off your student loans faster.
You can also choose to pay off your student loans anytime between 5 and 20 years. Most importantly, you can save money, which can be used for other life expenses, retirement, a home purchase, investing or to repay other debt.
Student loan refinancing could save you more than $30,000 over the life of your student loans, depending on your current student loan balance and interest rate.
Should I refinance my student loans? If you want to save money and get a lower interest rate, then student loan refinancing can be a smart option for you.
Since the federal government doesn’t refinance student loans, you will work with a private lender to refinance student loans. Each lender has its own underwriting criteria, and each applicant's financial background and circumstance is unique.
Therefore, student loan refinancing is not available to everyone. However, here is the best advice to get approved for student loan refinancing:
1. Have a good to excellent credit score
For student loan refinance, lenders want borrowers with a good to excellent credit score. Why? Your credit score is a measure of your financial responsibility. Lenders want to ensure that you make on-time payments and pay back your debt. The best student loan lenders expect a minimum credit score in the mid to high 600’s. That said, some lenders don’t have a minimum credit score.
Insider Tip: To maximize your chances for approval, a credit score of 700 or higher is best.
2. Be employed
To get approved for student loan refinancing, typically you must be employed. Why? Lenders want to ensure you have stable employment, which will give them confidence you will repay your student loan each month.
One exception to the employment rule is if you’re graduating and have a written job offer to start work in the near-term. Some lenders may accept a written job offer or employment agreement as proof of employment.
Insider Tip: If you are unemployed or furloughed, you may want to wait until you’re fully employed again before applying.
3. Have stable and recurring income
If you are employed with stable and recurring monthly income, then you’re one step closer to getting approved for student loan refinancing.
Why? Lenders want to ensure that you have sufficient monthly income to pay off student loans. If you have a regular paycheck coming each month, that will give lenders confidence in your ability to make monthly student loan payments.
If you don’t have stable monthly income, it may be harder to refinance student loans.
Insider Tip: If you’re a consultant, freelancer or entrepreneur, you could try to provide other evidence of your income or assets to show financial stability.
4. Earn enough income to pay debt and living expenses
What is the minimum income needed for student loan refinancing? Many lenders don’t have a minimum income, while others set a relatively low minimum income. Most importantly, lenders want to ensure that you have enough monthly cash flow for living expenses and debt repayment.
Do you qualify? Grab your pay stubs and identify your after-tax monthly income.
When you subtract your new student loan payment (after you refinance) and any other debt payments, does a sufficient amount remain for other essential living expenses? If yes, then you may be a good candidate to refinance.
Insider Tip: Make sure to count income from all sources, including any side hustles.
5. Pay down other debt
Lenders will not only look at your student loans, but also will examine your other debt such as a mortgages, credit card debt or auto debt. That means that lenders will account for your total monthly debt payments as part of the underwriting process. Why? Lenders want to make sure you can pay all your debt each month, even with the lower student loan rate.
Insider Tip: If you have other debt, don’t worry. Try to pay off some other debt if possible to lower the balance. So long as you have enough cash flow each month to pay your debt obligations, you should be a strong candidate.
6. Consolidate credit card debt
If you have credit card debt, you can immediately lower your monthly payment through credit card consolidation.
When you consolidate credit card debt, you can get a lower interest rate by combining your existing credit card debt into a single personal loan.
A personal loan has a fixed interest rate and typically has a repayment period of one to seven years. A lower monthly payment can help improve your chances to refinance student loans.
Insider Tip: Credit card consolidation can also improve your credit score.
7. Watch your debt-to-income ratio
Student loan lenders will focus on your debt-to-income ratio. What is a debt-to-income ratio? A debt-to-income ratio compares your monthly income to your monthly debt payments. Debt payments could include student loans, credit cards, mortgages and auto debt.
For example, if you have $10,000 of monthly income and $3,000 of monthly debt payments, then your debt-to-income ratio is 30%.
Lenders care about the debt-to-income ratio because they want to ensure you can manage your debt payments after you get a lower student loan interest rate.
Insider Tip: The lower your debt-to-income ratio, the better. You can improve your debt-to-income ratio by increasing income or decreasing debt (or both).
8. Get a cosigner if you need one
You don’t need a cosigner to get approved for student loan refinancing. However, a qualified cosigner could help increase your chances for approval and help you get a lower interest rate.
A cosigner is someone who is typically a relative such as a parent, spouse or grandparent who will assume equal financial responsibility for your student loan after you refinance. The best cosigners have a good to excellent credit score and stable and recurring monthly income.
The good news is that some lenders will allow you to release your cosigner from financial responsibility after you get approved for student loan refinance and meet certain requirements.
Insider Tip: If you do not have sufficient income, you can increase your chances for approval with a qualified co-signer who has a strong credit score and monthly income.
9. Compare student loan refinancing rates first
Don’t just go directly to a lender’s website and apply for student loan refinancing. Compare student loan refinancing rates first. This way, you could get a lower interest rate and find the best lender for you. Before you refinance student loans, compare rates, loan terms and other fine print.
Insider Tip: Student loan refinancing rates are incredibly low right now. It’s a good time to refinance in case rates go up again.
10. Apply to multiple lenders
After you compare rates, you should apply to multiple lenders to maximize your chances for approval. There is no limit on the number of lenders to which you can apply to refinance your student loans.
Insider Tip: If you apply to multiple lenders within 30 days, typically this is treated as a single inquiry on your credit report.
11. Check your credit report
What is your credit score? If you are not sure if you have good to excellent credit, chec your credit report. Importantly, if there are any errors, you should dispute them to make sure your credit report is accurate.
Insider Tip: You can get a free copy of your credit report from all three bureaus (Equifax, Experian and Transunion) through AnnualCreditReport.com.
12. Refinance your private student loans
You should refinance private student loans if you can get a lower interest rate. Private student loans can’t be forgiven through income-driven repayment plans or student federal student loan forgiveness programs.
Insider Tip: If you don’t your student loan servicer, student loan refinancing is a smart way to switch student loan servicers.
13. Refinance your federal student loans
If you’re struggling to pay your federal student loans, are enrolled in an income-driven repayment plan, or planning to pursue a student loan forgiveness program such as public service loan forgiveness, then student loan refinancing may not be right for you.
This is because when you refinance a federal student loan, you won’t have a federal student loan any longer.
However, if that doesn’t describe you and you want to save money, pay off student loans faster and get debt more quickly, then you can refinance federal student loans.
Insider Tip: When you refinance federal student loan and private student loans, you’ll get one student loan, one monthly payment and one student loan servicer. Much simpler.
14. Do this to get the lowest interest rate
If you want the lowest interest rate, choose a variable interest rate. When it comes to student loan refinancing, the advantage is that variable interest rates are lower than fixed interest rates. The disadvantage is that your interest rate can increase (or decrease) over time.
Insider Tip: If you think interest rates will remain low for awhile, and you can pay off a good amount of your student loan debt, then a variable interest may be best for you.
15. Use a student loan refinancing calculator
Use a student loan refinancing calculator to calculate how much money you can save with student loan refinancing.
Let's assume you have $100,000 of student loans with an 7.5% interest rate and 10-year repayment term. If you can refinance student loans with a 3% interest rate and 10-year repayment term, you can lower your monthly payment by $221 and save a total of $26,569.
Insider Tip: If you already refinanced your student loans, the good news is that there is no limit to how many times you can refinance. If you get a lower interest rate, use a student loan refinancing calculator to determine how much more money you can save.
Student Loans: Resources
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How To Pay Off Your Student Loan Debt
Student loan debt might just be the biggest financial problem facing today’s 20- and 30-somethings. Got student loans you can’t wait to pay off? Welcome to the club.
As of 2018, Americans owe more than $1.5 trillion on student loans. That’s more than on credit cards and auto loans combined.
Education is essential to increasing your lifetime income, so don’t feel bad about borrowing for your degree. That said, you want to ensure your student loan debt doesn’t crush your dreams before you can even get started. If you’ve got a lot of student loan debt — $20,000, $30,000, $50,000 or even $100,000 or more — we can help.
Organizing your student loan debt
Student loan debt can make you feel as if you’re a slave to your lenders, but having student loans doesn’t have to be a life sentence. Nor does having student loan debt mean you can’t have a life.
The best thing you can do is to confront your student loan debt as soon as possible and make a long-term plan for how you to pay it all off. Ideally, you would do this during the grace period after graduation during which many federal loans do not require payment. But even if you’ve already been paying on your student loans for a few years, it’s never too late.
Determining how much student loan debt you have
Do you know how much you owe? If not, the first step is to make a list or spreadsheet of all of your loan balances, interest rates, monthly payments, and due dates.
In a Google Sheet, it looks something this:
This exercise is helpful for several reasons. It’s difficult to climb a mountain you cannot see. While staring down the “big number” — the amount you owe on your student loans — can be scary, it also provides your goal.
I’ve also found that seeing your numbers can actually put your mind at ease. Your total debt might seem insurmountable, but you might find your total monthly payments are manageable. And your balance decreases with every monthly payment.
It can be helpful to add a column that focuses on how much you’ve repaid instead of how much you still owe.
Affording your student loan payments
With your student loan details in front of you, determine whether your total monthly payment is manageable.
Are you earning enough money to pay both your student loans and other necessary expenses each and every month? If not, there are two things you need to do:
Whatever you do, you do NOT want to stop paying your student loans — or even pay them late. Timely loan payments are essential to building a good credit history and defaulting on federal student loans carries extreme consequences: The government can garnish your wages, withhold tax refunds, and deny future benefits Social Security.
If you cannot afford your student loans, ask for help! More on that below.
Making your student loans manageable
Ideally, your combined housing payment (rent or mortgage) and total debt (student loans, other loans, and credit cards) should not be more than 40% of your pre-tax monthly income.
For example, if you earn $2,500 a month, pay $800 in rent and owe $400 in student loans, your housing and debt is 52% of your income, which is high.
That said, I know from experience that when you combine big student loan debts and low entry-level wages, the 40% debt-to-income ratio can be a difficult target to achieve.
Getting your housing and debt payments under 40% of your income will make a world of difference in your financial health. You’ll have more money to enjoy life. You’ll be able to build a bank account buffer so you’re not living paycheck-to-paycheck and, eventually, be able to to save money for larger purchases. You’ll feel you’re making progress.
Getting by with really big student loan payments
In reality, I know housing and debt make up well more than 50% of income for many young people. I’ve been there. Although it’s possible to survive in this scenario, it creates two problems:
- You have little money leftover to save or enjoy
- Your finances are more at risk of being derailed by an unexpected expense or loss of income
If you’re a doctor, lawyer or another professional with a stable six-figure income, you might be totally comfortable laying out more than 40% on loans and housing because the money left over is ample.
If you’re living with student loan payments and a housing payment that are more than 40% of your income, you might choose to continue with that precarious situation until you can increase your income, but you may also want to explore federal payment options and/or refinancing to reduce your monthly payment amount.
Making a student loan payoff plan
Decide whether you are comfortable managing multiple student loans or whether to consolidate them into one or two larger loans.
With your loan balances in front of you, it’s time to determine the smartest way to pay off your student loans according to your budget and other goals.
Consolidating your federal student loans can make life easier because you’ll have one or two loan payments instead of a dozen. In some cases, consolidation can also lower your interest rate.
If you intent to stick it out with multiple loan payments, make sure you have your due dates organized. Most lenders will adjust your due date if you call and ask. Consider making all of your loans due on the same date or splitting them into two groups (for example, making half due on the 1st and half due on the 15th of each month).
If a few of your loans have much higher interest rates than the others (this is common if you’ve taken out private student loans, which tend to have higher APRs than federal loans), you might consider repaying some of this debt early.
In general, you can send in larger student loan payments to pay down your loan balance faster without penalty. This saves you money on interest and will pay your loan off faster. Loans with interest rates greater than 7% are good candidates for early repayment. More on this below.
Reducing your student loan payments
If you can’t afford your student loan payments or your combined total debt and housing payment is more than 40% of your take-home income, you may want to explore ways to reduce your loan payments so your monthly cash flow is more manageable.
Federal loan assistance programs
Federal student loans come with a number of benefits that can help you make your student debt more affordable. These include deferment, income-based repayment plans and even forgiveness in certain situations.
Pause payments with deferment or forbearance
If you temporarily cannot afford to make loan payments at all, forbearance and deferment are two options that will suspend your loan payments without harming your credit score.
You must apply for these programs through your servicer, and interest will continue to accrue on your loans in many cases, but these options can give you time to find work, get additional education, or recover from illness.
Reduce payments with income-based repayment
If you’re working but your student loan payments are eating up too much of your monthly income, there are many federal student loan payment options that can reduce your payments. For example, under an income-based repayment plan, you pay a reduced monthly amount as low as 10% of your monthly income.
Keep in mind that income-based repayment can dramatically increase the amount of interest you will pay on the loan and, in some cases, mean that you’re not actually paying down the loan at all because your reduced payments only cover accruing interest, not principal.
That said, you may also become eligible for student loan forgiveness under an IBR plan.
If you continue to qualify for income-based repayment, your student loan debt may be forgiven after 20 years and in only 10 years if you work in a qualifying public sector or non-profit job.
Finally, we mentioned above, federal student loan consolidation can, in some cases, reduce your monthly payment and interest rate. The primary benefit of consolidation, however, is combining loans into a single balance and due date.
Student loan refinancing
If your federal loans carry high-interest rates or you have private student loan debt, you could be able to save a lot of money and reduce your total monthly payment by refinancing your student loans.
To qualify for student loan refinancing you’ll need a stable job and good credit or a creditworthy co-signer.
When you refinance, a new lender gives you one big loan and pays off all of your other loans. You also get to choose how long to take to repay your loans, which can reduce your monthly payment by stretching your payoff period. For example, your payment will go down if you refinance 10-year loans into a 15-year loan, but you’ll pay more interest overall.
Finding and applying for student loan refinancing has become easier thanks to marketplace websites that compare the best student loan refinancing companies in one place.
Our favorite one right now is Credible. The company shows you if you’re pre-qualified for refinancing in about two minutes and lets you compare real-time refi rates before you apply. It’s free to use and there’s no obligation to finance.
Plus, Money Under 30 readers who refinance their student loans with Credible can get a $100 bonus!
Check out Credible’s short survey below to find the best rates.
How much could you save by refinancing your student loans?
Check your rate and payment with Credible—it’s fast, free, and won’t affect your credit score:
Other lenders SoFi and Earnest are making student loan refinancing easier with online applications and approval processes that look at more than just your FICO score.
Read more: See if student loan refinancing is right for you
Paying off student loans early
Most people can’t wait until their student loans are gone entirely. While paying off your student loans early can save money and free up money in your monthly budget, it’s not always the best option.
Pros of paying off student loans early
Paying off your student loans early frees you from debt faster and provides a guaranteed return on your money by saving thousands of dollars in interest.
Let’s say you have a $10,000 student loan with a 10-year term at a 5% APR. If you make the 120 scheduled monthly payments of about $106, your loan will be paid off in 10 years and you will have paid roughly $2,728 in interest on top of the original $10,000.
If, however, you doubled your monthly payment to $212 from the beginning, you would pay off your loan in four years and five months and pay only $1,157 in interest. Doubling your payment gets you debt in less than half the time and for less than half the interest.
Cons of paying off student loans early
You can’t go wrong paying down your student loan debt early, but you only have so much money to spread over many different goals. Hanging onto your cash provides some benefits.
Money you use to pay down your student loans early is
- Money you cannot invest long-term in the stock market
- Money you cannot save in case of an unexpected expense or job loss
- Money you cannot save for a once-in-a-lifetime opportunity
Whenever you have an opportunity to pay down debt early, the first step is to look at the interest rate you’re paying. It’s always better to be earning interest than paying it, but the lower the interest rate, the less incentive you have to save or repay debt. You want to invest in high interest rates and borrow at low interest rates.
If for example, you have a student loan at 3% but can invest and earn 7%, the better mathematical play is to invest any spare money and take the 4% profit. Of course, paying down debt is a guaranteed return whereas investing involves risk. The choice is yours.
Personally, I believe the better argument for not paying off student loans early is the need to hold onto your cash for other reasons.
Student loans are not lines of credit. That means once you pay money toward the loan, you can’t borrow it back if your car suddenly coughs up its transmission.
Yes, hanging onto cash in a 1% APY savings account might not seem to make sense when you have student loan debt at higher rates, but cash provides you with the ability to whether financial setbacks and take advantage of financial opportunities.
Cash provides an emergency fund to cover unexpected expenses without taking on more debt.
Cash also enables you to take advantage of opportunities, whether they’re financial, such as starting a business, or personal, such as taking a sabbatical to travel the world for a month.
The point is, you’re only young once. If you’re smart and hard-working, you’ll pay off your student loan debt in due time.
Can You Change Student Loan Repayment Plans?
You can change your student loan repayment plan as often as needed if you’re having a hard time affording your federal student loans. Some private student loans have alternate payment plans; contact your lender or check your loan’s paperwork to see what options you have for paying less.
» MORE: Find the best student loan repayment plan for you
In most cases, a lower monthly payment means a longer repayment term, which increases the amount of interest you’ll pay. Changing plans can also capitalize unpaid interest, increasing the amount you owe. But those extra costs are worth it if a new repayment plan helps you avoid the consequences of student loan default ruined credit, garnished wages and tax refund garnishment.
Here's what to know about how to change your repayment plan and what those lower payments could cost in additional interest.
How to change your student loan repayment plan
Choose the plan that’s right for you. Plug your loan information into Federal Student Aid's Loan Simulator to see how much you might save on different plans.
Contact your servicer. Choosing a different student loan repayment plan is always free. You don’t have to pay a third-party debt relief company. Your loan servicer — the company that manages your federal loans on behalf of the government — can help you.
Complete any necessary paperwork. You will need to submit an application if you want to consolidate your student loans or select an income-driven repayment plan. Your servicer can provide paper copies of these forms, but it’s easier to complete them at studentaid.gov.
Check payment due dates. Switching payment plans can take time. For example, the Consumer Financial Protection Bureau says income-driven repayment applications sometimes take months to process. Confirm your next payment deadline so you don’t fall behind by accident.
Update auto-pay, if needed. In most instances, your new student loan repayment plan won’t come with a new servicer. But you can switch student loan servicers through consolidation. If you auto-pay your loans, be sure to give your new servicer your payment information.
» MORE: How to start paying student loans
How often can you change student loan repayment plans?
You can change federal student loan repayment plans as often as you need to. But paying less each month will ly mean paying more overall, since more interest can add up on your loans.
For example, let’s say you owe $30,000 at an interest rate of 4%, you’re single and your adjusted gross income is $40,000. Under the standard repayment plan, you’d pay $304 a month and $6,448 in interest over 10 years. Under Revised Pay As You Earn, or REPAYE, your initial monthly payments drop to $182 — but you’d pay $9,081 in interest over approximately 12 years.
When you switch repayment plans, outstanding interest capitalizes. That means your future interest accrues on a higher balance. If you want to pay off loans faster once you’re on stronger financial footing, make extra payments on your principal balance each month instead of returning to the standard plan.
» MORE: How to pay off student loans fast
How to change your payment amount
You may be able to change your payments to a lower amount in the following ways:
- Decrease payments temporarily. Graduated repayment is a 10-year plan that lets you pay a lower amount per month to start, then increases your payments every two years. The amount you pay by the end of your loan term will generally be higher than what you would have paid on the standard plan.
- Lower payments for longer. Extended repayment stretches your repayment period to up to 25 years, and your payments can be either fixed or graduated. It’s only available to borrowers with more than $30,000 in outstanding Direct Loans. You could also consolidate your student loans, which could extend your repayment period to up to 30 years.
Does changing repayment plans affect student loan forgiveness?
In most cases, switching repayment plans does not affect your ability to get student loans forgiven.
For example, only standard and income-driven payments count toward the 120 payments needed to qualify for Public Service Loan Forgiveness. If you entered repayment on the standard plan, made 20 payments and then switched to an income-driven plan, you'd be eligible for PSLF after 100 additional payments, provided you meet the program's other requirements.
Similarly, all payments made under income-driven plans count toward those plans' forgiveness after 20 or 25 years. For example, you pay for 10 years on Pay As You Earn and then enroll in Revised Pay As You Earn. At that point, you'd only have to make an additional 10 or 15 years of payments before forgiveness kicks in, depending on the type of loans you have.
Consolidation is an exception. Because this process replaces your existing debt with a new loan, consolidating wipes out any payments you made on those original loans that counted toward forgiveness. If you plan to pursue forgiveness, consolidate early in repayment to ensure as many payments as possible count toward that goal.
» MORE: Can you consolidate your student loans?
» MORE: Income-driven repayment: Is it right for you?
Should you refinance your student loans?
Student loan refinancing can also decrease your monthly payments, depending on the terms of your refinanced loan. It can be risky to refinance federal student loans because you’ll lose access to programs income-driven repayment and Public Service Loan Forgiveness.
Private student loans don’t come with those benefits. Some private lenders do offer repayment plans if you’re struggling financially, letting you make interest-only payments for a set period of time. But those options will increase the amount you pay overall. Refinancing private student loans is a better way to decrease payments if you qualify for a lower interest rate.
How much could refinancing save you?
8 Tips For Paying Off Student Loans Fast
While some may argue that you can’t put a price on a good education, many of today’s graduates face the grueling task of paying off student loans within a reasonable time frame. However, if you’re feeling overwhelmed by student loan debt, there are a few ways to pay off student loans quickly.
8 ways to pay off your student loans fast
Some of the best ways to start paying off your student loans faster include:
1. Make additional payments
If you can afford it, make larger payments to cut the principal more quickly. By diminishing the principal balance, you’re minimizing the duration of the loan period and the interest accrued.
For example, a $25,000 student loan with 6.8 percent interest and a 10-year payback period would cost $288 a month. Paying $700 a month instead of $288 enables the borrower to repay the loan in just over three years.
Another strategy is adding payments and sending in checks every two weeks rather than monthly.
“Just be sure to advise your loan servicer to apply your extra payment to your principal balance, rather than placing your account in a ‘paid ahead’ status,” says Jessica Ferastoaru, student loan counselor at Take Charge America. “This will allow you to pay down your principal balance more quickly, and save money on interest.”
Takeaway: Making larger payments will help you cut through the principal more quickly, which will allow you to pay off your loan sooner.
Next steps: To realistically determine how large your loan payments can be, consult your budget and see where you may be able to reduce spending in order to accommodate larger loan payments.
2. Establish a college repayment fund
Another great approach to paying off student loans quickly is placing your money into an account you can’t easily draw from with the swipe of a card. Having money moved automatically into savings is effective because it’s forced. It enables people to set aside money to grow what otherwise would be spent on clothes or dining out.
Just make sure to set up an account that will be used only for paying back your college debt. Don’t use checking or savings accounts you already have, because you might use that money for something other than your student loan. Compare savings accounts and put your money in an account with a higher yield to maximize your savings.
Takeaway: Setting up an account specifically for your student loan repayment funds can be a great way to compartmentalize your finances. It can also help you control out-of-budget spending, allowing you to potentially make extra payments.
Next steps: Research savings accounts with high yields, then contact your preferred bank to set up your new account specifically for student loan savings.
3. Start early with a part-time job in college
Getting a part-time job while attending college is one way to keep college debt in check because it generates money you can use to help offset student loan debt.
Say you’re able to work a part-time job that allows you to put away $500 a month. In a year, that’s $6,000 you can put toward paying off student loans.
Takeaway: If you’re able to properly manage your coursework and a part-time job, a job can allow you to create a student loans savings account.
Next steps: Check your school’s resources or career center to see if they are hiring for any on-campus jobs. Typically, on-campus jobs are more understanding of unusual or busy class schedules.
4. Stick to a budget
Not knowing how to manage finances properly can prevent students from paying off their loans quickly and, as a result, delay more fulfilling life investments. By carefully planning and fully understanding your monthly cash flow, you can make some necessary sacrifices and avoid falling off the budgetary wagon.
“If you’re trying to pay down your student loans faster, one of the best ways to reach your goal is to develop a budget,” says Ferastoaru. “If you are able to meet a savings goal each month by sticking to a budget, you can use this money saved to pay down your student loans.”
Takeaway: Your financial health and spending habits can greatly impact your ability to pay off your student loans — be diligent about sticking to a budget during your repayment period.
Next steps: Do an assessment of your spending habits and your ability to keep a budget. If you find it hard to keep a solid budget as a college student, use our student budget calculator to help you get — and stay — on track.
5. Consider refinancing
If you’re not sure how to pay off student loans quickly or if it doesn’t seem feasible, you may be paying too much interest.
That’s where you might consider refinancing your loan into a better rate or a shorter repayment period. While refinancing federal loans with a private lender will cause you to lose some federal benefits, it could make paying off your loans more achievable.
Remember, however, that timing is key. Your credit score is typically going to be at its lowest immediately after graduation, which generally means that the interest rates you’re offered will be higher.
“It takes a few years of repaying your debts responsibly, by the due date, for your credit scores to improve. You also need to have a steady job,” says student loan expert Mark Kantrowitz.
“Shop around for the loans with the best rates.
The best advertised rate is not necessarily the rate you will be offered, so you may need to apply for several loans to see which lender gives you a better deal.”
Takeaway: If you’re overwhelmed by the prospect of paying down your loans quickly, refinancing may be a good option. While it’s not for everyone, refinancing can help you score a lower interest rate or different repayment terms.
Next steps: Before applying, compare offers from multiple lenders to determine if refinancing will save you money in the long run.
6. Apply for loan forgiveness
Forgiveness programs can eliminate all or part of your student loan debt, but each program has unique requirements and strict approval standards.
Perhaps the most well-known program is Public Service Loan Forgiveness (PSLF).
In order to be eligible for this program, you must be employed in a public service position by a government or nonprofit organization and make qualifying payments under an income-driven repayment plan for 10 years. Getting approved for the program is notoriously difficult, so read through the details carefully to make sure you’re on track.
The Teacher Loan Forgiveness program is another option. In order to qualify, you must have an eligible loan under the Direct Loan Program or FFEL Program and teach full time for five consecutive years in a low-income school or educational service agency. In addition, at least one of those years must have been after the 1997-98 academic year. The program forgives as much as $17,500.
It’s also possible to have a portion of your student loans forgiven if you’re on an income-driven repayment plan. Once the 20- or 25-year repayment term ends with these programs, any remaining balance may be forgiven.
Takeaway: If you’re willing to work in a specific occupation and adhere to a variety of other program requirements, it may be possible to get a substantial portion of your loans forgiven, potentially saving you thousands of dollars.
Next steps: Be sure to do your research thoroughly if you hope to qualify for a forgiveness program, particularly a complex program PSLF. You’ll want to make sure that you’re making qualifying payments and are employed by an eligible employer.
7. Lower your interest rate through discounts
Even if you’re quoted a high interest rate, you may be able to lower your rate in other ways. For one, most lenders will offer a 0.25 percent to 0.5 percent discount if you set up automatic payments on your loan.
In addition, private lenders may offer other interest rate discounts if you meet certain criteria, such as making a certain number of on-time payments or taking out another loan with the company. If you have private student loans, ask your lender about any opportunities for interest rate reductions or discounts.
Takeaway: It may be possible to reduce the interest rate on your existing loans by setting up autopay or asking about loyalty discounts.
Next steps: Contact your lender to inquire about the various rate discount programs that may be available.
8. Take advantage of tax deductions
The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income.
You can claim this tax deduction if you’re legally required to pay interest on a qualified student loan and your filing status is not married filing separately. There are also adjusted gross income limits, which are set annually, for this program.
Those who qualify for the deduction will generally save a few hundred dollars on their income taxes, which could help with student loan repayment. “If you pay less in taxes, this could free up some extra money to pay down your debt. It’s a good idea to speak with a tax advisor to make sure you’re taking advantage of any relevant tax benefits related to your education,” says Ferastoaru.
Takeaway: The student loan interest deduction allows for deducting as much as $2,500 in interest paid on federal and private student loans. It can be helpful to use the savings you receive through this deduction to pay down your education debt faster.
Next steps: Confer with a tax adviser to find out whether you’re eligible for any tax credits and make sure you are not missing this potential opportunity.
How long should it take to pay off student loans?
It typically takes between 10 and 30 years to pay off student loans, but the time frame varies by individual and is impacted by several factors, including the loan interest rate, the total balance owed, the borrower’s annual income and the repayment plan.
“If your total student loan debt at graduation is less than your annual income, you should be able to afford to repay your student loans in ten years or less,” says Kantrowitz. “The average student loan repayment term, however, is 16 years.”
Types of repayment plans
The choice of repayment plan has the greatest influence on how long it will take you to eliminate student loan debt, Kantrowitz says.
For most federal student loans, the standard repayment plan is 10 years, though it’s possible to select a longer repayment horizon. Options include extended repayment, graduated repayment and income-driven repayment.
Extended repayment offers repayment terms of up to 25 years, while the graduated repayment plan offers timelines of 10 to 30 years, with payments beginning low and increasing every two years. This option is designed for borrowers whose income may be low now but is ly to increase regularly.
The repayment timeline for income-driven plans is generally 20 to 25 years, depending on the specific option you chose. There are several income-driven repayment choices, including Revised Pay as You Earn (REPAYE), Pay as You Earn (PAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR).
Why pay off student loans fast?
Paying off your student loans quickly can be beneficial to your financial health in many ways. By doing so, you’ll be able to save for retirement sooner, improve your credit score and avoid interest accrual.
“Paying off your student loans faster also means you’ll pay less in interest, so if you want to save money, it’s a good idea to pay off your student loans sooner rather than later,” says Madison Block of American Consumer Credit Counseling.
This is especially true now, as interest rates on federal student loans are now waived through Jan. 31, 2021. This is a great chance to make progress on paying down the principal on your student loans without having any interest accrue.
There are exceptions to this rule, however. For instance, if you plan to pursue any sort of loan forgiveness, it may actually benefit you to only make the standard or minimum monthly payments and nothing extra. Otherwise, you may pay off your loans before you qualify for loan forgiveness, which forgives any remaining balance on your loans after you’ve made 120 qualifying monthly payments.
Is it worth it?
Paying off your student loans quickly can certainly be worth it, but only if you’re financially prepared.
In order to avoid putting yourself in a less-than-desirable financial situation, you’ll want to have your finances in order and have a financial plan in place.
Before you start paying down your student loans, take a look at your budget to make sure you can afford extra payments without ending up with more debt — paying back more than the monthly minimum on your student loans isn’t wise if it causes you to miss credit card or mortgage payments.
It also may not be worth it if you are dealing with other forms of debt, particularly high-interest debt. If you have a credit card balance with an interest rate of 16 percent, for instance, it makes more sense to put extra payments toward that account rather than toward a student loan with 5 percent interest.