Struggling each month to afford a high student loan payment can be pretty demoralizing. Having to put off big financial steps like buying a home or having a child because you can’t find room in your budget ... well, that's even worse.
The student debt load in the United States is $1.4 trillion, which means there are millions of other borrowers just like you trying to figure out how to make their monthly student loan payments more manageable.
Of course, knowing you’re not alone only helps so much. You need practical steps to reduce your monthly payments. Fortunately, you have options.
1. Refinance with a private lender
Borrowers who refinance their student loans save, on average, $137 to $323 per month and $24,000 over the life of the loan.
How does it work?
Refinancing your student loans is a bit like starting over. You apply for a new loan with a new lender, new interest rate, and new terms. That lender then pays off your old loans and sets a payment schedule with a lower interest rate than your previous loans.
Deciding whether refinancing is right for you depends on your particular financial situation and goals. But if the interest rate on your current loans is greater than 4%, there’s a good chance you could save money by refinancing your student loans. You may even be able to pay off your loans more quickly.
2. Consolidate your student loans
When you consolidate your student loans, you bring together multiple loans into a single monthly payment, so instead of making several payments every month, you'll only make one.
However, you may also have the opportunity to extend your repayment term, which can result in a lower monthly payment.
It’s important to note that whenever you spread your payments out over a longer period of time, you’ll end up paying more interest over the life of the loan. That may be an appropriate trade off for you, but make sure you consider the long-term impacts of your decision.
Also, know that consolidating federal loans with the government could actually result in a slightly higher interest rate if they round up when they average your current interest rates.
3. Switch to an income-driven payment plan
If you have federal loans, you may be eligible for an income-driven payment plan.
These plans set your monthly payment amount based on your income rather than on the total amount of your loans. There are four options: income-based repayment, income-contingent repayment, pay as you earn (PAYE) repayment, and revised pay as you earn (REPAYE) repayment.
Each plan has slightly different criteria and terms—for instance, some require proof of financial hardship whereas others are available regardless of income level.
But they all have two important things in common: each caps your monthly payment at 10-20% of your discretionary income and each forgives any remaining loan balance at the end of the term, ranging from 20-25 years.
4. Take advantage of loan forgiveness
If you have federal loans and you work in a government or public service position—such as within a school system or in a nonprofit organization—you may be eligible for the Public Service Loan Forgiveness (PSLF) program.
Under that program, your loans will be forgiven after 10 years of consistent payments. If you’re already making the minimum payments under an income-driven payment plan, PSLF won’t make your current payments any lower. But you’ll be able to rest easy knowing you can say goodbye to that debt in a decade or less.
See how much you could save by refinancing your student loans. Check out our Student Loan Refinancing Calculator.