How to Make Student Loan Payments More Affordable
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Federal student loan borrowers are about to start making payments again when the student loans payment pause ends on April 30, 2022.* With all of the financial upheaval of the pandemic and the cost of living going up, many borrowers find themselves wondering how to make their student loan payments more affordable.
If you’re struggling with your student loan payment, don’t just stop making payments. That’s the worst thing you can do. Instead, work with your lender to find a more manageable solution. Even simply talking to your lender about your situation can sometimes be helpful.
The exact method for lowering your payment will depend on the type(s) of student loans you have, your employer, and your financial situation.
If you’re looking to make your student loan payments more affordable, here are some steps you can take to get started:
1. Figure out which type(s) of student loans you have
Federal Student Loans
Federal student loans include Direct loans, PLUS loans, FFEL loans, and Perkins loans. All information on federal student loans can be found by logging in to the Federal Student Aid website. You’ll see a complete list of your federal student loans, including the type and which loan servicer manages your loans.
Private Student Loans
Private student loans are those that are owned by a private lender, such as a bank or credit union. If you refinanced your loans, they are private. If you have private loans and need to lower your payment, you will need to work directly with your lender, or try to refinance your loans at a lower interest rate (see section on refinancing below).
Those who aren’t sure who their lender is can request a free credit report, which will list all outstanding debts and who owns them.
2. Use the Federal Student Aid Loan Simulator to evaluate your options
(Federal Student Loans only)
The studentaid.gov Loan Simulator will help you evaluate all of the different payment options that are available to you. You might be able to lower your payment simply by extending the length of time you’ll be making payments. Other times, an income driven repayment plan might be the right answer. A full list of the possibilities can be found here, though you’ll need to use the Loan Simulator tool to determine your eligibility for each plan.
Note: consolidation is NOT the same as refinancing. Consolidation involves only your federal loans and your consolidated loans will still be federal loans (not private). See section on refinancing below for more information.
While loan consolidation can make your life easier by combining all of your loans into one and can make you eligible for certain loan forgiveness or repayment plans, make sure you understand the ramifications before you proceed. Consolidation can result in the loss of access to certain loan benefits that you currently have and in interest capitalization (where the interest of your loan is added to the principal, meaning that you’ll pay interest on interest).
3. Apply for an Income Driven Repayment Plan
(Federal Loans Only)
You can apply for an income driven repayment plan directly through your account at studentaid.gov. Once you apply, you’ll hear directly from your loan servicer about whether or not you were approved, how much your payment will be, etc.
Income driven repayment plans include a number of options with different eligibility rules and calculations. The Loan Simulator will help you navigate your options.
Note: if your spouse makes way more money than you, it can be beneficial to file your taxes as Married Filing Separately in order to lower your student loan payment. Speak to an accountant about the tax ramifications to evaluate whether or not this would be beneficial.
Those with private loans may have some options directly through their lender.
4. Get Temporary Relief
Deferment and forbearance are options for those in a short-term financial crisis, but they are not ideal. Use it if you really need to, but do what you can to lower your payments with income driven repayment plans first.
Both deferment and forbearance allow for a temporary pause of payments, but they are different in whether or not interest still accrues.
(If you have private student loans, work with your lender to find out what options you have.)
5. Recertify Your Income
Those who have federal student loans and are on an income driven repayment plan can recertify their income through studentaid.gov and find out if they can lower their payment. This option is good for those who experienced a significant drop in income.
6. Refinance
Refinancing your student loans with a private lender can result in a lower interest rate and payment.
Refinancing is not the same as consolidation. You can consolidate your federal student loans and keep all of the federal student loan benefits, including income driven repayment and loan forgiveness. When you refinance, you are making all of your loans private and you will lose federal benefits.
Who should refinance?
Refinancing can be a good idea if you already have private loans and want a lower interest rate. Or, they can be helpful for someone with federal student loans who is not eligible for loan forgiveness, won’t need income driven repayment, and wants a lower interest rate.
If you are confident you can pay your loans and won’t need federal benefits, refinancing might be a good solution for you.
Find lower interest rates
Although I have not personally used them, I’ve heard that many people have had good luck using Juno to find lower student loan rates.
7. Get Help
Student loans are confusing and messy and hard to navigate (let alone pay off). Start with the information on studentaid.gov and talk to your lender or loan servicer. Everything you need to know is available to you through these two sources.
If you still need help, your financial planner or someone who has extra knowledge in student loans, such as a CSLP or CCFC can help you understand your options and choose the best one for you.
If you’d like to chat with me about your student loans, I offer one-hour appointments where we can talk about your student loans and make sure you’re on the right track.
*A previous version of this article stated the payment pause would end January 31, but the Biden administration has now extended the student loan payment pause for an additional 90 days.