Steps You Can Take to Lower Your Student Loan Payments

In March 2020, federal student loan payments were effectively paused when Congress passed the CARES Act in response to the COVID-19 pandemic. This pause in repayment has been a lifeline to many borrowers, especially those who found themselves out of work due to the pandemic and subsequent economic shutdown.

While the payment pause has been extended a number of times, the recently-passed Fiscal Responsibility Act of 2023 has removed that possibility. As a part of the agreement to raise the nation’s debt ceiling, the student loan pause is now scheduled to end on August 31, 2023—with no possibility of further extension.

So if you borrowed federal student loans to help you pay for college, interest on your balance will begin accruing again on September 1, 2023, and you’ll need to start making payments again in October.

If you’re concerned about adding this line item back into your budget, the good news is there are ways to lower your monthly payments in order to make them more manageable. Here are five options you might want to consider.

How to lower your student loan payments

1. Opt into income-driven repayment

The Department of Education offers many different repayment plans for borrowers with federal student loans. Four of these plans are known as income-driven repayment plans, because the amount you pay each month is directly tied to how much money you earn. These include:

• Revised Pay As You Earn Repayment Plan (REPAYE Plan)
• Pay As You Earn Repayment Plan (PAYE Plan)
• Income-Based Repayment Plan (IBR Plan)
• Income-Contingent Repayment Plan (ICR Plan)

Because income-driven repayment plans can significantly reduce your required payment amount, they can be a great option if you’re having a hard time making your payments. The downside is that you’ll have to pay higher total interest payments over the life of the loan.

Each of these plans has its own terms that dictate how much you’ll pay and for how long, as well as different eligibility requirements for any form of student loan forgiveness you may be entitled to after making a certain number of payments.

If you have questions about which repayment plans you are eligible for, or which is best for you, you should contact your student loan servicer. To switch to income-driven repayment for your student loans, you must apply here.

2. Consider graduated or extended repayment

If you don’t qualify for the income-driven repayment plans listed above, you may still be able to lower your monthly payments by opting into either graduated or extended repayment.

With graduated repayment, your monthly payments start out low and increase in size every two years for 10 years. This can make it a smart option for borrowers who are prioritizing other debts or who expect to earn more money in the future. 

With extended repayment, on the other hand, you’ll have lower monthly payments that’ll stay flat over the life of the loan. This is possible because the term of your loan is increased significantly: To a total of 25 years, up from 10.

As with income-driven repayment, both graduated repayment and extended repayment will lead to higher total interest payments over the life of the loan, so it’s important to understand that fact before opting into either plan.

3. Consolidate your federal student loans

If you have multiple federal student loans, consolidating them into a single new loan will make it a little bit easier for you to manage them and stay on top of your payments. (Be aware that certain federal income-driven repayment plans require federal consolidation first.) This could also help you lower your monthly payments if you opt into a longer term.

Depending on how much you owe, with consolidation it’s possible to extend repayment from a minimum of 10 to a maximum of 30 years.

Of course, and at the risk of sounding like a broken record, increasing the term of your loan will translate into greater total interest payments. Only you can decide whether the reduction in your monthly payments is worth the higher total amount you will repay over the life of the loan.

4. Refinance with a private lender

Refinancing is the process of taking your federal student loans and essentially converting them into a new private student loan. As with consolidation, this can result in a new loan term with lower monthly payments, and depending on your credit score (and other factors) you might even qualify for a lower interest rate as well—which isn’t possible with federal consolidation.

That being said, federal student loans enjoy many benefits and protections, including income-driven repayment, student loan forgiveness, the ability to defer your student loans or place them in forbearance, and, of course, the repayment pause that has been in effect for the past 2 years.

Converting your loans into a private loan through refinancing will cause you to lose all of these benefits. With that in mind, you should ask yourself these questions before pursuing refinancing.

5. Consider deferment or forbearance

Finally, if you absolutely cannot afford to make your student loan payments and none of the options above will work for your situation, continued deferment or forbearance may be an option.

Remember, if you opt into deferment or forbearance, your loans will accrue interest even while you are not making payments. Left unchecked, this can cause your balance to grow significantly over time. (Subsidized federal student loans, however, will not accrue interest when they are placed into deferment.)