Everything You Need to Know About How to Reduce Student Loan Payments

If you need some effective ways to reduce student loan payments, keep reading because we’re going over it all in this guide!

Main image courtesy of  US News.

Whether you attended a public or a private school, chances are you’ve taken out loans to help pay for your education. In addition to scholarships, grants, and work study program opportunities, loans help many students meet the financial requirements for attending school. When you fill out the FAFSA each year, you qualify for a certain amount of federal financial aid, and you can use this money to pay for your tuition, books, and room and board. 

When you graduate, you’re then responsible for ensuring any loan money you took out and used for school is eventually paid back. Millions of U.S. students are working towards paying off their student loans, but sometimes they encounter obstacles with regards to payments. What if there was a way you could reduce your student loan payments? We have compiled a list of the most effective ways to do so in this article, so keep reading to learn:

  • What happens when you start to repay your loans
  • The options you have available to you for payment
  • Top ways to reduce your student loan payments

When Do You Start Repaying Your Student Loans?

Know exactly when you need to start repaying your student loans

student loan sheet

After your grace period, you’ll need to start repaying your student loans. Image courtesy of The Sun.

If you’re a recent graduate of school, you’ve probably been thinking a lot about the loans you took out. Now that your education is complete, you’re going to need to start making payments on your student loans. If you have federal loans, when you’re finished with your degree, you typically have a six month grace period before you are required to make payments. This grace period is a time many recent graduates use to find a job, or to consider doing additional education. This is also true if you did not graduate, but have moved below part time enrollment. 

The six month grace period gives you the chance to also consider what type of repayment plan you think would work for your situation. If you’re considering going further with school, you may want to ensure you do this before your grace period ends to avoid having to make payments. Once you are enrolled again full time at a school, your loans will be put into deferment until you graduate.

The six month period is also a good time to look for a job so you can start making payments. If you can’t find one in your field right away, that’s okay. Having any kind of income will allow you to start saving money and start making payments towards those loans after six months. If you’re not making too much money at your new job, not to worry, there are a couple of repayment plans you can look into to help you make payments. 

What Options Do You Have for Repayment?

There are a couple of ways you can start to repay your student loans

students learning about loan payments

Your loans will enter repayment quicker than you might think! Image courtesy of The Balance.

After your six month grace period, hopefully you are prepared to start repaying your student loans. Depending on what you decide to do next—whether that’s continue school, get a job, join the military, or take time off—there is a student loan repayment plan that will work for you.

  • Standard payment plan. This is the route a lot of students want to take, since it is the most direct. With a traditional payment plan, your lender sets your monthly payment (including interest) and you pay that amount each month. This amount will depend on how much you borrowed, the interest amount, and the term of the loan you originally agreed to. 

When you’re able to go this route, you’ll end up paying the least amount of interest over the course of your repayment plan, which is why many students choose to go this way if they are able to afford the monthly payment set by their lender.

  • Income driven/income sensitive repayment. Ideally, you’d like to start making payments towards your student loans right after your grace period ends. This assumes you’re able to secure a job that pays enough so you can cover your other basic needs such as housing, food, transportation, etc. However the reality is many people struggle to find a job that allows them to follow the traditional payment plan, and that’s okay there’s no shame in that.

An income driven repayment plan is designed to meet borrowers where they are, and allow them to continue to make payments on their loans, but with their income in mind. This program extends the loan term and the monthly payment amount is a percentage of your discretionary income.

An income sensitive repayment plan will get you a monthly payment amount based on your total monthly income. If you qualify for this type of repayment plan your loans will be paid off in 15 years. 

  • Forbearance or deferment. If you decide to go into the military or continue your schooling at least part time, the loans you took out for your undergraduate degree will automatically be put into deferment. Your loans will still accrue interest monthly, but you will not be responsible for making any payments until you graduate or are discharged from the military.

You can also use the forbearance option if you are not continuing your education or joining the military but need a way to stop making payments without the risk of default. A forbearance period will also allow interest to accrue on your loan, which will be capitalized once you end your forbearance period. 

If you are really struggling and can’t seem to find employment that will allow you to make your loan payments, talk to your lender about forbearance options. You do not want your account to go into default, as this can be very hard to dig yourself out of.

How to Reduce Your Student Loan Payments

If your student loan payment is too much, these are effective ways you can reduce it

student raising his hand in class

Consider these options when it comes to reducing your student loan payments. Image courtesy of The Conversation.

No matter what repayment path you find yourself on after your grace period ends, it’s important to understand you’re doing the right thing sticking to your monthly payments (or getting approved for deferment or forbearance.) If the amount of your monthly payment ever becomes too much, it’s crucial that you look for ways that you can reduce your payments. It just so happens we have a couple of very effective ways to reduce your student loan payments!  

Get on the right payment plan

As we mentioned above, you definitely have options when it comes to repaying your student loans. Whether that’s on the standard payment plan, income sensitive, income driven, or extended payment plans, getting on the right track to repay your loans is important. Income driven, income sensitive, and extended payment plans are all designed to reduce your monthly payments so you can more easily afford them. 

Do automatic payments

Automatic payments are a great way to ensure you’re always making your monthly payments on time. Your payment for your student loans will be automatically deducted from your bank account each month, so you’ll never need to worry about scheduling one again. It’s important to note that some lenders even offer a discount and lower your interest rate a small amount if you enroll in autopay. While it might not seem like a big deal, over time, that reduction in interest can really add up.

Automatic payments also give you the peace of mind knowing that your payments will always be on time, and avoid potential late fees.

Consolidate all loans

If you haven’t already, consider looking into consolidating your loans. If you have multiple loans, chances are they all have their own servicer, amount, and due date. When you bundle all of these together into one consolidated loan, you get one payment each month. You may even qualify for a lower payment if you choose to extend the terms of your loan once you consolidate.

Check out employer assistance

Although you might not be aware of this, some employers have programs that can help repay your student loans. Check to see if your employer offers student loan repayment assistance, which can seriously make a difference over the life of your loan!

Look into refinancing

Another way to reduce your student loan payments is to refinance your loan. There are all kinds of lenders out there that might be able to offer you a better interest rate and lower your monthly payment. Make sure you do your research, and if you have federal loans, weigh the pros and cons of refinancing and taking out a private loan. However, if you’re looking to make lower payments and get rid of your balance quicker, refinancing could be the way to go.

When it comes time to pay back your student loans, it’s helpful to know you have options. Whether you get on an income driven repayment plan, or choose to refinance your loan, there are many effective ways to reduce your monthly payment. 

Bridget Houlihan
Bridget is a writer based in Pittsburgh, PA.
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