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Don't you wish you could? Lower your student loan payment? It is possible and legal to use some “magic” to lower your student loan payment.
If you don't do anything with your student loan, you'll automatically enter a general repayment plan, which typically calls for even payments over 10 years. However, this can be difficult, especially right after graduation.
Maybe you've just started working, or maybe you don't even have a job yet and are just working part-time to make a little money? Maybe the standard repayment plan option just isn't working for you and you're worried about what will happen if you don't make a payment or default. Maybe you haven't looked at your student loan since the payment pause?
If you are thinking about deferring or forgiving your student loans, or if you are thinking about simply ignoring your student loan payments, not!
Here are five legal ways to lower your student loan payment so you don't default.
The example
To really show you what a difference each plan can make for you, let's use the following hypothetical example:
You have $38,000 in student loan debt.
Your standard amount for a 10 year repayment plan would be $381 per month.
We'll assume you only make $24,000 per year (remember, you won't have a “real” job after you graduate).
Video: Lower your student loan payment
1. The extended repayment plan
The extended repayment plan extends your standard student loan payment from 10 to 25 years.
The extended repayment plan is available to all federal student loan borrowers – there are no income limits. So it is always an option for borrowers.
If you were to switch to extended repayment in our example, you would lower your student loan payment to $196 per month.
You can switch to this plan by simply calling your loan servicer or going online to StudentAid.gov.
2. The graduated repayment plan
With a staggered repayment plan, you start repayment with a low amount and increase it over time. There are two versions: the 10-year phased plan and the extended 25-year phased plan. The idea with this plan is that if you start low and your payment increases, you will earn more in the future.
Both start with a low payout amount.
The 10-year phased plan would see you lower your student loan payment to $213 per month for the first yearbut keep in mind that in year 9 it will go up to $638 per month.
With the 25-year phased plan, you would lower your student loan payment to $120 per month for the first yearbut keep in mind that in year 24 it will go up to $359 per month.
You can switch to the graduated repayment plan by simply calling your loan servicer or going online to StudentAid.gov.
3. Income-driven repayment plans
There are several income-driven repayment plans that can lower your student loan payments.
Income Based Repayment (IBR)
Income-Based Repayment (IBR) is exactly what it sounds like – your payment is calculated based on your income. It's a formula that takes into account your income and your state's poverty level and sets your payment at 15% of your income (10% for new borrowers).
The other great aspect of IBR is that you are eligible for student loan forgiveness for any debt that remains on your loan after 20 or 25 years, depending on when your loan originated. We call this the secret student loan forgiveness program.
If you had taken out your student loan before July 1, 2014, your payment would be small $77 per month.
If you took out your student loan after July 1, 2014, you can reduce your student loan payment to up to $52 per month.
PAY and SAVE
Pay As You Earn (PAYE) and Save on a Valuable Education (SAVE) are the two newest student loan repayment options and also include student loan forgiveness after 20 years (or as early as 10 years with SAVE).
They both calculate your payment slightly differently, but for our situation they are identical. However, from 2024, SAVE will use a different calculation – just 5% of your discretionary income, which could save you a lot of money every month!
For both plans, your payment is calculated based on 10% of your discretionary income (from mid-2024 this drops to 5% for SAVE). Therefore, you could lower your student loan payment to as low as $52 per month.
Under the new SAVE repayment plan, your monthly payment would be $0 per month if you earn $24,000 per year.
Just like with IBR, you must re-certify your income every year, and your payment may change if your income changes over time. You can enroll in this plan by calling your lender or going online to StudentAid.gov.
Related: Understanding Income-Driven Repayment Plans
4. Save money in your IRA, 401k or HSA
This may sound crazy, but did you know that you can lower your student loan payment by investing money in an IRA, 401k or HSA? Seriously, why wouldn't you want to save for yourself instead of giving your money to your loan servicer?
As you remember, all income-based repayment plans base your monthly payment on your adjusted gross income (AGI). So when you lower your adjusted gross income, you also lower your student loan payment.
In 2024 you can deposit the following amounts:
Going back to our example of making $24,000 a year, you won't be able to contribute much… but maybe you can?
If you can reduce your AGI to just $21,800, your monthly payments for IBR or PAYE would drop to $0. This means you only need to contribute $2,200 to your IRA, 401k or HSA. If you do this, there will be no student loan payments!
This trick for lowering your student loan payments becomes more valuable the more income you earn.
5. Refinance your personal loans
After all, if you have a private student loan, you don't have many options. Your best bet is to simply refinance your student loans.
Whether this could actually reduce your payment depends on many factors. That's why we recommend using a free tool like Credible, which allows you to quickly and easily see which student loans you qualify for and whether it would even help you lower your payment.
For example, if you currently have $38,000 in student loans and it's at 6.8%, you could pay $437 per month.
If you can refinance your student loans to 4.25% with Credible, you can lower your student loan payment to $389 per month.
Additionally, College Investor readers will receive a special bonus of up to a $1,000 gift card when they complete their loan! You won't find a better deal! Check out Credible here.
If you don't believe us, check out this list of all the places you can refinance student loans.
Get professional help
It sounds like it could be confusing, but it doesn't have to be. You can enroll in these programs for free at StudentLoans.gov.
If you need further assistance, contact your lender first. They are paid to help you pay off your student loan debt. You may not be able to answer everything, but it's a good starting point.
Then, check out apps like Chipper, which allows you to track all your loans, find a better repayment plan, and even apply everything within the app. Check out Chipper here >>
If you're not entirely sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend Student Loan Planner to help you create a solid financial plan for your student loan debt. Checkout The student loan planner Here.
Always try to lower your student loan payment before defaulting
The biggest challenge I see with new student loan borrowers is the fear that they won't be able to afford their payment. For this reason, many people choose to defer or defer their student loans. Some even simply ignore their student loans and hope they go away.
So before you just stop paying off your student loans, check out these ways to lower your student loan payments. With federal loans, this is pretty easy. With personal loans, it's a little more difficult, but you can do it.
Create your very own Auto Publish News/Blog Site and Earn Passive Income in Just 4 Easy Steps
