Outstanding student loan debt has reached a peak of $1.5 trillion. An even more alarming stat: Approximately 5 million borrowers nationwide are defaulting on their loans.
Student loan debt, and the growing struggle to repay it, has been a hot button issue in 2018. While some point to the rising cost of education as the problem, others cast blame on loan servicers—the companies responsible for handling the repayment process.
Navient and other loan servicers have been accused of failing to provide crucial information about repayment plans that could help borrowers avoid default. This has led to several states filing lawsuits against these servicers.
According to a study by American Student Assistance, 46% of borrowers said monthly student loan repayment was difficult or very difficult. The overwhelming majority (60%) said their problems with the ability to repay stemmed from the ability to pay back the requested amount.
If you recently graduated and are worried about paying your student loans, or you’re currently in the repayment stage, here are five ways to help lower those payments.
- Sign up for automatic payments
One of the simplest ways to lower your monthly payment slightly is to set up automatic payments for your student loans. Most lenders offer a discount of 0.25% on your rate for setting this up. This is beneficial for both you and your lender, as your lender gets the guarantee that it will be paid on time each month and you will never be late on payments.
Drawbacks: If you don’t have enough in your account to afford the payments, and the lender automatically charges the account, you will most likely be charged an overdraft fee.
- Extend your repayment term
If your student loan payments are still too high after signing up for automatic payments, you can consider extending your repayment plan. For federal loans, most borrowers are automatically enrolled in a standard repayment plan, in which they must pay off their loans in 10 years. Generally, you are allowed to extend your payments up to 25 years for federal loans if you have more than $30,000 in federal student loan debt. For private loans, it will depend on your lender and its policy for extending your repayment period.
Drawbacks: Extending your repayment term may reduce your monthly payment, but it will also increase the total amount of interest you pay on your student loans.
- Look into income-driven repayment plans
Federal student loan borrowers can choose from four different income-driven repayment
plans, meaning that payment will be 10%-15% of your discretionary income and your loans will be forgiven after 20-25 years. So, if you’re not earning a lot now, your monthly payment should reflect that. The four plans are: Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), income-based repayment and income-contingent repayment.
Drawbacks: If your income increases, so do your student loan payments, meaning you could end up paying a higher monthly payment than you would under the standard plan.
- Consolidate your loans
Another option is to consolidate your loans into one loan with a single interest rate and repayment term. Federal loans can be consolidated into a Direct Consolidation Loan, in which you can lower your monthly payment and extend your loan term up to 30 years. Not all private lenders allow you to consolidate your loans. However, some lenders like Citizens Bank allow you to consolidate both your private and federal loans through refinancing.
Drawbacks: You may pay more interest over time if your loan term is extended, and you can only consolidate your student loans once. If interest rates decline after you consolidate, you’re stuck with those rates.
- Refinance your loans for better rates
If all these options are still not enough for your existing loans, you should consider refinancing for a lower rate. You can search through private lenders and obtain free quotes with a soft credit check to find the best rates and terms for your loan. You may need a co-signer to qualify for the lowest rates.
Drawbacks: You cannot use the federal loan benefits, and private lenders may not offer any similar benefits like loan forgiveness, income-driven plans and forbearance.
If you’re considering going to graduate or professional school and taking out student loans again, make sure to weigh all your options before committing to a lender. Find a lender that offers the lowest rates and the best repayment plans to pay back your loans.
Joe Resendiz is a Research Analyst at ValuePenguin, where he focuses on personal finance and credit research to assist consumers. Previously, Joe specialized on public sector and infrastructure financing at Goldman Sachs. He graduated from the University of Texas at Austin with a BBA in Finance.
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