It’s doubtful that anyone who takes out a student loan expects to have trouble repaying them in the future. But the reality is that many borrowers do find it difficult to keep up with payments once they get out into the “real” world.
There is a variety of reasons why student loan payments become difficult to repay. Perhaps it’s due to a pay cut, a job loss, or simply a student loan debt that’s too high from the start.
The good news, however, is that there are several ways in which you can lower your monthly loan payment, including the strategies explained here:
1. Student Loan Refinancing
Refinancing means that you replace your current loan with a new one through a private lender. In turn, you can lower your monthly repayment, extend the repayment period, or both.
Another option is to consolidate your loan so that you can lower your monthly payment and lock into a lower interest rate. Consolidation may also be available for private student loans, but it’s never advisable to consolidate your federal loan into a private one.
Also, it’s important to know that consolidation may extend the life of your loan and increase the amount of interest.
3. Loan Repayment Assistance Programs
A loan repayment assistance program (LRAP) is another way to help you manage your payments. They’re available in many states and through government agencies non-profits, and other organizations.
Forbearance is often considered a last-ditch option when paying back your loan. This strategy involves contacting your lender to see if they will allow for a lower payment. Most lenders see this as a better option than putting the loan into default; however, this isn’t an option with private loans in most cases.
5. Graduated Repayment Plan
Through a graduated repayment plan, your monthly payment is set low at the start and then increased every two years over a 10-year period. The basic premise is that your income will rise over time and you’ll be able to make a higher monthly payment in the future.
6. Unemployed Deferment
A federal loan allows you three years of unemployed deferment. You can take advantage of this deferment if you don’t have a job. The federal government will pay the interest on a subsidized Stafford Loan for three years – as long as you’re unemployed – but you must make interest payments on an unsubsidized loan.
Deferment won’t reduce the amount of money you have to pay back but is a good option when money is tight and when you expect your job prospects to improve shortly. Make sure to contact your lender about a deferment loan before you miss a payment, however.
7. Economic Hardship Deferment
You may qualify for an economic hardship deferment if you have a low-paying job. This type of deferment is typically for a specified amount of time, and you’ll need to check with your lender to see how long of a period you’ll have. Note: If you qualify, you’ll still need to reapply for your economic hardship deferment each year.
8. Income-Based Payments
You may qualify for this option if you have a low income or a large family. Your loan is based on a percentage of your overall income. This is a good strategy if you’re struggling to make ends meet. To qualify, you need to be signed up for a Federal Direct Loan, and you’ll need to show proof of income each year to remain in the program.
9. Extended Repayment Plan
While the standard loan repayment schedule is 10 years, the extended repayment plan allows you to stretch your loan over a longer period and lower the amount you’ll pay each month.
You may be able to extend your repayment for up to 25 years but to qualify you must have more than $30,000 in loans. It’s important to note that extending your payment period can cost you more in interest over time.
The bottom line when it comes to managing your loan is that there are many options available if you’re struggling to make payments. There’s no reason to jeopardize your financial health when you may qualify for any of these options.