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Lowering the monthly payments on your Federal Student loans

Federal student loans come with many borrower protections to lower monthly payments. Refinancing is also an option, but it comes with major risks.

Written By: Michael P. Lux, Esq.

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One of the biggest perks of federal student loans is the options for repayment. The vast majority of borrowers can find a repayment plan that suits their needs with just a bit of research.

Traditionally, borrowers get lower payments by stretching out their repayment length. A 10-year loan has higher monthly payments than a 25-year loan, if the amount borrowed and interest rate are the same.

Federal student loans have repayment extension options, but they also have repayment plans unique to student loans.

First: A Word of Caution

Don’t fall into the trap of deferments and forbearances. Delaying making any payment will just allow interest to accumulate, and your student loan problem will become a bigger one. Deferments and forbearances should be a last resort used only after you have explored every other available option.

The best way to lower your federal student loan payments.

The easiest way to save a bundle each month on your student loans is to sign up for an income-based repayment plan.

The federal government (and therefore all of the federal servicers) offers several plans that base your monthly payments on your income. They are IBR (Income-Based Repayment), PAYE (Pay As You Earn), REPAYE (Revised Pay As You Earn), and ICR (Income Contingent Repayment). While these four all sound the same, there are some major differences between REPAYE, PAYE, IBR, and ICR.

Income-Based Repayment (IBR): Under IBR, borrowers pay 15% of their discretionary income towards student loans.

Pay As You Earn (PAYE): This is one of the best income-based plans, but not all borrowers qualify. Under PAYE, borrowers pay 10% of their discretionary income, but this plan is only available to people who borrowed their first loan after October of 2007.

Revised Pay As You Earn (REPAYE): This plan was created to help the borrowers who don’t qualify for PAYE. It is more strict than IBR and PAYE when it comes to spousal income, but it has special terms for borrowers who have loans that generate more interest than their monthly payments.

Income Contingent Repayment (ICR): This plan comes into play for certain federal loans that are not eligible for IBR or PAYE. If you run into this issue, consider federal consolidation because it may qualify you for IBR or PAYE.

For a full explanation of these repayment plans, be sure to check out our Guide to Federal Repayment Plans. Those that wish to enroll should visit the Department of Education IDR Request Page.

Another option that many borrowers choose to enroll in is the extended repayment plan. For student loan forgiveness reasons, signing up for IBR is usually a better option than the extended repayment plan.

The standard repayment plan is the 10-year plan. Of all the federal repayment plans, this one has the most aggressive repayment schedule. The good part about this plan is that you pay the least in interest, but your monthly payments will be high. If you haven’t changed your federal repayment plan, any change will likely result in lower payments.

Lowering your interest rate

The best way to save money, in the long run, is to lower your interest rate.  While there is a long list of possible strategies to lower interest rates, most borrowers will struggle to get a lower interest rate on their federal loans.

One way that could significantly lower your interest rates is to refinance your federal loans with a private lender. This is a major risk because federal loans have many special protections not offered by federal loans, and once your loan becomes a private loan, there is no way of undoing it.

However, if you are certain you are willing to forgo the federal benefits in order to secure a lower interest rate, some private lenders offer significantly lower rates.

What if you can’t afford your student loan bills?

Odds are that if you explore the various plans offered by the federal government, you can find a way to lessen the strain on your budget.

The important thing is to focus not just on the next month or the next year, but to put together a plan that eliminates the debt as quickly as possible. For some, this will be aggressive repayment, for others, it may involve some sort of student loan forgiveness.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

1 thought on “Lowering the monthly payments on your Federal Student loans”

  1. Nice info! It will be really nice to be able to lower the interest, especially for people who can pay back their loan quickly who probably don’t actually need protection from federal benefits for much longer.


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