This site has already covered the many benefits of lower minimum payments. Having a lower minimum payment may save you money on your student loans and help you pay them off faster.
Today we will discuss some of the ways you can get your monthly minimum payment lowered.
Lowering Payments on Federal Loans
One of the perks of federal loans is that they have many repayment plans. Another perk is that signing up for the right repayment plan is relatively easy. If you are willing to make a couple of phone calls and fill out some forms, you can get it done.
When it comes to federal loans the payment plan with the lowest minimum payment will vary from person to person.
Income-Driven Repayment (IDR) Plans
For many people, the repayment plan that will result in the lowest monthly payment is an income-driven repayment plan.
Borrowers have four different options when selecting an IDR plan.
The primary benefit of the IDR plans is that borrowers make payments based on what they earn rather than what they owe. If federal student loan payments eat up a large portion of your income, an IDR plan may significantly lower your monthly bill.
Graduated and Extended Repayment Plans
Borrowers who have high incomes can get lower payments even if the IDR plans don’t result in any savings.
Any borrower who has a total federal student loan debt balance of over $7,500 can sign up for a graduated repayment plan. These plans start out with low minimum payments, that go up every other year.
Another option for those with balances above $30,000 would be the extended repayment plan. Under this plan, borrowers get 25 years to pay off their loans instead of the standard 10 years.
I’ve called these plans useless relics because they don’t qualify for student loan forgiveness and because most borrowers are better off with an IDR plan.
However, if you are using one of these plans to temporarily lower your monthly payment so you can attack a higher interest loan, they might be the right choice.
Reduced Payments on Private Loans
Getting lower interest paymentss on your private student loans will likely require a little more work. There are three main ways to get lower payments on these loans.
Ask your lender
This one is an option that many people forget about.
Private loans occasionally have repayment options similar to the graduated or extended repayment plans offered by the federal government. Whether or not you have this option depends upon the terms of your original loan and/or your lender’s willingness to change the repayment schedule.
A quick phone call may mean a lower monthly bill.
Switch to a plan for struggling borrowers
If you have a lower income relative to your debt, or have already fallen behind on your loans, your lender may have options for you to reduce your monthly payment.
The rate reduction program offered by Navient is a good example of a plan that might help. Enrollment in these programs is always a challenge, but it can be worth the effort.
Take your business elsewhere
Switching student loan companies isn’t as simple as changing cable companies or cell phone providers, but it can be done.
If you refinance your loans with another lender, you can lower your monthly payments and/or reduce your monthly bill by stretching out repayment.
This option requires good credit and a decent income, but it is an excellent tool for private loan elimination. If you are thinking about going this route, be sure to check out our comparison of student loan refinance companies.
A Few Final Tips
Lowering your monthly payments can be a very good thing, but be very careful not to make mistakes in the process.
Temporary reductions such as a forbearance or a deferment might make things easier for a short period of time, but in the long run, they usually make things worse.
Similarly, some private lenders may try to charge fees for switching plans. Paying any sort of “fee” to get a lower payment is likely a mistake. You don’t want to spend a bunch of money to save a little bit of money.
Finally, many of the options to lower interest rates also result in lower monthly payments. Spending some time to lower interest rates can also result in significant savings.