How to Reduce Your Student Loan Payments in 8 Simple Steps

You are not alone if the burden of student loan payments keeps you awake at night. Over 40 million Americans are in deficit to the tune of $1.5 trillion in student loans. Over one-fifth of the population owes more than $50,000. Student debt payments can compel you to postpone significant financial and personal crossroads such as purchasing a home, getting married, or forming a family. It can also exacerbate anxiety, despair, stress, and illness. While there is no quick answer for the student loan debt, lowering the amount you must pay will help ease some financial and mental stress. Here are eight strategies for reducing student loan payments.

1. Extend Your Payment Schedule

You pay a predetermined sum per month for ten years under the conventional student loan repayment plan. However, if this price is too expensive, you can prolong your payment term from ten to twenty-five years and pay less every month. You have the option of assembling either fixed or progressive installments. Fixed payments remain constant for the life of the loan, whereas graduated payments begin low and gradually climb every two years.

You must have more than $30,000 in Direct or FFEL loans to be eligible for this plan. You also can't have any federal student loans that are due before October 7, 1998.

The disadvantage of an extended repayment plan is the astronomical interest costs that it entails. The interest on a debt can sometimes be nearly equivalent to the original loan. You will also be disqualified for the public service debt forgiveness (PSLF) program if you follow this plan. Other plans on the list should be considered if you are working toward loan forgiveness.

2. Get a Student Loan Refinance

Refinancing is one of the few choices available to those with private loans. You obtain a loan from a private lender for the amount you owe and use it to repay your student loan provider in refinancing. This enables you to renegotiate your loan's conditions for a reduced interest rate and monthly payment. Some private lenders offer variable rates as low as 2.5 percent and fixed rates as low as 3.5 percent. You can even make your payments plan last longer.

Assume you owe $25,000 on a student loan with a fixed interest rate of 6.6 percent. With the usual 10-year plan, you'd pay $285 every month plus $9,271 in interest. Your monthly payment would be $184.92 with interest charges of $8,286 if you refinance at a fixed pace of 4.00 percent for 15 years. Even with a 5-year extension, refinancing is still a far more affordable alternative than a traditional student loan repayment plan. The higher the interest rate on your current student loan, the more money you'll save by refinancing.

Each private lender has its own qualifying and approval procedures. However, you'll need a steady income, a good credit score, and a qualified co-signer to boost your chances of qualifying. It's also a reasonable concept to apply to a few different lenders to increase your chances of getting approved. A soft credit inquiry, which has no affect on your credit score, can be used to rapidly check your new interest rate for free. Multiple inquiries on your credit report are classified as a single inquiry if you apply to multiple lenders in less than 30 days.

Refinancing has the disadvantage of removing federal repayment protections for government debtors. You will be ineligible for federal deferment and forbearance programs, as well as debt forgiveness programs, if you refinance. If you have an unforeseen financial setback, certain refinancing businesses will allow you to defer payments. However, as compared to federal loan protections, the terms are usually less favorable.

3. Fill out an application for an Income-Driven compensation Plan.

An income-driven repayment (IDR) plan tailors your student loan payments to your financial situation based on your salary and family size.

Because the amount you pay monthly can fluctuate according on your circumstances, an IDR plan is the most convenient repayment choice for federal borrowers. Your monthly payment may be reduced to zero if you are sick, unemployed, or have recently given birth. In addition, any remaining balance is forgiven at the end of the payback period. An IDR plan also qualifies you for the PSLF program, which allows you to have your debts forgiven tax-free after ten years of regular payments.

The government offers four different types of IDR programs, each of which requires you to pay a proportion of your monthly discretionary income. For each of them, the repayment period is likewise varied. These are some of them:

• REPAYE Plan (Revised Pay as You Earn Repayment Plan): Payments are limited to 10% of your discretionary income. However, there are no restrictions on how high your payments can be, and your payments will increase as your income rises. In the case of married couples, the amount you pay will be influenced by your spouse's student loan obligations and income. REPAYE has a 20-year payback schedule for undergraduate loans and a 25-year repayment period for graduate loans.

• PAYE Repayment Plan (Pay as You Earn Repayment Plan): Payments are capped at 10% of your discretionary income. However, there is a cap, and your payments will never surpass those on the regular plan. The loan has a 20-year repayment duration.

• Income-Based Repayment Plan (IBR Plan): If you took out a loan before July 1, 2014, your payments will be capped at 15% of your discretionary income, with a 25-year repayment period. If you borrowed after July 1, 2014, your payments are limited to 10% of your discretionary income, with a 20-year repayment schedule. Payments are likewise capped and will never exceed the amount you would pay on the basic plan.

• Income-Contingent Payments Plan (ICR Plan): The ICR plan is meant for public employees with lesser incomes and is capped at 20% of discretionary income for 25 years or a set monthly repayment for 12 years, whichever is less expensive. The amount you owe is a factor in how much you will pay each month, and there is no boundary to how high your payments might go.

To qualify for PAYE and IBR, your student loan debt must be greater than or equal to your yearly discretionary income, or it must consume a significant portion of your annual income. Anyone with federal student loans is eligible for the ICR and REPAYE loans. Even if nothing changes, you must give information (re-certify) on your income status and family size each year to remain eligible for any of the IDR plans. Failure to do so will result in your eligibility being revoked or your monthly payments being increased.

There are a few disadvantages to IDR policies. Extending your plan beyond the regular ten-year period will result in higher interest payments. You'll also have to earnings taxes on any forgiven debt. To figure out how much you'll earn each month on each IDR plan, use the Department of Education's payback estimator.

At Alleviate Financial Solutions, Our programs are individually tailored to each client's financial circumstances and are continually assessed for quality and performance improvement. We maintain ourselves and our level of service to a high bar, and we will not rest until our clients are debt-free.

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