College can lead you to a great career and higher income, but it does come at a cost. The College Board reported that 50% of public and private college graduates took out student loans, with an average balance of $29,300.
However, repaying your loans can be challenging, especially early on in your career when you’re trying to find a good job or coping with an entry-level salary. Luckily, there are ways to make your student loans more affordable.
What options you have available to you vary based on the type of loans you have.
If Your Federal Student Loans Are Too Expensive
Federal student loans make up the majority of outstanding student loans. If you have undergraduate, graduate or Parent PLUS Loans, you have two main options to choose from if you can’t afford your current payment amount:
Sign Up For an Income-Driven Repayment Plan
The default repayment plan for federal student loans is 10 years with fixed monthly payments. However, you may be eligible for another repayment plan. Federal loan borrowers may qualify for an income-driven repayment (IDR) plan.
Currently, there are three plans you can choose from:
- Income-Contingent Repayment (ICR)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
Under these plans, your payments may be reduced because these plans base your payment amount on an extended loan term and a percentage of your discretionary income. Some borrowers qualify for significant reductions.
You can use the federal loan payment estimator to get an idea of what your new payment amount would be under each plan.
Note: Federal IDR applications are currently closed. Read our latest blog on what this means for borrowers.
Consider Forbearance or Deferment
If you lose your job, undergo medical treatments, or have another life emergency, you may be able to postpone or pause your payments under federal forbearance or deferment programs.
To find out if you qualify, contact your loan servicer.
Refinance Your Federal Loans with a Private Lender
Another option to consider is refinancing your student loans. Stay tuned for more about this option below!
If You Can’t Afford Your Private Student Loan Payments
Private student loans can help cover the gap between what federal financial aid you receive and the total cost of attendance. However, private loans aren’t eligible for federal programs like IDR plans. But, you may have other options if you can’t afford your payments:
Ask for Short-Term Relief
Some private student loan companies have financial hardship programs. If you meet the lender’s criteria, you could pause or make reduced payments for several months, giving you time to get your finances back in order. Contact your lender to discuss your options.
Apply for Refinancing
Depending on when you took out your loans and your credit history at the time they were originated, you may have loans with high interest rates. If that’s the case and your credit has improved, you may benefit from student loan refinancing.
Student loan refinancing is a process where you take out a new loan to pay off your existing debt. The new loan will have a different rate and repayment term. If you have good credit, you could potentially qualify for a lower rate, which will also give you a smaller payment and help you save money over the life of your loan.
For example, say you have $20,000 in private student loans at 7% interest. With a 10-year repayment term, you would have a payment of $232.22 per month. By the end of your loan term, you’d repay a total of $27,865.87.
However, say you refinance your loans and qualify for a 10-year loan at 5.00% APR. Your new payment amount would be $212.13, and you’d repay $25,455.76. Refinancing would save you about $20 per month, and you’d save over $2,000 over the life of the loan.
| Original Loan | Refinanced Loan | |
| APR | 7.00% | 5.00% |
| Time in Repayment | 120 Months | 120 Months |
| Payment Amount | $232.22 | $212.13 |
| Total Repaid | $27,865.87 | $25,455.76 |
| SAVINGS | $2,410.11 | |
If You’re Overwhelmed by Multiple Loans
Most borrowers graduate with several student loans, and they all have their own loan servicers, due dates, and payment amounts. If you’re struggling to keep track of your loans and payments, there are two main options:
- Loan consolidation: Federal loan borrowers with multiple loans can consolidate their debt with a Direct Consolidation Loan. While this option won’t lower your rates, it combines your loans so you have just one loan and one payment to manage.
- Loan refinancing: Student loan refinancing allows you to combine all of your loans, including federal and private debt. However, remember that refinancing federal loans converts them into private loans, so you’ll lose federal protections like access to IDR plans.
Managing Your Loans
If you can’t afford your student loan payments, the most important thing is to take action. Contact your lender as soon as you realize you can’t make a payment; the sooner you reach out, the more options you’ll have. You may be eligible for a reduced payment plan or forbearance, giving you time to get back on your feet.
