Income Driven Student Loan Repayment Explained: 7 Tips to Lower Your Monthly Payments

Student loan debt often feels like a constant burden. An income driven student loan repayment option can adjust your federal loan bill to a set percentage of your income. Beyond that, there are six more strategies—from refinancing to pausing payments—that may ease your budget. In this article, you will find seven tips to lower what you pay each month.

Key Takeaways

• Income driven student loan repayment ties your federal loan payment to your pay and family size, even lowering it to $0 in some cases.

• Refinancing private or high-rate loans can cut your interest rate or extend your term, but you’ll give up federal benefits.

• Many employers, states, and non-profits offer loan repayment assistance programs that can cover part of your balance.

• Deferment or forbearance lets you temporarily pause or reduce payments when you face financial hardship.

• You can consolidate loans or switch to extended or graduated plans to change your repayment schedule and reduce monthly dues.

1. Income-Driven Repayment Plans

If you have federal student loans, income-driven repayment (IDR) plans can be a really good way to handle your payments. Basically, these plans adjust your monthly payment based on your income and family size. There are currently four IDR plans available, and they can seriously lower your monthly bills. Let's take a closer look.

With income-driven repayment plans, your payments are usually set at 10–20% of your discretionary income, depending on the specific plan. Some plans even consider where you live, giving you extra help if you're in a city with high living costs. Plus, after 20-25 years of making payments, any remaining balance on your loan can be forgiven, which is a huge relief for many people. To get started, just reach out to your federal student loan servicer. They can walk you through the options and help you fill out the application.

Income-driven repayment plans can be a great short-term solution if you're a recent graduate or just struggling to make ends meet. They help you avoid missing payments and hurting your credit score. However, keep in mind that you might end up paying more over the long haul because of interest that builds up. It's a good idea to think about switching to a different plan later on when you're able to.

Here's a quick rundown of the four main IDR plans:

• Income-Based Repayment (IBR): Payments are capped at 10-15% of your income. The government might even cover unpaid interest for up to three years.

• Pay As You Earn (PAYE): Payments are set at 10% of your discretionary income, but you need to show that you have a financial hardship. If your income goes up, your payments won't be higher than what you'd pay on a standard 10-year plan.

• Revised Pay As You Earn (REPAYE): Similar to PAYE, but it doesn't require you to prove financial hardship. The forgiveness period is longer for graduate loans (25 years instead of 20).

• Income-Contingent Repayment (ICR): Payments are based on your income, filing status, and household size, capped at 20% of your discretionary income or what you'd pay on a 12-year loan term. You have to reapply for this one every year.

Remember, each plan has its own requirements and benefits, so it's worth doing your homework to see which one fits your situation best. If you're considering student loan refinancing, make sure to weigh the pros and cons carefully, especially since refinancing federal loans into a private loan means you'll lose access to these IDR plans.

2. Student Loan Refinancing

If you're dealing with private student loans, refinancing might be your best bet to lower those monthly payments. To figure out exactly where you stand, grab a loan calculator and plug in the numbers: how much you still owe, how long you have to pay it off, and your current interest rate.

Refinancing essentially means swapping out your old student loan(s) for a brand-new one through a private lender. This can lead to lower monthly payments by snagging a better interest rate, stretching out the repayment period, or both. It's like trading in your old car for a newer model with better gas mileage.

For those of you with older federal loans that have high interest rates (think Grad or Parent PLUS loans), refinancing to a lower rate could be a smart move. Just remember, though, that you'll lose those federal benefits, like access to income-driven repayment plans, if you refinance with a private lender. Extending the repayment period can also cut down your monthly payments, but you might end up paying more in interest over the long haul.

It's a good idea to shop around and get some rate estimates from different private student loan companies. Most will do a soft credit check to pre-qualify you, and that won't ding your credit score.

Here's a quick rundown:

• Pros: If you've got excellent credit and want to switch from a federal student loan to a private one to save money, this could be a good option. Also, if you want to refinance from one private student loan to another with better terms, go for it.

• Cons: If your credit score isn't great, you might not qualify. Also, if you switch from a federal loan to a private one, you might not be able to deduct your student loan interest on your taxes. And always double-check the loan terms. Refinancing could mean switching from a fixed rate to a variable rate, which could fluctuate with the market. Plus, you'll lose out on federal forgiveness programs and other perks.

3. Student Loan Repayment Assistance Programs

Another avenue to explore when trying to manage student loan payments is through Student Loan Repayment Assistance Programs (LRAPs). Think of these as programs that offer assistance, often free, to help you tackle your student debt. Many entities, including state governments, federal agencies, non-profits, and other organizations, provide this kind of assistance, typically as an incentive to attract and retain qualified individuals.

It's a good idea to use available tools to see if an LRAP aligns with your financial situation. These tools can help you filter LRAPs based on your profession, location, and the type of assistance offered. It's definitely worth a look to see if you can find some help with your student loans.

LRAPs can be a great option if you have private loans, since you don't qualify for income-driven repayment plans. However, LRAPs come with specific requirements, so make sure you meet them. Some programs offer funding that isn't taxable, but others are, so read the fine print carefully.

Here are some things to keep in mind about LRAPs:

• Some LRAPs might distribute payments in a single lump sum, which might not be ideal for everyone. If you prefer smaller, monthly payments, you might need to negotiate that with the LRAP.

• Some LRAPs may require an upfront application fee, so factor that into your decision.

• If you're considering refinancing your student loans, remember that you lose federal benefits if you switch to a private lender.

It's always a good idea to shop around and get rate estimates from private student loan companies to see if refinancing is right for you. Most will do a soft credit check to pre-qualify you, which shouldn't affect your credit score.

4. Deferment Or Forbearance

Sometimes, even with the best repayment plan, you might need a temporary break from making payments. That's where deferment and forbearance come in. They both allow you to temporarily postpone your student loan payments, but there are key differences to understand.

Deferment is generally available for federal student loans and can be granted for situations like disability, unemployment, financial hardship, or returning to school or military service. A major benefit of deferment is that if you have subsidized federal loans, interest does not accrue during the deferment period.

Forbearance, on the other hand, is also a way to pause your payments, but interest continues to accrue on all your loans, both federal and private, while in forbearance. This means your loan balance will increase even though you're not making payments.

It's important to carefully consider the implications of accruing interest during forbearance. While it provides immediate relief, the added interest can significantly increase the total amount you repay over the life of the loan. If possible, explore other options or try to make at least interest-only payments to prevent your balance from ballooning.

Here's a quick comparison:

Feature	Deferment	Forbearance
Interest Accrual	Subsidized loans: No; Unsubsidized: Yes	All loans: Yes
Eligibility	Specific situations (e.g., unemployment)	Broader, including financial hardship

Before choosing either option, contact your loan servicer to understand the specific eligibility requirements and how it will impact your loan balance. For example, if you are considering student loan refinancing with MOHELA later, understanding the impact of deferment or forbearance on your credit score is important.

It's also worth exploring student loan repayment assistance programs. These programs can provide funds to help you pay off your loans, and they may be a better option than deferment or forbearance if you qualify.

5. Direct Consolidation Loan

So, you're juggling multiple federal student loans? A Direct Consolidation Loan might be something to consider. Basically, it combines all your eligible federal student loans into a single loan with one servicer. It sounds simple, and in some ways, it is. But let's get into the details.

The interest rate on the new consolidation loan is a weighted average of the interest rates on the loans you're consolidating, rounded up to the nearest one-eighth of a percent. So, don't expect a lower rate, but it does simplify things.

One of the main benefits is the potential for a longer repayment period. This can lower your monthly payments, which can be a big help if you're struggling to make ends meet. Plus, some income-driven repayment plans actually require you to consolidate your loans first.

Consolidation can be a good move if you're looking to simplify your repayment or if it's a requirement for a specific repayment plan. However, it's important to understand that you might end up paying more interest over the life of the loan due to the extended repayment period.

Here's a quick rundown of the pros and cons:

• Pros:Simplifies repayment with a single loan and servicer.May lower monthly payments by extending the repayment period.Can make you eligible for certain income-driven repayment plans like IBR Plan.

• Cons:Doesn't lower your interest rate.You could pay more interest over the life of the loan.May not be the best option if you're already on track with your current repayment plan.

Think of it this way: are you looking for simplicity or savings? If it's simplicity, then a Direct Consolidation Loan could be a good fit. If it's savings, you might want to explore other options like student loan refinancing.

6. Extended Repayment Plan

The standard repayment plan for student loans is usually set for 10 years. But, what if you could spread those payments out over a longer period? That's what the Extended Repayment Plan offers. It's designed to lower your monthly payments by giving you more time to pay off your debt, up to 25 years. However, keep in mind that while your monthly payments might be lower, you could end up paying more in interest over the life of the loan.

To be eligible for the extended repayment plan, you generally need to have more than $30,000 in outstanding federal student loans. This plan offers both fixed and graduated payment options, giving you some flexibility in how you manage your payments.

Think of it this way: the Extended Repayment Plan is like stretching a rubber band. You can make it longer, but it might lose some of its snap. In this case, the 'snap' is the total amount of interest you'll pay.

Here's a quick rundown:

• Repayment period can be extended up to 25 years.

• Requires a total loan amount over $30,000.

• Offers fixed or graduated payment options.

If you're considering this plan, it's a good idea to compare it with income-driven repayment plans. While the extended plan can provide immediate relief with lower payments, IDR plans might offer forgiveness after a certain period, which could be a better long-term solution if you anticipate repaying your loans for two decades or more.

7. Graduated Repayment Plan

A graduated repayment plan is another option to consider if you're struggling with your student loan payments. The idea is pretty simple: your payments start low and then increase every two years. The hope is that your income will also increase over time, making the higher payments manageable. For most loans, this plan is designed to pay off your debt in 10 years. However, if you have consolidated federal loans, it could take anywhere from 10 to 30 years, depending on how much you owe.

This plan can be a good fit if you can't afford full student loan payments right now but expect to be able to afford more later. If you want to stick to paying off your student loans in a reasonable amount of time, a graduated repayment plan can help you do it. It's worth looking into if you think your income will rise steadily.

One thing to keep in mind is that while your initial payments are lower, you might end up paying more in interest over the life of the loan compared to a standard repayment plan. It's a trade-off between short-term relief and long-term cost.

Here's a quick rundown of the pros and cons:

• Pros:Almost all borrowers are eligible for this plan.It’s a good option if you want to pay off your loans within 10 years and feel as though you will be able to do so.Payments start low, making it easier to manage your finances in the early years.

• Cons:You may end up paying more in the long run compared to other repayment plans.It can be hard to predict your income over the next 10 years, and you might get stuck with high monthly payments down the road.The increasing payments might become difficult to handle if your income doesn't rise as expected.

A graduated repayment plan can be a useful tool, but it's important to weigh the pros and cons carefully before making a decision. Consider using an IDR payment calculator to see how this plan would affect your monthly payments and total interest paid. Also, remember to re-evaluate your repayment plan regularly to make sure it still fits your financial situation.

A graduated repayment plan starts with lower loan payments and bumps them up every two years. It’s a simple way to manage your student debt. Want to learn more? Visit Student Loan Coach and book your free review today!

## Conclusion

With these seven strategies in hand—estimating your income, choosing the right plan, using local cost data, reapplying each year, and more—you can keep your monthly student loan payment within reach. Lowering that payment can ease money worries and help you build a small safety net. Be sure to talk with your loan servicer, submit the right forms on time, and update your details each year. It won’t fix everything at once, but it can give you more breathing room next month. And that extra room in your budget really makes a difference when you’re juggling bills, rent, and daily expenses.

Frequently Asked Questions

What is an income-driven repayment plan?

An income-driven repayment plan adjusts your student loan payment to a share of your earnings and household size, making monthly bills more affordable.

How do I apply for an income-driven plan?

To apply, contact your federal loan servicer. They will send you the correct forms and explain each plan’s requirements.

Do I need to reapply every year?

Yes. You must submit proof of income and family size annually to keep your payment amount accurate.

Can my monthly payment ever be zero?

Yes. If your income and family size are very low, some plans can set your payment to $0 for a period.

Can I switch to a different repayment plan later?

You may change plans at any time. Talk to your loan servicer to compare options and complete any new applications.

What happens after 20 or 25 years of payments?

Any remaining loan balance is forgiven after 20 years under some plans or 25 years under others, but the forgiven amount may be taxed.