Have you found your student loan payments to be more than you can handle each month? If this is the case, then you probably wouldn't mind lowering your payments. There are a few ways to go about doing this, but there are always risks and rewards to any process. The key is to understand these risks. Here are a few ways on how to lower your student loan payments.
When Lowering Student Loan Payments is a Good Idea
The truth is there are times when lowering your student loan payments is actually a good idea. This is typically the case when you simply cannot afford the payment each month. That doesn’t mean the payment is just inconvenient, or keeps you from a few nights out on the town each month.
This literally means you cannot afford it alongside your other necessities (it is important to understand the difference between necessities and wants before you jump to the conclusion that you cannot afford your monthly student loan payments.)
If you do find you have a true need for lowering your payments, then it may be a good idea. After all, it is better to pay longer on the loan, and pay more in interest over the life of your loan, than it is to miss payments and have that negatively impact your credit report.
Reducing Your Student Loan Payment with the Income-Driven Repayment Plan
If you have decided that lowering your federal student loan payments is the best plan for you, then you may consider checking into the income-driven repayment plan, or IDR plan. These popular programs are designed to make your monthly payments more affordable. They take into consideration how much income you have coming in, and give you a reasonable payment amount you should be able to afford. This is a program that a lot of student borrowers commit to when they first start paying back their student loans. Just remember, if you can pay extra some months, it is best to do so, otherwise you may be paying off your loans for a long time to come.
How to Lower Student Loan Payments with Consolidation and Refinancing
The income-driven repayment plans through the federal government are not your only options when it comes to reducing your student loan payment. You may also consider consolidation and refinancing of your loans. Your first option is a federal consolidation loan. This type of loan is offered by the federal government and allows you to combine all of your federal student loans into one loan, with a single monthly payment. This can be a great way to lower your loan payment, but it isn’t going to do much for lowering your interest rate as these federal direct consolidation loans simply take the average of your current interest rates and assign that rate to your consolidated loan.
If you allow a private lender to consolidate your loans and refinance them into one loan with one payment, you can sometimes get a lower monthly payment and even a lower interest rate. It is a good idea to check into the interest rates because it can greatly impact your monthly payment, as well as how much you pay over the life of your loan.
If you can lock in a better interest rate through refinancing, and set your term length to where you want it to be, then you can set your monthly payment to something more affordable. Some lenders even allow you to set your own monthly payment, but remember the lower the monthly payment the longer it will take you to pay off the loan, and the more you will pay in interest over the life of the loan.
Note: You should always consider refinancing your private student loans as you will not be giving up much in terms of benefits - such as you would with federal student loans - which you should be a little more cautious when refinancing.
As you can see, lowering your student loan payments is not impossible. There are times when it may be the absolute best thing you could possibly do. No matter what you choose to do, make sure you have a monthly payment you can afford. If you can’t afford your payments, your credit report will really take a beating. That can make it difficult for you to make big financial purchases in the future, such as buying a car, a home, or other purchases that require credit. It can also affect your ability to get a good job, further hindering you financially.