Ways You Can Reduce Your Student Loans

There’s no way to sugarcoat it: paying off your student debt is a burden.

While we patiently wait to see whether President Biden’s administration enacts broad student loans forgiveness, paying down debt and looking for ways to manage it are critical. To help you as you make a plan, here are three ways you can reduce your student loans.

Refinancing

Refinancing is all about lowering the interest rate on your student loan payments, and it’s one of the most effective ways to reduce your debt. Refinancing is when you take out a new loan with a lower interest rate than your student loan and use that money to pay off your existing debt. With the new loan, you wipe out your student loan that has a higher interest rate and start making monthly payments on your new loan instead.

Here’s an example: Consider the interest paid on a $100,000 student loan. If you originally took out that loan at a 7 percent interest rate and then refinanced it with a new loan at 3 percent, you will save $4,000 a year in interest.

Assuming you qualify for a lower interest rate when refinancing, it’s important to choose a shorter repayment term. Typically, this means that your monthly payments will be slightly higher, but the benefit is that you’ll maximize your overall savings by reducing the interest you have to pay and paying off your loan more quickly.

Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) program is a crucial program that allows certain federal student loan borrowers to have their loans forgiven after a certain number of years of working in a public service job. The program absolves any remaining federal loan balance after borrowers have made 10 years’ worth of payments.

PSLF is designed to encourage students to enter into relatively lower-income (but extremely important) careers like firefighting, teaching, government work, nursing, public interest law and the military. After making 10 years’ worth of payments – while working for the government or a nonprofit – borrowers qualify for tax-free forgiveness.

You can use the PSLF Help Tool on the federal student aid website to find out your eligibility based on your loan type and employer.

Pay-As-You-Earn Repayment Plan (PAYE)

Pay As You Earn (PAYE) is a repayment option for federal student loans. It can help students and recent graduates keep their loan payments at an affordable rate with payment caps based on income and family size. PAYE uses a sliding scale to determine how much you can afford to pay monthly and forgives any remaining debt after 20 years of qualifying payments.

You’re likely to be approved if you already can’t afford your payments and took out your first student loan after 2007. You must also have sufficient debt relative to your income to qualify. This means that it would take more than 10 percent of your earnings, above 150 percent of poverty level, to pay off your student loans on the standard 10-year payment plan.

Get Started Today

The government has provided numerous ways to obtain college funding and are now faced with the obvious follow up: what can you do to help people pay off their massive student loan debt? In 2020, Credible.com reported that the average monthly student loan payment was a whopping $393 per month!

The answer is a series of payment options, including the three that are showcased here: refinancing, PSLF and PAYE. However, when making important financial decisions, it is imperative that you be armed with all the information you need. Search online and do your research on any plans you may be considering, taking the time to compare multiple options that you may qualify for.