10 Ways To Minimize Your Student Loans

A temporary pause on student loan payments, interest and collections took effect on March 27, 2020, as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. However, according to the Department of Education and the Biden administration, student loan payment relief is set to end on Jan. 31, 2022 — 22 months after it began.

Unfortunately, just because student loan payments are resuming as of Feb. 1, 2022, does not mean that all student loan borrowers are able to afford their payments. The good news is that there are a variety of options to help those borrowers avoid going into default.

“With the flexible payment and forbearance options with the federal system, there should be almost no reason you go into default,” said Erik Kroll, a certified financial planner and owner of Student Loans Over 50. “Default will cost you a lot more and has the potential to garnish wages and tax refunds.”

Here are 10 ways you can minimize your student loans and make your monthly payments more affordable.

Last updated: Sept. 10, 2021

“If you have federal direct loans, talk to your loan servicer — the company that manages your loans — to see if you are eligible for an income-driven repayment plan,” advised Kat Tretina, a certified student loan counselor and finance writer. “Your payments will be recalculated based on a longer loan term (20 to 25 years) and a percentage of your discretionary income. Based on your family size and income, you could qualify for a payment as low as $0. Plus, if you still have a loan balance at the end of your term, the government will forgive the remaining amount.”

“If you have older loans, such as FFEL loans, you aren’t eligible for an income-driven repayment plan,” Tretina said. “However, there are other payment options. You can sign up for extended repay, graduated repayment, or income-sensitive repayment to either get a longer term or to start making payments on a graduated basis.”

FFEL loans were loans made under the Federal Family Education Loan Program until 2010. These loans were made by private lenders but were backed by the federal government.

“If you have been paying on your student loan for an extended period, a terrific option to look at is consolidating your loans,” said Tim Walley, financial education supervisor at iQ Credit Union. “If you have multiple student loans, lumping them into one loan can help make managing them easier and might help to decrease the amount paid in interest.”

However, Kroll advises to proceed with caution if you decide to refinance or consolidate your federal student loans:

“Don’t refinance or consolidate federal student loans without first considering the income-driven repayment options and options for forgiveness,” he said. “Doing this will either restart the payment clock for forgiveness or completely disqualify you from these programs.”

“One less-known option for repaying student loans easier is employer repayment assistance programs,” Walley said. “This works similarly to how employers will match contributions that you make to your 401(k). As you make payments to your loan so will your employer. This is a wonderful alternative to help to pay off loans as fast as possible. Ask your company if they offer this program!”

Some companies that offer student loan repayment assistance include Aetna, Peloton and PricewaterhouseCoopers.

“If you can’t afford your payments because of extenuating circumstances, such as a cancer diagnosis or you were laid off from work, contact your loan servicer,” Tretina said. “You could be eligible for a deferment.”

A deferment allows you to temporarily pause your student loan payments. Subsidized student loans also qualify for a deferment of interest.

If you don’t qualify for a deferment, you could also apply for a forbearance, which will allow you to temporarily make a smaller payment or pause your payments for up to 12 months.

“Think of this as a last resort,” Kroll said, “as interest still accrues and capitalizes while on forbearance.”

Additionally, if you’re pursuing loan forgiveness, periods of deferment or forbearance likely won’t count toward loan forgiveness requirements.

“For private student loans, see if you can negotiate with your servicer either a lower interest rate or a longer term,” Kroll said. “You could refinance private student loans to a lower rate or longer term without worrying about unintended consequences, as with the federal loans.”

“Do refinance your private student loans as often as you can,” Kroll said. “Since there are no refinance fees from student loan companies right now, as long as you can get a better interest rate, it makes sense to refinance.”

“If you have private student loans, you can’t take advantage of the federal loan programs,” Tretina said. “However, it’s still a good idea to contact your lender. Some private lenders have their own programs for borrowers that can’t afford their payments. For example, Rhode Island Student Loan Authority has an income-based repayment program.”

If you’re already on an income-driven repayment plan, you can lower your payment by lowering your adjusted gross income.

“Since these plans typically base your payment off of your AGI, anything you do to reduce AGI also lowers your payment,” Kroll said. “And if [a lower AGI] is because you are saving in your 401(k), it’s a double whammy of lower student loan payments and higher retirement savings that work in your favor.”

When you set up automatic payments for your student loan, you can get an interest rate discount. Most lenders will give you an interest rate discount of 0.25%. While that may not make much of a difference in your monthly payment amount, it can potentially save you hundreds over the life of your loan.

While it’s great there are so many options, making the best decision on your own can be overwhelming. If that’s the case, reach out to a professional for help.

“Consider hiring a CFP or a Registered Investment Advisor to create a fee-based financial plan to address your pain points, planning needs and provide fiduciary advice,” said Bradley Wood, a financial advisor with The College Funding Coach.

“When considering a professional, interview them, ask them about their experience in working with federal and private programs,” he said. “Do some research on studentaid.gov and quiz them. You’ll know if they can help or not.”

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