Federal Student Loan Payments Restart 2/1/22: Here’s How to Lower Your Rate

Kat Tretina

Under the CARES Act, federal student loan borrowers were granted some relief due to the coronavirus pandemic. The government lowered the interest rate on all federal Direct student loans to 0% and suspended payments.

The CARES Act benefits — including the payment suspension — were set to expire at the end of September 2021. However, there was a major update when President Joe Biden directed the U.S. Department of Education to extend the CARES Act’s protections through January 31, 2022.

This means that payments and interest charges will now resume on February 1, 2022 — and Biden has confirmed that this date will not be extended again.

If you’re like many borrowers, you’re probably trying to figure out how to lower your student loan interest rate and get a more affordable monthly payment once the payments are due. If you need help with your loans, here are your options.

How can I get a lower payment on my federal student loans?

When the CARES Act benefits expire, your federal student loan debt will return to the repayment plan you were on prior to March 27, 2020. Most borrowers will be on a Standard Repayment Plan, with full principal and interest payments and a 10-year repayment term. If your payments are too high under the Standard Repayment Plan, there are a few different ways to get a lower payment:

1. Apply for an income-driven repayment plan

Income-driven repayment (IDR) plans base your monthly payments on your discretionary income and family size. Depending on your income, you could see a dramatic reduction in your monthly payments. Some people even qualify for $0 payments, meaning they don’t have to make any payment at all each month, but they aren’t considered delinquent or in default.

Your repayment term is extended to 20 to 25 years. If you still have a remaining loan balance after your repayment period is over, the remaining balance is discharged, but you may have to pay income taxes on the forgiven amount.

There are four different IDR plans:

  • Income-Based Repayment
  • Income-Contingent Repayment
  • Pay As You Earn
  • Revised Pay As You Earn
Income-Driven Repayment PlanRepayment TermPercentage of Discretionary Income
Income-Based Repayment20 years for new borrowers after July 1, 201410% of your discretionary income for new borrowers after July 1, 2014, but never more than what you’d pay under a Standard Repayment Plan
Income-Contingent Repayment25 yearsEither 20% of your discretionary income or what you would pay on a fixed payment plan with a 12-year term, adjusted to your income
Pay As You Earn20 years10% of your discretionary income, but never more than what you’d pay under a Standard Repayment Plan
Revised Pay As You Earn20 years if all of your loans were for undergraduate study   25 years if any of your loans were for graduate or professional study10% of your discretionary income

2. Consolidate your debt

Another option is to consolidate your federal loans with a Direct Consolidation Loan. With consolidation, you won’t lower your interest rate — that’s only possible with private student loan refinancing — but you can reduce your monthly payment by getting a longer repayment period. With a Direct Consolidation Loan, you can have up to 30 years to repay your loans.

However, keep in mind that you’ll likely pay more in interest charges over time because of the longer repayment term.

3. Request forbearance or deferment

If you have lost your job, your hours have been cut, or you’re dealing with a medical emergency, you may not be able to afford even a reduced payment. If that’s the case, contact your loan servicer to discuss your options. With federal student loans, you can request a forbearance or deferment. With forbearance and deferments, you can temporarily postpone your monthly payments without entering into default or damaging your credit, giving you time to stabilize your finances.

How can I lower my student loan interest rate?

If you have federal student loans and are trying to figure out how to lower your student loan interest rate, consider student loan refinancing. With this option, you apply for a loan that covers the amount of your existing education debt. If you have steady income and good credit, you may qualify for a lower interest rate than you have with your current loans.

Refinancing has some drawbacks, particularly for federal loan borrowers, but there are some major benefits to consider:

1. You can save money

Because you can get a lower interest rate when you refinance, you can save a substantial amount of money.

For example, say you had $35,000 in student loans at 6% interest and a 10-year repayment term. If you refinanced your loans and qualified for a 10-year loan at 3.8% interest, you’d save $4,504 in interest charges.

 Original LoanRefinanced Loan
Starting Loan Balance$35,000$35,000
Loan Term10 Years10 Years
Interest Rate6%3.8%
Minimum Monthly Payment$389$351
Total Interest Paid$11,629$7,125
Total Repaid$46,629$42,125

2. You can reduce your monthly payment

Not only can refinancing help you save money, but it can also allow you to lower your monthly payment. You can get a lower interest rate, which can give you a smaller payment. And, you can also opt for a longer repayment term if you need more breathing room in your budget.

3. You can pay off your debt faster

With a lower interest rate, more of your monthly payments will go toward the loan principal instead of accrued interest charges. If you keep up with the same payments you had before refinancing, you can cut down your loan term, paying off your loans early.

Refinancing your student loans

Now that you know how to lower student loan rates, you’re better prepared to deal with the end of the CARES Act benefits. With the payment suspension and 0% interest rate set to expire on January 31, 2022, it’s wise to come up with a plan now to reduce your payments if needed and lower your interest rates to manage your student loans better. 

If you decide that student loan refinancing is right for you, use Purefy’s Compare Rates tool to get rate quotes from top refinancing lenders.

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