Coronavirus is impacting the daily lives of people around the world. With social distancing and government mandates in full effect, we’re seeing businesses of all sizes shut their doors for the foreseeable future — especially those in the hospitality and service industries.
These closings are causing large numbers of workers across the country to worry about their next paycheck. During this uncertain and scary time, money management is more important than ever.
If you’re looking for ways to cut expenses, lowering or postponing your student loan bill could be a smart place to start.
Here are the best options for reducing your private and federal student loan payments.
How to Lower or Postpone Private Student Loan Payments
Refinancing
Student loan refinancing can be an effective strategy for lowering your monthly payment and saving money on interest costs.
Refinancing combines all your student loans into one new loan through a private lender. You can refinance private student loans, federal student loans (more on this below), or a combination of both.
With a refinance, you can have the opportunity to:
- Choose a longer repayment term to drastically reduce your monthly student loan payment. Some lenders even offer repayment terms as long as 20 years.
- Get a lower rate to significantly reduce the amount you pay in interest — saving you money over time.
Plus, current student loan refinancing rates are actually shockingly low. You can read a full breakdown of why refinance rates have dropped here.
The refinancing lenders you can qualify for — as well as the rates and terms you’re offered — depends on your credit history as well as other factors including income, degree earned, and debt-to-income ratio.
If you have a high credit score, you’ll have the chance to be approved for much lower interest rates. However, if your credit history is poor, you may have trouble qualifying for a refinance. If you don’t qualify, you can try applying with a creditworthy cosigner such as a parent, relative, or close friend.
When pursuing a refinance, it’s crucial to shop around first to get the best option that will save you the most money — either per month or over the life of your loan.
With Purefy’s Compare Rates tool, you can quickly and easily compare refinancing rates and terms from a variety of top lenders — all in one place with one fast form. Once you choose the right option for you, you’ll be taken right to that lender’s application which typically takes less than 15 minutes to complete.
Forbearance
While not all private lenders offer forbearance, there are some who do. The best thing to do is to contact your lender directly either by phone, email, or online chat to find out their forbearance terms.
With some lenders, you may be able to postpone your student loan payments for three months or even longer during a financial hardship — such as losing a job, having a reduced income, or experiencing a medical emergency.
While your payments are postponed, they will continue to accrue interest. But if you currently can’t afford your monthly bill, forbearance could be a great option if your lender offers it.
Alternative Payment Plans
Some private lenders may offer alternative payment plans if you’re going through a financial struggle.
Check with your private student loan servicer to learn their options. Each private lender is different with what they can offer to help reduce your payment. For example, some lenders will allow you to make interest-only payments for a certain period of time — without entering delinquency, default, or hurting your credit.
How to Lower or Postpone Federal Student Loan Payments
Deferment and Forbearance
If you can’t afford your monthly federal student loan payment, entering deferment or forbearance can provide much-needed support. However, not everyone can qualify. Eligibility is dependent on the types of loans you have and your personal situation.
Important note: On March 13, the Trump administration announced a temporary interest waiver on federal student loans. This would keep the interest on your loans from growing while your payments are postponed, regardless of the type of loan you have.
However, if you don’t postpone your payments through deferment or forbearance, this waiver doesn’t impact your monthly payment — only the interest accrued. Your full monthly payment would go toward your loan principal.
Deferment
Federal loan deferment allows you to postpone making payments for up to three years. Those who qualify may not be responsible for paying the accrued interest during their deferment period. In general, the loans that you wouldn’t have to pay interest on include:
- Direct Subsidized Loans
- Subsidized Federal Stafford Loans
- Federal Perkins Loans
- Subsidized portion of Direct Consolidation Loans
To be eligible for deferment, you may need to be in one of the following situations:
- Unemployed or unable to find full-time employment
- Experiencing economic hardship
- Enrolled in the Peace Corps
- Active duty in the military
- Receiving cancer treatments up to six months after your last treatment
- Enrolled in a rehabilitation program for the disabled
To apply for a federal deferment, you’ll need to contact your student loan servicer. They’ll be able to provide the necessary deferment forms to complete for approval.
Forbearance
Like deferment, forbearance is another way to postpone your federal student loan payments. However, you’ll be responsible for paying any interest that accrues on your loans during the forbearance period.
There are two federal forbearance options:
1. General: Your loan servicer will decide if you can postpone payments based on your unique financial or medical situation. You can apply by completing the general forbearance request form and submitting it to your loan servicer.
2. Mandatory: If you meet mandatory forbearance requirements, you can postpone your federal loan payments for up to 12 months at a time. You could be eligible if:
- The total amount you owe each month on your student loans is 20 percent or more of your total gross income.
- You are serving in an AmeriCorps position and received a national award.
- You are teaching in a role that would qualify for teacher loan forgiveness.
- You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
- You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
Income-Driven Repayment Plans
If you don’t qualify for federal deferment or forbearance, an excellent alternative could be an income-driven repayment (IDR) plan. This strategy allows you to extend your repayment term and cap your monthly payment at a certain percentage of your discretionary income. Some people can even qualify for $0 payments.
Since your monthly payments are based on a percentage of your current income, you can get a much lower bill if you’re experiencing financial troubles.
There are four types of IDR plans:
- Income-Based Repayment (IBR): For loans borrowed after July 1, 2014, your monthly payments would be 10% of your discretionary income with a repayment term of 20 years.
- Pay As You Earn (PAYE): Your payment would be set at 10% of your discretionary income, but won’t exceed what your payment would be with a Standard Repayment Plan. PAYE comes with a repayment term of 20 years.
- Revised Pay As You Earn (REPAYE): Like PAYE, your payment is set at 10% of your discretionary income. However, undergraduate loans come with a 20-year repayment term while graduate loans come with a 25-year term.
- Income-Contingent Repayment (ICR): Your new monthly payment would be 20% of your discretionary income, or what your fixed payment would be with a 12-year repayment term — whichever is lower.
For help deciding which plan is best for you, see our detailed article on choosing an income-driven repayment plan.
Public Service Loan Forgiveness
If you enroll in an IDR plan and work in the public sector, you should also consider enrolling in Public Service Loan Forgiveness (PSLF).
PSLF is a program that eliminates federal student loan debt — for those who are eligible — after making 120 qualifying payments. That adds up to 10 years of income-driven payments that are a percentage of your discretionary income.
Once you reach 120 payments, the remaining balance of your federal loans are completely forgiven. It’s an excellent option to both lower your monthly payment significantly (based on your income) and get rid of your debt after only 10 years.
However, eligibility requirements for PSLF are very strict. To qualify, you’ll need to:
- Work full-time for a government agency or certain nonprofit organizations.
- Have Direct Loans (either individual loans or a Direct Consolidation Loan).
- Make 120 on-time payments (while working for a qualifying government or nonprofit employer).
Refinancing
For the most part, refinancing federal student loans works the same way as private loans: Your student loans are combined into one with a new private lender of your choice, with a different rate and term.
However, refinancing federal loans to a private loan means that you’ll lose access to key federal benefits including many of the above:
- Student loan forgiveness programs including PSLF
- Income-driven repayment plans
- Deferment and forbearance programs
If pursing one or more of these options is important you, refinancing federal loans may not be the right choice.
Managing Your Student Loan Debt Through the Coronavirus Emergency
Coronavirus is changing people’s lives around the globe — some more than others.
If you’re experiencing financial hardship, you’re not alone — and lowering or postponing your student loan bill could be one small way to help.
