It’s graduation season, and along with commencement comes — you guessed it — student loan bills.
Over at the New York Times, Ron Lieber has a comprehensive “beginner’s guide to repaying student loans” to accompany the launch of the site’s new student loan calculator. In addition to learning how much you owe and to whom, he also mentions a few strategies to reduce your immediate student loan payments.
Before reading on, note that the most common federal student loan repayment plan in the U.S. is called the Standard Plan, and it’s the 10-year plan that you’re automatically enrolled in if you don’t choose anything else. That’s not to say that the Standard Plan is disadvantageous — in fact, making the relatively high monthly payments can help you pay off your loans faster and with less overall interest.
But if you can’t afford to continue with the standard, Lieber highlights the strategies below to reduce your monthly payments (all for federal student loans, not private):
Federal direct loan consolidation
Loan consolidation simply means gathering all of your federal loans in one place, giving you one fixed interest rate and one monthly payment. The advantage to consolidating, besides the peace of mind that comes with keeping track of only one payment, is that you may end up with a lower interest rate on your loan and save money over time. Plus, it makes you eligible for the next option: extended repayment.
Learn more about loan consolidation.
This repayment plan simply lengthens the amount of time you have to pay off your loans (usually around 10 years) to up to 25 years, and therefore reduces your monthly payments. Be aware though, that while Extended Repayment may mean you’re more able to afford your payments right now, it will likely cost you more over the long run due to extending the time interest can accumulate.
Learn more about Extended Repayment Plans.
With a graduated plan, your loan payments start low and increase every two years, so that you still complete your payments within 10 years (unless you’re enrolling in this plan using consolidated loans, in which case you can make graduated payments for up to 30 years). Again, this plan can make your loans more manageable in the short term, but has the potential to ultimately cost you more in interest.
Learn more about Graduated Repayment Plans.
For people who aren’t earning enough post-graduation to make their student loan payments, there is a repayment option based on income. Your monthly payments won’t exceed 15% of your net income, and they’re readjusted every year for up to 25 years. Not everyone qualifies for this option, but those who do should expect monthly payments to be less than they would owe under a standard repayment plan. Again, you may ultimately pay more in interest over the course of the plan.
Learn more about Income-Based Repayment Plans.
Talking to your loan servicer
It may seem obvious, but the companies that you owe money are more interested in helping people who are proactive about paying their loans than those who are dodging their calls. If you have questions about or issues with making payments, you’ll want to make a phone call straight to your loan servicer, which is the company responsible for collecting your payments. While they probably won’t give you a “discount,” they can help remedy any mistakes and work with you on your repayment plan.
You can use StudentAid.gov’s repayment estimator to see how each of these plans (minus the phone call) would affect your loans. Not every type of loan qualifies for each of these plans — follow the provided links to learn exactly which loans are eligible for plans that appeal to you.
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