Student Loans and You: Part Two – How to Reduce Student Loans

Note: this is the second part of a two-part series on student loans. You can read part one on understanding student loans here.

In our previous article we talked about how rising student loan debt is affecting many young people. We also talked about how understanding student loans is a critical first step toward managing and reducing that debt.

Unfortunately, many schools are happy to sign their students up for generous loan packages, but they don’t provide enough information on how students can manage them after they graduate. This has led to a generation with rising debts and a lack of understanding about how their student loans work.

A survey conducted by Google Consumer Surveys, on behalf of Student Loan Hero, reveals that many Millennials with student loans have decided not to refinance their loans despite the fact that they may be able to secure lower interest rates. The largest group, making up about 25% of the respondents, said they were aware that it was possible to refinance student loans but that they did not know how to do so.

This is unfortunate, because there are options available that can help you to reduce your interest, consolidate your loans into a single payment, and in some cases, even have your loan debt forgiven.

Get Organized

how to reduce student loansOnce you’re gathered your information on your student loans, it’s a good idea to create a way to organize all your information. The simplest way to go would probably be a spreadsheet, though websites like also offer free online tools that you can use to organize and track your student loans.

  • Who is servicing the loan – This should include your account information and the contact information for the servicer.
  • Federal or private
  • Interest rate
  • Monthly payment
  • Expected payoff date

Having this information will be important as you explore your options.

To start, let’s look at your options regarding federal and private student loans.

Federal Loan Repayment

Most federal loans have a repayment period of ten years (120 months). If your student loans fit within your income, then this is the type of plan you’re currently using.

Because they are backed by the government, your federal student loans have the following payment options:

Consolidation Loan

If you’re carrying multiple student loans, you can combine them into one new loan. That means you only have to make only one payment each month and in some cases, you can also get an extension on the amount of time to pay your loan.

Graduated Repayment

If you’re making less money now but anticipate higher income in the future, graduated repayment may be right for you. With this plan, payments are lower at first and then increase, usually every two years over the course of a ten-year repayment period.

Extended Repayment

With this plan, you can pay less each month and make payments for up to 25 years. Keep in mind, because you’re paying over a longer period of time, you will be paying more in interest.

Income-Based Repayment

If your federal student loan payments are high compared to your income, you may want to repay your loans under an income-driven repayment plan. Under this plan, your monthly payments will be ten to fifteen percent of your discretionary income. The good news is that any outstanding balance on your loan will be forgiven if you haven’t repaid your loan in full after 20 or 25 years.

Student Loan Forgiveness

There are a variety of circumstances where your federal student loans can be fully or partially forgiven. Usually these options are reserved for those who are willing to provide services such as health care, legal aid, education, and emergency services to those who live in underserved areas. Other programs require a combination of regular loan payments and up to ten years of service in an approved non-profit field.

How to reduce payments on private student loans

how to reduce student loansAs previously discussed, your private student loans work differently from your federal student loans. Like a mortgage or a car loan, these are loans from private lenders that you are responsible for paying back. While private loans don’t offer the repayment or forgiveness options available through federal loans, you can refinance your student loans.

Refinancing your student loans can help you to pay off your loans at a lower interest rate. It may also allow you to extend the term of your loan so that you can pay less each month. However, keep in mind the longer the payment period, the more you’ll pay in interest.

It’s also important to remember that your ability to refinance will be dependent on your credit score and financial history. The better your financial profile, the more options you’ll have.

Should you refinance student loans?

Technically you can refinance any of your student loans with a private lender. These can include your local bank or credit union (like American Heritage!). There are also websites like that offer advice on student loan refinancing and offers from lenders to help you refinance your loan. Just keep in mind that the site is sponsored by the lenders, so take any advice offered with a grain of salt.

If you can get a better interest rate, it may be beneficial to refinance or consolidate your federal student loans with a private lender. However, once you refinance your federal loan, you lose access to the repayment and loan forgiveness options that are available with federal loans.

Looking for more ideas on how to pay down your student loan debt? Come talk with us today! We can help you with loans, financing, and other ideas on how to save for the future.