Student Loans: Know About the Various Options for Lowering and Eliminating Monthly Payments

It's important to know about the many different options you have at your disposal when it comes time to repay your student loan debt

Navigating student loan repayment can feel overwhelming given complex terms, multiple repayment plans and evolving policies. Whether you are a recent graduate facing six-figure debt or a seasoned borrower adapting to changing circumstances, understanding and leveraging available options can lower or eliminate your monthly payments and reduce total interest paid over the life of your loans. Since new federal actions have modified income-driven plans, forgiveness pathways and refinancing criteria, a fresh review is essential. This article covers key strategies from tracking your loan portfolio to advanced discharge programs. North Carolina specifics appear only where directly relevant; the rest applies nationwide.

Know Your Loans

First, inventory every loan you hold. Federal loans include Direct Subsidized, Direct Unsubsidized, PLUS and Perkins loans. To view all federal loans in one place, set up an account at studentaid.gov. For private loans, check monthly statements and your annual free credit report via AnnualCreditReport.com. Record each loan’s principal balance, interest rate, origination date and servicer contact information. Errors in servicer records or misapplied payments can cost you thousands. Keep all correspondence and statements to verify payment history and prepare for any disputes.

Federal consolidation through a Direct Consolidation Loan can combine multiple federal loans into one fixed rate and may simplify repayment. Be aware that consolidation can reset the clock on income-driven repayment and Public Service Loan Forgiveness qualifying payments. Private refinancing merges loans under a new private lender, which carries its own benefits and drawbacks.

Communicate in Writing

Always create a paper trail. Use secure messaging portals or certified mail when contacting servicers. Phone calls can yield rushed or conflicting advice without documentation. Written records protect you if servicer errors arise or payment instructions change. Save emails and portal messages in a dedicated folder and note the date, time and representative name for each interaction.

If you receive confusing or incorrect guidance, escalate to a supervisor or the Federal Student Aid Ombudsman Group before acting. Clear, written instructions help you avoid missed deadlines and incorrect enrollments that can trigger late fees or loan default.

Refinance and Consolidate

Refinancing private or federal loans with a private lender can lower your interest rate and reduce your monthly payment. Typical requirements include a credit score of at least 660, a debt-to-income ratio under 40 percent and steady income. For example, refinancing a $50,000 balance from 6.8 percent to 4.5 percent over 10 years can drop the monthly payment from around $576 to $518 and save several thousand dollars in interest.

Consolidation combines only federal loans and maintains eligibility for income-driven plans and forgiveness programs. If you refinance a federal loan into a private loan, you forfeit access to income-driven repayment and Public Service Loan Forgiveness. Carefully weigh the savings on interest against the loss of federal borrower benefits.

Income-Driven Repayment Plans

Four main income-driven plans are available for federal loans: Revised Pay As You Earn, Pay As You Earn, Income-Based Repayment and Income-Contingent Repayment. Each caps your monthly payment at 10 to 20 percent of discretionary income after subtracting 150 percent of the poverty guideline for your family size. Payments can drop to zero if your income is low enough. After 20 or 25 years of qualifying payments, any remaining balance is forgiven.

Enrollment requires submitting annual income and family size documentation to your servicer. If you miss the recertification deadline, you may revert to standard repayment and face higher payments and accrued interest. Set calendar reminders to recertify before your deadline each year.

Public Service Loan Forgiveness

If you work full time for a government entity or eligible nonprofit, Public Service Loan Forgiveness (PSLF) may forgive your remaining balance after 120 qualifying payments under a qualified repayment plan. Use the PSLF Help Tool on studentaid.gov to confirm employer eligibility, track payments and submit the Employment Certification Form annually.

In North Carolina, teachers and state employees can pursue PSLF while working in public schools, state agencies or local municipalities. Keep accurate records of pay stubs and full-time employment status to support your application.

Loan Forgiveness and Discharge Options

Beyond PSLF, federal loans may be discharged in cases of total and permanent disability, school closure, false certification or borrower defense to repayment if the school misled you. Death discharge wipes out the balance for both federal and most private loans. To apply, submit specific forms to your servicer along with supporting documentation, such as a physician’s statement or official school closure notice.

Private lenders vary widely in discharge policies. Review your promissory note for any provisions and negotiate directly with your lender or a qualified attorney if you believe you qualify for a hardship discharge.

Forbearance versus Deferment

Forbearance temporarily reduces or pauses payments but allows interest to accrue on all loan types. Extended forbearance can add thousands in unpaid interest that capitalizes at the end of the period. Use forbearance only as a last resort for short-term cash flow issues.

Deferment suspends payments and, for subsidized federal loans, halts interest accrual for eligible borrowers such as those in school, certain military roles or economic hardship. Requirements are stricter and vary by deferment type, but this option generally costs less over time than forbearance.

Extending the Loan Term

Extending your repayment term reduces monthly payment but increases total interest paid. For a $100,000 loan at 5 percent interest, a 10-year term requires about $1,066 per month and accrues roughly $27,000 in interest. Stretching to 15 years lowers the payment to about $790 per month but raises total interest to about $42,000. A 20-year term cuts the payment to roughly $660 per month while incurring nearly $58,000 in interest. If cash flow is tight, an extended term can help short term while you make additional principal payments when possible to limit interest costs.

Most loans allow extra payments or lump sum prepayments without penalty. Applying occasional windfalls to principal can shorten your term and lower overall interest even on a longer-term plan.

Removing a Co-Signer

If you initially needed a co-signer to qualify, some servicers allow co-signer release after you demonstrate a history of 12 to 24 on-time payments and meet credit requirements on your own. Check your servicer’s co-signer release policy and consider refinancing solely in your name once you have sufficient income and credit strength. Removing a co-signer protects their credit and may lower your interest rate.

Debt Settlement

Private loans have no federal forgiveness options, but you can negotiate a settlement for less than the full balance. Lenders may agree to a reduced payoff if they believe you cannot repay in full. Negotiations can be lengthy and complex, so some borrowers hire reputable debt settlement companies. Beware of fees and tax liability, and understand that settled debt may be reported to credit bureaus, damaging your score.

Tax Implications of Forgiveness

Forgiven federal balances under income-driven plans, PSLF and other discharge options are tax-free through December 31, 2025 under current law. After that date, forgiven amounts may count as taxable income. Plan ahead by consulting a tax professional when expecting a large discharge or during recertification to avoid an unexpected tax bill.

State and Federal Resources

Key federal resources include studentaid.gov for loan management, repayment tools and forgiveness applications, and AnnualCreditReport.com for free credit reports. For assistance with servicer disputes, contact the Federal Student Aid Ombudsman Group. North Carolina borrowers can also reach the NC Department of Justice Consumer Protection Division at 919-716-6000 for state-level guidance.

Take Control with Regular Review

Your repayment strategy should evolve with your financial life. Schedule an annual policy review, compare new rate offers, update income-driven recertification and explore additional discounts. Small adjustments, like signing up for automatic payments or lowering your loan balance with occasional extra payments, can reduce interest and shorten your repayment timeline. By staying proactive, you can minimize payments, maximize forgiveness and move beyond student debt with confidence.