Student loan debt affects over 43 million borrowers, many of whom have postponed major life milestones, including purchasing homes and starting families, due to their student loan debt. Learning how to save on your loans will be essential to your future financial stability. The two most significant ways to save on student loans are using federal student loan programs and reducing student loan interest rates.
Enroll in federal student loan programs
The federal government provides several programs to help borrowers manage their loans and, ultimately, seek forgiveness after a designated period of repayment.
Public Service Loan Forgiveness
The Public Service Loan Forgiveness (PSLF) program was created to help lighten the burden of federal student loan debt for professionals working full-time in public service, including government entities and qualifying nonprofit organizations. Once enrolled, you could be eligible for loan forgiveness after ten years of qualifying payments.
Income-Driven Repayment
Income-Driven Repayment (IDR) plans help student loan borrowers by setting a repayment structure based on income and family size. There are several IDR plans that offer typically lower payments compared to the Standard Repayment Plan, as well as providing a path to eventual forgiveness. The newest of these plans is known as Saving on A Valuable Education (SAVE).
IDR Comparison Chart
Applications for SAVE, other IDR plans, and loan consolidation are available on http://studentaid.gov. You can also submit a PDF application to your loan servicer by uploading it to your servicer’s website, or mailing it to them. Expect a delay in processing times. The Education Department recommends checking its website for updates – there is no processing time estimate available. |
Plan |
Monthly Payments |
Repayment Period |
Status |
SAVE (formerly REPAYE) |
- 5% of discretionary income for Undergraduate Loans
- 10% of discretionary income for Graduate Loans
- Weighted average for borrowers who have both
|
- 10 years for low-balance borrowers (less than $12,000)
- 20 years for only undergraduate loans
- 25 years for any Graduate Loans
|
Replaced REPAYE; facing legal challenges with uncertain future. |
Income-Based Repayment (IBR) |
- 10-15% of your discretionary income (and your spouse’s if filing jointly)
- Never more than federal 10-year Standard Repayment Plan amount
|
20-25 years, depending on when you become a new borrower |
Accepting enrollments, but borrowers cannot select plan after 60 payments on REPAYE that occur on/after July 1, 2024. |
Income-Contingent Repayment (ICR) |
The lesser of the following: - 20% of your discretionary income or
- What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income
|
25 years |
Accepting new enrollments. |
Pay as You Earn (PAYE) |
- 10% of your discretionary income (and your spouse’s if filing jointly)
- Never more than federal 10-year Standard Repayment Plan amount
|
20 years |
Accepting new enrollments. |
Saving on A Valuable Education (SAVE)
The Saving on A Valuable Education (SAVE) plan, implemented in July of 2023, is the best choice for most federal student loan borrowers. It offers a drastic change in how monthly payments are calculated, and as of July 2024 will further cut the payment terms in half (from 10% of discretionary income to 5%) for undergraduate loans.
The plan is known to benefit borrowers with low balances (because the path to forgiveness is shorter than other IDR plans), but SAVE also benefits borrowers with higher debt balances, as the reduced monthly payments leads to an increase in the total balance that could eventually be forgiven.
Consolidate your loans
Borrowers with multiple loan servicers for federal student loans can consolidate their loans. Consolidation combines (and can lower) monthly payments and simplifies debt management. Opting for a federal consolidation loan ensures that you maintain your eligibility for federal student loan benefits, such as PSLF and IDR. If you decide to consolidate, be sure you include all your federal student loans in the consolidation, including any older federal student loans you may have.
Direct Consolidation loans have a fixed interest rate determined by the average of the interest rates of the loans you are consolidating. It is calculated by multiplying each loan by its statutory interest rate and adding them together. The sum is divided by the Direct Loan balance and multiplied by 100 and rounded up to the nearest 1/8%.
Let’s say you are consolidating two loans, one with a balance of $1,000 and an interest rate of 5% and the other with a balance of $1,000 and an interest rate of 7%. Multiply $1,000 by .05 ($50) and then $1,000 by .07 ($70). Add the two products together ($120) and divide by the combined loan balances of $2,000, which comes out to .06. Multiply that by 100, and your interest rate is 6%.
Stay up-to-date on the student loan landscape
Pay attention to news about your options and revisit studentaid.gov to find out how to benefit from any newly enacted programs as they develop. You can also set up a consultation with a student loan expert to learn about your repayment options in a changing student loan landscape.
Refinance for lower student loan interest rates
Although economic conditions largely drive the interest rates across lenders, there may also be personal factors to consider as you weigh your options. Because many people apply for student loans when their credit scores may be lower—usually as young adults, before they’ve had a chance to build a strong credit history—it can be a good idea to look at refinancing if your score improves. It may help you obtain lower interest rates, which can significantly reduce your cumulative debt. There may be refinancing fees, so be sure you understand the details with your lender.
You can also pursue a lower interest rate via the terms of your loan:
Maximize the impact of your student loan payments
As an overall savings strategy, you can often make a more significant impact on your loans with each payment by trying these strategies:
Strategize for your future
There are many choices available for saving on your student loans, such as using federal student loan forgiveness programs, reducing your student loan interest rates, and maximizing the impact of your payments. To best understand your options, consider contacting a student loan expert who could help you get on the path to student loan freedom. The sooner you get started on a strategy to pay down your debt, the sooner you’ll reap the rewards of a brighter financial future.