Income-driven repayment plans are a wonderful tool for federal student loan borrowers. While they don’t help you pay off debt faster, the cap on monthly payments can ease the pain of unaffordable student loans.
But these plans aren’t helpful to those over a certain income. If your income is too high to qualify for income-driven repayment plans, you can still lower your payments. Here’s how.
When the student loan repayment cap isn’t enough
Even high earners need help with student loans.
Some of the highest-earning degrees also come with the highest price tags. This chart highlights how expensive some high-earning degrees can get:
Image credit: Earnest
If you’re a high earner, you can still qualify for income-driven repayment plans. StudentAid.gov explains why:
“There is an income eligibility requirement for the PAYE and IBR plans, but it is not based on a particular income level. Rather, it compares your income to the amount of your eligible federal student loan debt. There is no income eligibility requirement for the REPAYE or ICR plans.”
However, that doesn’t mean these plans can decrease your payments below what you typically pay:
“If your income increases to the point that your calculated PAYE or IBR payment amount is more than the monthly amount you would be required to repay under a 10-year Standard Repayment Plan, you will remain on the PAYE or IBR plan, but your monthly payment will no longer be based on your income. Instead, you will pay the amount you would have been required to pay under a 10-year Standard Repayment Plan.”
If these plans don’t allow you to lower your student loan payments, read on to learn about another option.
Lower your student loan payments by refinancing
When income-driven repayment plans can’t lower your monthly payments, refinancing might be your best bet.
When refinancing your student loans, aim for a lower interest rate. A lower rate coupled with a longer repayment plan can help you get a lower monthly bill.
Of course, you’re not obligated to extend your payment plan. If your refinanced interest rate is low enough, you can get a lower monthly payment without extending your repayment timeline. That means paying less per month while ensuring that you don’t stay in debt longer.
Best of all, you can explore this option with little risk to your credit score. Many top student loan refinancing lenders show you rates and repayment terms you might qualify for without doing a hard inquiry. Collect a few of these offers from various lenders and then apply for the best plan.
Applying for student loan refinancing
Completing a refinancing application is fairly painless. You’ll provide information the lender asks for, such as income and employment information.
You’ll choose between a fixed and variable interest rate, plus the number of years you’ll take to repay your loan. When your new loan is approved, it will pay off your old student loans.
When refinancing your loans, check to see if your new lender provides deferment or forbearance options. Navy Federal Credit Union, for example, offers these options if you run into financial trouble.
When student loan repayment salary restrictions leave you hopeless
The student loan repayment cap helps borrowers manage high monthly payments. But if you’ve wondered, “What is the threshold for student loan repayments?” and found that even IDR plans leave you with high monthly costs, look to refinancing to reduce your bill.
With lower monthly payments, you’ll have more cash to focus on other financial obligations, like saving for retirement.
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