5 Strategies to Reduce Your Graduate School Student Loan Expenses – NerdWallet

Pursuing graduate school is a significant milestone that comes with its own set of rewards and challenges. While an advanced degree has the potential to elevate your career trajectories, it’s not without its financial burdens. A stark reality faced by many is the accumulation of substantial student debt. Incoming data from the National Center of Education Statistics from 2020 presents a sobering statistic: individuals leaving graduate programs are saddled with an average debt of approximately $88,220.

Navigating the repayment of grad school loans becomes an arduous journey for many. Even government-backed Federal grad PLUS loans, designed to cover educational expenses not met by other financial aids, carry with them the burden of a hefty 9.08% interest rate for the 2024-2025 period. This rate starkly contrasts with the 6.53% interest attached to direct undergraduate loans.

For a theoretical borrower shouldering $88,220 in graduate debt at a 9.08% interest rate, the monthly reimbursement on a standard 10-year plan would exceed $1,100—a figure that can quickly spiral out of control.

Thankfully, not all is lost. There exist avenues for loan relief and forgiveness, particularly for individuals in specific professions. Moreover, with interest rates on the cusp of decline, refinancing through a private lender could fast-track your journey to debt freedom or significantly lower monthly payments. When faced with the daunting challenge of meeting your monthly grad school loan obligations, here are five pivotal strategies to consider:

For those with federal loans, the default repayment setup is the standard 10-year repayment plan, which evenly divides the entire debt—graduate and undergraduate—across 120 consistent payments plus interest. However, alternate repayment schemes may provide respite by reducing monthly payments, particularly beneficial for individuals whose debt considerably outweighs their income.

Income-driven repayment (IDR) plans offer a reprieve by capping your monthly payments to 10-20% of your income, specifically tailored for graduate loans. Furthermore, after a period of 20 or 25 years, any outstanding grad school debt is forgiven. Presently, two primary IDR schemes are available for the majority of graduate borrowers. Additionally, the government provides alternative payment plans, potentially lowering your monthly obligations:

Uncertain about which plan to select? Engage with your federal student loan servicer for guidance through the maze of options, ensuring you find a scheme that alleviates your monthly financial strain. Furthermore, the loan simulator on studentaid.gov offers a general view of your repayment alternatives for further clarity.

Conversely, private lenders might not provide as much flexibility in repayment plans as the federal government. To understand your private grad school debt repayment options better, refer to your loan agreement documents and don’t hesitate to contact your lender directly with any queries.

A straightforward method to shave off a bit off your monthly bill is to set up automatic student loan payments. For federal student loans, enrolling in autopay could reduce your interest rate by 0.25 percentage points. Implementing this on an $88,220 loan at a 9.08% rate over ten years equates to a saving of roughly $1,430—minimal effort for significant saving.

Initiating autopay is as simple as logging into your online federal student loan servicer account. Moreover, several private lenders also incentivize autopay setup with similar discounts—review your loan documents for specific details.

Although IDR plans offer a pathway to debt relief, they’re far from the only option. An array of student loan forgiveness programs exist, potentially wiping the slate clean for those burdened by graduate debt. Whether you’re involved in public service, education, healthcare, or non-profit work, there’s likely a program tailored to your field. For example, the Public Service Loan Forgiveness (PSLF) program offers forgiveness after ten years of qualifying work and payments.

An escalating number of companies are recognizing the value of offering student loan repayment benefits to their employees. Such benefits vary but can significantly alleviate the financial stress associated with graduate debt. Inquire within your company’s HR department or while job hunting for potential student loan assistance—these perks can influence your overall debt repayment strategy profoundly.

If your income is stable and your credit score hovers in the high 600s or beyond, refinancing your graduate loans could secure you a more favorable interest rate. This alteration has the potential to reduce both your monthly payments and the overall sum owed throughout the loan’s lifetime.

However, tread carefully when considering the refinancing of federal student loans. Such a move means relinquishing the safety net of flexible repayment opportunities, potential loan forgiveness, and other critical borrower protections. Only proceed with refinancing federal loans if you’re confident you won’t require these safeguards in the future, like those in stable, high-earning careers who may not benefit from programs like PSLF or IDR plans.

Refinancing private student loans carries less risk since federal protections do not apply. If refinancing results in more favorable terms, it’s an avenue worth exploring. Given the recent cut in interest rates by the Federal Reserve, the chances for more competitive refinancing rates are on the rise. There is no limit to how often you can refinance; seize the opportunity whenever you can secure a lower rate.