According to an Education Data report, the average student loan debt is around $39,351 per borrower. As a result, it can be hard to make the average student loan monthly payment. If you’re currently experiencing this and are trying to figure out how you can cut costs, you’re in the right place.
Lucky for you, you can lower your monthly payments. How? Here is everything you need to know about monthly payments and how to lower them.
What is the Average Student Loan Monthly Payment?
According to the above report, the overall average student loan monthly payment is $460. This can change, however, depending on a variety of factors, such as degree type. Typically, the higher the degree, the more money you’ll owe. Yet, even within a degree, the average monthly payment can vary. Take a look at the table below to better understand.
| Low Payment | Average Payment | High Payment | |
| Associate’s Degree | $281 | $333 | $384 |
| Bachelor’s Degree | $354 | $448 | $541 |
| Master’s Degree | $350 | $695 | $1,039 |
| Graduate Degree | $575 | $1,210 | $1,844 |
| Professional Degree | $521 | $1,537 | $2,553 |
The reason these numbers vary is due to additional factors like salary and debt owed. Typically, people with larger salaries can afford to pay more. Similarly, the more debt you owe, the higher your repayment cost will be.
That’s why it’s important to understand these numbers. You can better understand how your financial situation influences your monthly payments. However, these factors (such as your degree type, salary, and debt owed) aren’t the only things impacting your payments.
How Your Interest Rate Impacts Your Monthly Payments
Interest rates determine the overall cost of borrowing a loan. They’re usually described as a percentage of the loan principal.
Interest rates can be pretty impactful. Education Data reports that about 67% of borrowers’ total cost of repayment is interest. It’s important, then, to get as low an interest rate as you can to keep those costs down.
For example, let’s say you took out a $30,000 loan with a 5% interest rate. You’re on a payment plan with a repayment period of 20 years. If you make only minimum monthly payments for the entire life of the loan, you’ll pay $47,517 with monthly payments of $198. But, look at what happens if we lower that interest rate to 4% and keep all other factors the same. Now, you’d pay $43,631 with a monthly payment of $182.
| Loan 1 | Loan 2 | |
| Balance | $30,000 | $30,000 |
| Interest Rate | 5% | 4% |
| Repayment Period | 20 years | 20 years |
| Monthly Payment | $198 | $182 |
| Total Cost | $45,517 | $43,631 |
Notice how much money the lower interest rate saves you despite having the same repayment period and payment plan. Just that one percent decrease would save you $16/month, $192/ year, and around $2,000 over the course of the loan. As you can see, understanding your interest rate is extremely important. Especially on larger loan balances, or with higher interest rates, it can be the key to lowering your monthly payment significantly.
How to Lower Your Monthly Payment
Now that we better understand your monthly payments, let’s get into how you can lower them.
Refinance
By refinancing your student loan, you’re letting a private lender pay off your current loans. They’ll then give you a new private loan to cover what you owe them. You can get better terms on this new loan such as a lower interest rate. Thus, securing these new terms can lower your monthly payment and help you save money.
You can refinance both federal and private student loans. However, consider the pros and cons of refinancing federal student loans before doing so.
To qualify for refinancing, you’ll need to have a good credit score and steady income. Individual lenders may also have additional requirements you need to meet. Be sure to ask them about those before applying.
Rather than searching for refinance lenders one-by-one, we recommend starting the process with an automated student loan refinance search tool. With the free Sparrow application, you can see the rates and terms you’d qualify for with 17+ premier lenders.
Here is a list of the top refinance rates:
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See a rate you like? Click Apply and we’ll take you to the right place to get started with the lender of your choosing.
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Consolidate Your Federal Student Loans
If you have multiple federal student loans, consolidating them can be a good idea. You’ll do this through a Direct Consolidation Loan. When you get a Direct Consolidation Loan, you’re combining all your federal loans into one. You’ll then only have one monthly payment to make as opposed to a few payments a month. Additionally, consolidating certain loans, like the Perkins Loan, makes them eligible for loan forgiveness.
It’s important to note that consolidating may not get you better terms like a lower interest rate. Still, it can simplify your monthly payments which, in turn, lowers how much you’ll pay per month.
To qualify, you must have loans in repayment or the 6-month grace period. If you’re currently still attending college, you cannot consolidate your loans yet.
Switch Repayment Plans
A more budget-friendly plan can lower your monthly payments. Federal borrowers, for example, have access to income-driven repayment (IDR) plans. These plans base your payments on your discretionary income. The idea is that by basing the payments on your annual income, it’ll help keep them more affordable for you.
Meanwhile, private loan borrowers can talk to their lenders to see if they offer similar plans. While these plans may not have as many benefits as an IDR plan, they can still save you money each month. Reach out to your lender if you have questions.
Pursue a Job with Debt Payoff Benefits
Imagine working for a company that offers to pay you extra money to put toward your student loans. It sounds like a dream, but it isn’t. Companies are already starting to offer debt payoff benefits, and many more are planning to add them in the future. That extra money they pay you means less money that you’ll have to pay for your monthly payments out of pocket.
Final Thoughts from the Nest
Your monthly student loan payment might be one of your biggest expenses. So, it’s worth knowing this information to help you better understand it and, hopefully, lower it. If you decide to lower your payment through refinancing, look no further than Sparrow.
Sparrow offers an application that will match you to what you best qualify for from our 15+ partnering lenders, many of which provide competitive refinancing offers. From there, you can compare the different lenders you’re interested in before making a final decision. Fill out the Sparrow application today to get one step closer to lowering your monthly payments.