Obtaining lower interest rates can save you hundreds or even thousands of dollars on your student loans.

Sign Up for Auto-Debit or Monthly Automatic Withdrawal

This route is the low-hanging fruit.

Signing up for automated payments saves .25% interest with pretty much every student loan company. Some lenders even offer a .50% reduction if you open a checking account. Saving a fraction of a percent in interest may not seem like much, but it can add up. For example, if you have $40,000 in student loans, that quarter percent savings is worth $100 per year. Not exactly huge savings, but a decent reward for minimal effort.

Even though this is an easy move that every borrower can make, we don’t recommend it for everyone. There are a couple of circumstances where it is best to stick with manual payments.

You can’t trust your lender – The automatic payments give your lender the green light to take money out of your checking account. Unfortunately, there is an element of danger here. This is especially true if your monthly payments might change, such as being on a variable-rate repayment plan. Taking out a fixed amount each month is one thing, but if there is a chance your lender takes out more than what you planned for, be cautious. Once your lender removes that money, it is hard to get back.

You can’t trust yourself – Smart student loan repayment is all about paying extra when you can and targeting high-interest student loans. The savings from this approach will far exceed the potential savings from a .25% interest rate reduction. If signing up for automated payments will cause you to be lazy when making extra payments, stick to manual payments. Lenders maximize profits when borrowers pay the minimum each month over the life of the loan. Don’t let a slight interest rate reduction bait you into maximizing your lender’s income.

Lender Rate Reduction Programs

Lenders seldom advertise or publicize interest rate reduction programs, but they do exist. Private lenders created these programs to help borrowers who had fallen behind on their debt. It is typically available only to those with an income insufficient to keep up with payments. A rate reduction program is rarely a term of the loan contract. As a result, lenders can change the requirements whenever they want.

The nice thing about rate reduction programs is that they can help. Lenders usually give most borrowers who cannot make a monthly payment the option of forbearance or deferment. Delaying payments is typically good for the lender and bad for the borrower, however. The balance on the account will grow due to unpaid interest. Once the deferment or forbearance ends, the borrower has a bigger student loan problem. Continuing to make payments with a lower interest rate allows a borrower to put a dent in the principal balance.

Perhaps the most notable rate reduction program is with Sallie Mae/Navient. Over the years, they have changed the requirements and tweaked terms several times. At present, borrowers can sign up for an interest rate reduction that lasts for six months. Qualifying requires a borrower to provide Navient a detailed accounting of their monthly expenses. Generally speaking, the further behind a borrower is in repayment, the more likely Navient is to help. We have also found that the quality of assistance depends upon whom you talk to you. If one call attempting enrollment is unsuccessful, a second or even third try might make a difference.

Pay Down High-Interest Debt First

On the surface, paying down high-interest student loans first might not seem like a method of lowering interest rates. However, we would argue that it does.

The math is relatively easy. Suppose you have two loans at $10,000 each. One has an interest rate of 8%, and the other has an interest rate of 2%. Your combined debt is $20,000 at an average interest rate of 5%. If you pay off the loans with equal payments, your average interest rate will stay at 5%. However, if you start to pay off the high-interest loan faster, your average interest rate will drop. So, if you eliminate the high-interest loan first, your average interest rate will become a very favorable 2%.

Many people realize that paying extra on their student loans is a great way to pay off loans faster and save money on interest. We like to call these people responsible borrowers. However, we found that when these responsible borrowers don’t focus on the high-interest debt, it can cost them.

Utilizing this approach doesn’t require an excellent credit score or enrollment in any program. If you just pay extra towards your highest interest rate student loan, your average student loan interest rate will drop over time. Finding that bit of extra money to attack high-interest debt can save a lot of money in the long run.

Enroll in the SAVE Plan

Signing up for SAVE can help you lower your interest rate in two different ways.

First, because the SAVE plan is currently being challenged in court, borrowers who sign up for SAVE can get there interest rate lowered to 0% as long as the case is pending. The case could take years to resolve.

Second, once the lawsuit is over, assuming SAVE survives, borrowers can receive the SAVE subsidy which covers the monthly unpaid interest each month on the loan.

Suppose your federal student loans generate $300 in interest each month, but your required monthly payment is only $100. As a result, your federal student loan balance is growing by $200 every month. Because the federal government doesn’t capitalize the interest each month, many borrowers think that their balance is just staying the same. Once an event that triggers interest capitalization occurs, the balance can jump by hundreds or even thousands of dollars.

Signing up for SAVE fixes this problem. Going back to our example, instead of growing by $200 each month, SAVE covers the extra $200, so your balance doesn’t move. For borrowers with significant student loan balances and smaller incomes, SAVE is an excellent option.

Even if SAVE were to be eliminated in the litigation, the older REPAYE plan would likely be reinstated. Like SAVE, REPAYE offers an interest subsidy. However, unlike SAVE, the REPAYE subsidy only covers half of the excess interest.

Join the Military

Choosing to serve your country can be a big boost in student loan repayment. For starters, numerous student loan forgiveness programs exist specifically for the military, such as the Military College Loan Repayment Program.

In the realm of interest rates, enlisting has immediate benefits as well. Military service can lower your student loan interest rates in two ways:

Servicemembers Civil Relief Act (SCRA) Interest Rate Cap – The SCRA limits all student loan interest rates for active-duty members of the military to 6%. This limit applies to both federal and private student loans. In fact, this interest cap applies to all debt, so long as the debt exists before you begin active duty. If you acquire new debt after active duty starts, it does not qualify for the interest rate cap. Federal law guarantees this rate cap, but you will probably have to contact your loan servicer to get things set up.

0% Interest for Service in a Hostile Area – Anyone who qualifies for special pay by serving in a hostile area doesn’t have to pay interest for up to 60 months. This benefit applies to all Federal Direct student loans issued after October 1, 2008.

Enlisting is obviously a major commitment. But, anyone currently in the military or considering joining should be aware of the potential opportunities to lower their interest rates.

Get Congress to Act

If you have student debt, it probably means that you don’t have millions of dollars to pay lobbyists or contribute to campaigns. However, borrowers as a group still wield enormous power in Washington.

Over the years, there have been proposals that would allow federal borrowers to lower their interest rates to the same levels that banks get when they borrow from the government.

Showing up to vote each November is critical to influencing DC. Think about the senior citizens. Seniors on Medicare and Social Security individually don’t have much money to spend on campaign contributions. But, they vote, and everyone in Congress knows it. Student loan borrowers currently number over 40 million. If they all voted for candidates who pledged to make a difference on student loans, lower interest rates could be just the beginning.

Refinance Student Loans at a Lower Interest Rate

Student loan refinancing is another excellent way to get a lower interest rate on your student loans.

When you refinance your student loans, a new lender pays off some or all of your old student loans in full. The borrower then agrees to repay the new lender according to new terms. The downside to this approach is that this eliminates the old loan’s terms and perks. So, if you like having income-driven repayment plans or loan forgiveness, it is best to skip refinancing and stick with federal loans.

The big advantage of refinancing is the enormous potential interest savings. College students without a job or a degree are risky bets and usually get charged higher interest rates by lenders. Graduates with a job and a degree are far less risky and generally more able to get better interest rates.

The more savvy a borrower is about the refinance process, the more they can save. There are multiple ways that a borrower can use refinancing to get lower interest rates…

Pick a Shorter Repayment Term or Loan Length

By refinancing student loans to a shorter-term loan, borrowers can significantly lower interest rates.

As an example, take a look at the best rates currently available on 5-year fixed-rate loans.

Rank	Lender	Lowest Rate
1		3.95%
2		3.99%*
3		4.88%

If we stretch things out to 20 years, the lowest possible rates jump considerably:

Rank	Lender	Lowest Rate
1		6.08%*
2		6.53%
3		6.55%

To see rates available for 5, 7, 10, 15, and 20-year loans, be sure to check out our best refinance rates by category page. These rates are updated monthly to provide a good idea of the best available rate for any given loan type.

The longer the loan repayment length, the riskier a variable-rate loan becomes. We typically suggest that all borrowers avoid variable-rate loans longer than ten years. However, if interest rates are at extreme highs, a longer-term variable-rate loan might make more sense.

Shop Around to Find the Best Rate

In the realm of student loan refinancing, the surest way to get the lowest possible rate is to shop around.

All lenders offer a range of loan types and loan options. What they don’t advertise is that all lenders evaluate applications differently. Lenders put different weights on different factors, such as the college you attended, how long you have been in your job, and your profession. A borrower with a high credit score and average income might get vastly different results than a borrower with an average credit score and high income.

Accordingly, the companies advertising the best rates may not be the company that actually offers you the best rate. Because there are so many variables in play, it is essential to check rates with several different lenders. We typically suggest investigating 5-10 lenders out of the many student loan refinance companies.

The good news about shopping around is that it takes very little time. Most borrowers can get a rate quote within 5 to 10 minutes.

Fortunately, shopping around does not hurt your credit score. The credit agencies treat multiple applications within the same window as a single application. This allows borrowers to shop around without fear of negative credit consequences. To be safe, try to keep your shopping around confined to a one- or two-week window.

Get a Cosigner

This option is a pretty lousy way to get a lower interest rate when you refinance. It can help borrowers with less than perfect credit qualify, but it is a massive obligation for the cosigner.

Getting a cosigner to help pay for college is one thing. Getting a cosigner to refinance is another story. Refinancing for some is more of a luxury. Obtaining lower interest rates is nice and saves money, but does it justify the risk that your cosigner is taking on?

That being said, borrowers who are struggling to get approved may be able to refinance successfully with the help of a cosigner. If that cosigner was on the original loan, this move might make even more sense. The cosigner’s obligation doesn’t change, but the borrower’s ability to pay it off faster is improved. This is a win for both parties.

Some borrowers use refinancing as a workaround to get their cosigner released from the loan. If the cosigner is on the original loan but not the refinanced loan, the cosigner has no further obligations when the refinance goes through.

Pay Off Existing Debt First

When refinancing, the two most significant factors in approval decisions are your credit score and your Debt-to-Income ratio (DTI).

Completely eliminating a debt can have a considerable impact on your DTI. Lenders usually don’t care about your current debt balances. For example, if you have a car loan, it doesn’t matter if you owe $20,000 or $5,000. The impact comes from monthly payments on your credit report. Lenders care about the $300 per month that you owe on your car loan. If you eliminate that monthly payment, your DTI improves. It also increases your chances of scoring the best possible interest rate.

If you are about to eliminate a monthly payment, be sure to let some time pass so that the debt doesn’t appear when lenders check your credit report.

Fix or Improve Your Credit Score

Lenders consider your credit score when determining the rates they offer you. Therefore, anything that you can do to improve your credit score will help your cause.

Correcting errors on a credit report is a quick way to get a boost, but that isn’t the only way to improve it. The impact of negative items on a credit report drops with time.

Find a New Job or Get a Raise

This tip probably falls into the easier-said-than-done category, but it can make a big difference to your debt-to-income ratio.

Different lenders have different requirements for documenting income and time required at a job, but a recent paystub is sufficient proof of income for many.

Refinance Again

The option to refinance a second or third time is something that many borrowers fail to consider.

The good news for consumers is that there is no rule or limitation on refinancing multiple times.

If you have had the good fortune of getting a higher-paying job, improving your credit score, or eliminating some old debt, there is a good chance that better rates may be available. Similarly, if the first time through the refinance process you skipped out on shopping around, a second bite at the apple might be an excellent opportunity to lock in the best deal.

With many lenders offering refinancing services, jumping around a few times can be an effective strategy.

Lowering Student Loan Interest Rates

The thirteen different approaches that can be used to get lower interest rates represent an opportunity for nearly all borrowers to get some help on their student loans.

Different strategies require different levels of effort, but for many, a minimal investment of time can result in major savings.

The post 13 Ways to Get a Lower Interest Rate on Your Student Loans appeared first on The Student Loan Sherpa.

For borrowers on income-driven repayment plans, monthly payments are calculated based on what a borrower can afford to pay. Putting money in certain retirement accounts essentially shields that income from being included in monthly payment calculations.

It might sound like a bit of accounting voodoo, but getting lower payments via retirement contributions is pretty simple.

Why Putting Money in a 401(k) or 457 Retirement Plan Means Lower Student Loan Payments

The whole “process” is basically three steps:

1. Put money in an eligible retirement account.
2. Claim a tax deduction for the retirement contribution.
3. Get a lower student loan payment on an IDR plan.

Step three is the one with the potential for confusion. To make sense of it, borrowers need to understand how monthly payments on Income-Driven Repayment (IDR) plans work.

The appeal of an IDR plan is that borrowers can make payments based on what they can afford to pay. The Department of Education calculates a borrower’s “discretionary income” in order to determine what they can afford to pay.

The starting point for the dictionary income calculation is usually the borrower’s Adjusted Gross Income (AGI) from their most recent tax return. The larger your AGI, the more you will be expected to pay on an IDR plan.

Shifting back to the retirement side of the equation, some retirement contributions qualify for a tax deduction. This tax deduction lowers the taxpayer’s AGI. The reduced AGI essentially shelters income from student loan payment calculations.

In other words, putting money in a retirement account lowers your income for tax purposes. This “lowered income” means lower payments on income-driven repayment plans.

If things are still a bit fuzzy, the next section will cover the eligible retirement accounts, and later on we will do a quick example with actual numbers.

The Exception: Roth 401(k)s and “Post-Tax” Accounts

Sadly, not all retirement account contributions mean lower student loan payments.

Some retirement accounts are considered “pre-tax” because the money placed in the retirement account isn’t taxed yet. These accounts are also commonly called tax-deferred, meaning you don’t pay taxes until the money comes out of the account.

These contributions that lower your tax bill are the ones that lower student loan payments. Common examples include most 401(k)s, 457 plans, and IRAs.

Borrowers don’t get a student loan benefit if the retirement account is a “post-tax” account. Post-tax contributions don’t lower your tax bill, which means they don’t help with student loan payments. Common examples of post-tax retirement accounts are Roth IRAs and Roth 401(k)s.

Sherpa Tip: If you get a tax deduction for putting money in your retirement account, it also means lower payments on income-driven repayment plans.

Other Ways to Save for Retirement and Lower Student Loan Payments

Clever borrowers might also wonder if other tax breaks mean lower student loan payments.

The answer is yes. Several other tax deductions also mean lower student loan payments.

However, not all tax deductions mean lower student loan payments. The critical detail on tax deductions is whether or not the deduction lowers your AGI. Tax pros call deductions that lower AGI “above-the-line” deductions. The tax breaks that don’t lower AGI are “below-the-line” deductions.

The following deductions are “above-the-line” and will lower income-driven student loan payments:

• Health Savings Account Contributions
• Alimony Payments
• One-half of Self-Employment Taxes
• Student Loan Interest

Deductions that do not lower student loan payments include the following:

• Charitable Contributions
• Mortgage Interest
• State and Local Taxes

Taking Advantage of Lower Payments for Tax Breaks

Before getting too excited about the opportunities for lower student loan payments, it is worth remembering that debt elimination is the goal of all borrowers. Lower monthly payments are nice, but they also mean spending more on interest in the long run.

The people chasing after student loan forgiveness will benefit the most from using retirement contributions to lower payments. If you are on your way to Public Service Loan Forgiveness, putting money in the correct retirement account means lower monthly payments, a reduced tax bill, more money saved for retirement, and more student debt forgiven.

Even if forgiveness isn’t on the horizon, the lower payment is still helpful. If you have a reduced federal student loan bill, it means you can focus your efforts on attacking your high-interest private loans or saving for a home down payment.

An Example with Actual Numbers

Suppose I make $60,000 per year working for the government.

I have a lot of federal student debt, so I enroll in an income-driven repayment plan. If I choose the SAVE plan, my monthly payments will be $226 per month, according to the SAVE Payment Calculator.

I realize that I need to be saving more for retirement, so I have my employer start withholding $200 per paycheck for my retirement. Taxes vary from state to state, but for this discussion, let’s assume my $200 contribution per paycheck lowers my take-home pay by $150. After a full year, I will have set aside $5,200 for my retirement.

That retirement contribution lowers my AGI by $5,200. According to the loan simulator, the lower AGI reduces my monthly payment to $183 per month. If I’m working for an employer eligible for PSLF, the lower payments would mean more debt forgiven after ten years.

In the months I receive two paychecks, I will have set aside $400 for retirement, spent $43 less on my student loans, and only lost out on approximately $300 worth of take-home pay.

To recap, by setting aside money for retirement, I’ve accomplished the following:

• Lowered my monthly student loan payment,
• Increased the money set aside for my future,
• Lowered my tax bill, and
• Increased the amount of debt that can be forgiven.

Long-Term Benefits: This approach has significant long-term benefits. The $200 set aside each paycheck can reasonably be expected to grow as time passes. Your original contributions may have grown considerably by the time you reach retirement age, depending upon your investment strategy. A hidden advantage to this approach is that borrowers get an early start on interest working for them instead of against them.

Clearly, some sacrifice is required to utilize the connection between retirement, payments, and forgiveness. However, for the borrowers who can forgo a bit of income today, the future benefits are pretty significant.

Why this is my Favorite Student Loan Hack?

For many student loan borrowers, retirement is a problem for the future. Student loans are the crisis of the present.

Taking advantage of this hack requires setting money aside for retirement. I love the idea of saving for the future and making the present a little bit easier.

The post How 401(k) and 457 Retirement Plan Contributions Lower Student Loan Payments appeared first on The Student Loan Sherpa.

The plans are designed to keep federal student loan bills affordable.

If you have a particularly high-earning year, this can complicate your repayment strategy.

Fortunately, several strategies can essentially bury a high-earning year from impacting your student loan payments.

Items that Might Cause an Unusually High Earning Year

Before jumping into the strategies to keep your student loan payments reasonable, it’s probably a good idea to discuss a few examples of items that might cause a big year.

Overtime – Not all businesses have a steady 40-hour week. If you had a ton of extra overtime one year, it could impact your student loan payments.

Selling Your Business – If you’ve built a successful business and sold it to someone else, your income could be unusually large the year you sell the business.

A One-Time Bonus – If you have a typical yearly bonus that happens each year, it won’t be a factor. However, if you have a one-time bonus from your company or a huge annual bonus, you may want to exclude it from IDR calculations.

Withdrawing money from a 401(k) or Traditional IRA – Some withdrawals from retirement accounts are taxed. If you pull money out of a retirement account, your income for that year might seem exceptionally high.

A Temporary Promotion – If your boss leaves the company and you fill in while they find a permanent replacement, you might earn some extra money in that year.

Finally, if you get married or divorced or change from filing separately to filing jointly for a year, you might have an unusually high-income year.

Sherpa Tip: This list could go on for days. The items included serve as examples, but there could be any number of reasons that you have an unusually high-income year.

Calendar Gymnastics to Hide a Big Year

IDR payments are calculated based on your most recent tax return.

Suppose you recertify your income each March. If the previous year was unusually low, it’s a good idea to file your taxes early so that the low year is on file when you recertify. Alternatively, if your income was high the last year, you can delay filing your taxes until April. The following year, you can file early, and the high earning year never impacts IDR payments.

If you want to take this strategy to the extreme, you could request an extension to file your taxes. The IRS allows taxpayers to delay tax filing until October 15.

By watching your filing timeline, you can use lower earning years twice and essentially bury a big year.

Alternative Documentation of Income

Suppose you pulled money out of your 401(k), so your most recent tax return shows an income that doesn’t remotely resemble what you actually earn.

On your IDR Recertification Application, there is a question that asks if “your income significantly decreased since you filed your last federal income tax return.” By marking yes, you trigger alternative documentation of income.

Alternative documentation of income means that the Department of Education will use something other than your most recent tax return to calculate your IDR payments.

For most borrowers, this means using two recent paychecks to show what you actually earn. If you are self-employed or have another unique circumstance, you may have to work with your servicer to find proper documentation of your income.

Going this route ensures that your big tax bill doesn’t also mean higher student loan payments for a year.

Hiding Income from IDR Calculations

Sometimes the previously listed strategies are unavailable. You may have also gotten a raise, which means a larger income for many more years.

In this circumstance, it is harder to exclude the additional money from impacting IDR payments. However, it is still possible.

My favorite tactic is to hide the money away in a retirement account.

If you put money in a 401(k) or Traditional IRA, it lowers your tax bill. The reduced tax bill means lower IDR payments. It also means more money set aside for retirement. For the borrowers that can swing it, hiding money away in a retirement account has significant advantages.

Tax Bills and IDR Student Loan Payments

All borrowers should understand the critical relationship between IDR payments and yearly taxes.

As your AGI increases, your student loan payments eventually increase.

If you can find a way to lower your AGI or adjust your IDR recertification/tax timeline, you impact IDR payments.

In other words, it’s critical to think about student loans at tax time.

The post How to Exclude a High-Income Year from Income Driven Repayment Calculations appeared first on The Student Loan Sherpa.

The federal interest and payment freeze only applies to “federally held” student loans. FFEL loans are federal student loans but not federally held, so many borrowers are still charged interest. Fortunately, federal direct consolidation could fix this issue. Unfortunately, federal direct consolidation may be a mistake for some FFEL borrowers.

Today we will cover how to get federal loans eligible for the 0% interest rate. I will also explain why the interest break might still be a mistake for some borrowers.

Converting FFEL Student Loans into Federal Direct Loans

Federal Family Education Loan (FFEL) Program Student Loans are federal student loans. However, a third-party usually owns the debt. Hence the distinction between federally held and federal student loans.

Federal Direct Consolidation transforms FFEL debt into federal direct debt. During the consolidation, the federal government pays off the FFEL loans, and the debt is replaced with a new federal direct loan.

Prior to the student loan interest freeze, borrowers used this process to gain eligibility for the Public Service Loan Forgiveness Program. Today, the same steps mean a payment forbearance and 0% interest.

The Federal Direct Consolidation Process

The federal direct consolidation process is provided exclusively by the Department of Education.

The application is fairly simple. The Department of Education estimates that most borrowers complete the process in about 30 minutes.

Borrowers can expect the following basic steps:

• Completion of the initial application. This is the part that takes half an hour.
• The Department of Education calculates and makes arrangements for the final payoff of the original loans. Borrowers don’t need to take any action during this step.
• Funds from a new federal direct consolidation loan are used to pay off the old loans. This is the step that eliminates the FFEL loans and creates a new federally held loan.
• Borrowers start repayment on the new federal direct consolidation loan. As a federally held loan, borrowers will qualify for the Coronavirus deferment and 0% interest rate.

Important Note: While this process sounds simple, it has major consequences. Paying 0% interest until October is a great perk, but consolidation may be a huge mistake. Borrowers should understand the consequences of consolidation before starting the process.

The Validity of Direct Consolidation to Qualify for 0% Interest

I usually don’t like to inject myself into these articles.

However, this is one topic that readers may view with a bit of skepticism. I know I would.

I can say that I personally borrowed FFEL loans when I attended law school. Long before the Covid-19 pandemic, these loans were consolidated into a federal direct consolidation loan. My loans qualified for the payment and interest freeze.

The Department of Education has stated the following on consolidation and 0% interest:

When is Federal Direct Consolidation a Mistake?

Borrowers should understand that federal direct consolidation isn’t a tiny loophole to exploit for 0% interest.

Consolidation eliminates old loans and creates a new loan. The consequences may devastate some borrowers.

In a worst-case scenario, a borrower may be approaching qualifying for student loan forgiveness on an income-driven repayment plan. By consolidating, this borrower starts the forgiveness process at the beginning. In this instance, a temporary break from interest would not justify wasting years of payments that would have counted towards forgiveness.

Borrowers must weigh the benefit of the temporary relief against the progress that consolidation erases.

Raising the stakes even higher is the fact that there is no way to undo a loan consolidation. Once the process is complete, there is no going back.

Some borrowers may have also accumulated significant uncapitalized interest on their loans. The consolidation process is one of the ways that federal interest capitalizes.

Borrowers on the fence should carefully discuss their options with their loan servicer. Reviewing the Student Loan Sherpa Federal Consolidation Guide may help prepare for this conversation.

Next Steps:

• Talk to your servicer about federal direct consolidation and the consequences for your loans.
• Start the Federal Direct Consolidation Application.

The post Get 0% Interest on FFEL Student Loans During Covid-19 Forbearance appeared first on The Student Loan Sherpa.

Many lenders pay Firstmark to handle the day to day management of student loans, including answering borrower questions and collecting payments. For the over half a million consumers forced to work with Firstmark, getting help can be frustrating. This is especially true for borrowers looking for lower monthly payments or a better interest rate.

Even though Firstmark Services has earned a reputation for lousy customer service, there are several different ways that student loan borrowers can improve their circumstances. They may even be able to get rid of Firstmark entirely and work with another company.

What is Firstmark Services? And Why are they a Problem?

By digging into the Consumer Financial Protection Bureau Complaint Database, we see complaints about Firstmark’s failure to collect payments properly and complaints about Firstmark not working with borrowers on monthly payments.

Firstmark not lowering payments for borrowers isn’t a surprise because Firstmark is a loan servicer rather than a lender.

The lenders are the ones who set loan terms. A loan servicer, like Firstmark, is tasked with collecting payments and answering questions about the existing loan contract. In most cases, Firstmark does not have the authority to modify the terms of the original agreement.

Because Firstmark functions as something of a middleman between the borrower and the lender, reasonable requests may go unfulfilled. The servicer isn’t allowed to change the contract, and the lender doesn’t know about the customer’s request.

How to Go Around Firstmark to Get a Lower Interest Rate

The best and most efficient route for a lower interest rate with Firstmark Services is to refinance the student loan with another lender.

By refinancing, a new loan with new terms is created, and the old loan is eliminated. Through the refinance process, borrowers can get lenders competing to see who will offer the lowest interest rate, and borrowers won’t have to work with Firstmark going forward.

Borrowers that don’t want to work with Firstmark should avoid the following lenders who currently have contracts with Firstmark: CommonBond, Citizen’s Bank, U-Fi, Purefy, and Brazos.

Those looking for the lowest possible interest rate should investigate refinancing with the following lenders:

Rank	Lender	Lowest Rate	Sherpa Review
T-1		4.86%	ELFI Review
T-1		4.86%*	Splash Financial Review
3		5.29%	Laurel Road Review

Those looking for the lowest possible monthly payment may want to opt for a longer loan. Selecting a 20-year loan will result in a higher interest rate, but monthly payments will be far more manageable, and borrowers always have the option of paying extra or refinancing again.

The top rates in the 20-year loan category are with the following lenders:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

[Note: The lenders listed are pulled from our student loan refinance rates table, and the rates are updated monthly.]

Help for Borrowers who can’t Refinance

Refinancing away from Firstmark Services may be the easiest way to get a better interest rate or lower payment. However, refinancing isn’t always an option for borrowers who don’t have the credit score or income to qualify.

Sadly, the borrowers who need the help the most are the ones who will have the most difficult time getting help.

When the most effective option isn’t available, borrowers can resort to longshot strategies. These approaches may not always work, but they may be worth trying even with limited chances of success:

Call the Lender Directly – Because Firstmark usually doesn’t have the authority to change the loan terms, borrowers can reach out directly to the lender for help. The odds are pretty good that the lender will direct the borrower back to Firstmark. Borrowers should explain that they have already reached out to Firstmark and that Firstmark told them they couldn’t make changes to the loan. The success of this approach may vary from one lender to the next. Borrowers may also want to investigate if the lender has an Ombudsman or Consumer Advocate. These resources may be the best option when making this unique request.

File a CFBP Complaint – Reaching out to the CFPB is an excellent way to bring some extra attention to your situation. Student loan companies are often very responsive to complaints, and even if the borrower doesn’t get the help they are asking for, they may get a more detailed explanation of the issue. This site has previously explained how to file a CFPB complaint and why it can make a difference.

Don’t Buy the Hype on Deferments and Forbearances

Many student loan companies will try to convince borrowers looking for a lower interest or lower payment that a deferment or forbearance will help them.

Unfortunately, these remedies usually only delay the problem and make things more difficult in the long run.

Borrowers should understand that even though a deferment or a forbearance may pause payments, interest usually continues to accrue. This means that at the end of the “break,” the balance will have gone up, and payments may be higher. This option might help borrowers temporarily furloughed. For those with long term issues, it is best to explore other forms of assistance.

Final Thought: Understand how the system works to avoid wasting time.

Having a servicer like Firstmark puts some distance between the lender and the borrower.

Borrowers that understand this issue can do two things: either find a new lender or convince the current lender to change the terms of the deal.

The post Get a Lower Interest Rate on a Firstmark Services Student Loan appeared first on The Student Loan Sherpa.

One of our readers had this thought in mind when submitting the following question:

I’m looking at the REPAYE program and am curious how the “shelter” portion of one’s expenses is subtracted (along with taxes) to arrive at discretionary income, which serves as the foundation for the 10% max payment. Do you simply provide a mortgage/renter’s statement to your lender?

Mortgage, Rent, and Discretionary Income

Unfortunately, monthly bills don’t get factored into the “discretionary income calculation. This means that you do not need to submit your monthly mortgage or rent payments for your discretionary income calculation. The logic behind your question makes sense… more money spent on housing means less truly “discretionary” income. Sadly, this is not how the calculation is done. Whether you live in a very expensive area, such as San Fransisco or New York, your payment is calculated the same as someone living in an area with a very low cost of living.

While expenses like housing, child care, and utilities do not enter the equation, there are several ways to reduce or shelter your income so that payments are smaller. The first thing to understand is the straightforward formula for discretionary income.

The Government’s Idea of “Discretionary” Income

The government defines discretionary income as the money you make above 150% of the poverty level (for borrowers on SAVE, this number is bumped up to 225%). These numbers are the same for the 48 contiguous states. The only way the poverty level changes from one person to the next is based on family size. Adding a child to the family will reduce student loan payments, but this approach is probably not the most efficient way to save money.

The process is simple; you look at a table that has a number on it. Every dollar earned beyond 150% of the federal poverty level considered to be discretionary.

For further reading, be sure to check out our guide to calculating your discretionary income.

The gray area enters the equation when it comes to determining income…

Sheltering Your Income

Even though the non-discretionary part of the calculation leaves no wiggle room, there are still ways to reduce your monthly student loan payment on the income-driven plans.

The key here is lowering what the government defines as your income. When most people certify their income for IBR, PAYE, or SAVE, their lender will get authorization to access their most recent tax return. The key figure on this tax return is the AGI, or Adjusted Gross Income. As this number is lowered, your monthly student loan payment is lowered.

One of the best ways to reduce AGI is to make contributions to your 401k account. Not only do you not pay tax on the contributions to the 401k, but it also lowers your AGI. Another deduction that might help is the student loan interest deduction.

However, not all tax deductions lower your AGI. The deductions to keep an eye out for are called above-the-line deductions. This is the term that the tax people use to describe deductions that reduce your AGI.

One last thing to keep in mind is spousal income. If you are on SAVE, IBR or PAYE, you can file your taxes separately, and your spouse’s income won’t factor into your monthly payment. However, if you file jointly, your spouse’s income will be included.

The strategies to shelter income mirror some of the strategies used to lower your tax bill.  Our student loan tax strategy article breaks down the many tactics that can be used to create some flexibility with student loan payments.

Has your income temporarily increased? If your income was large for just one year, there are other options to hide the one year of increased earnings.

The Bottom Line

The way the government determines your monthly payments on the income-driven plans is pretty straightforward. It may be worse for some than others, but it leaves little room for debate as to what is included in your discretionary income.

Savvy borrowers may be able to save a little extra for retirement, but ultimately, legitimately “sheltering” your income from student loan payments is a part of your yearly tax strategy and something worth discussing with an accountant.

The post Sheltering Income for lower Student Loan Payments appeared first on The Student Loan Sherpa.

By making the minimum payments, most of your monthly payment will go towards interest. This is the reason most “experts” recommend paying more than the minimum on your student loans. Unfortunately, the realities of life sometimes make minimum payments the only possibility.

Though it may seem like all minimum payments are created equal, in reality, they are not.

If you are crafty about the way you pay, your money can go further. Try these three tips to get the maximum return for your payments.

1.) Pay when you have the money… not when it is due

Student loan payments are usually due on the same day of each month. Giving your lender money early seems like an unpleasant thought. However, the sooner you make your payment, the less of a hit you will take on interest.

Many people don’t realize that student loan interest is not calculated monthly, it is in fact calculated daily. The lower your daily balance, the less interest you have to pay.

If your student loan payment is due on the 20th of the month, but you have your payment ready to go on the 5th, make your payment as soon as you have the money in place. By going this route, your daily balance will be lower for an extra 15 days and you will spend less on interest. The bigger your monthly payments and interest rates, the bigger a difference this approach can make.

2.) Try to use your credit card

Most of the time lenders will not accept a credit card for payment. Those that do, often charge a fee for the transaction. These transaction fees negate any advantage to paying with a credit card.

However, if you can convince your lender to accept payment in the form of a credit card without charging you a fee, you can rack up extra cash back or credit card rewards.

The trick is to call customer service and convince them that you need to make a credit card payment this month. If they think the only way they are going to get their money is via a credit card, they will be more likely to accept it as payment.

3.) Keep student loan forgiveness in mind

Borrowers with federal loans can be working towards student loan forgiveness while making their minimum payments. In fact, $0 payments can actually be used to count towards forgiveness.

Those considering Public Service Loan Forgiveness (PSLF) should be mindful of all the requirements for PSLF. Using this program, tiny minimum payments can put a huge dent in large amounts of debt.

4.) Negotiate lower interest rates

It is no secret that many borrowers are struggling with student loan debt. While federal repayment plans exist to help borrowers, many private loan borrowers are stuck with loans they can barely afford, or can’t afford at all.

The good news is that some lenders are starting to show borrowers a little slack. In fact, if you work with your lender, you may be able to get your interest rates lowered. This could result in a lower payment each month, but at the same time put a bigger dent in your total balance. One example of a company offering lower interest rate plans would be Navient.

Getting your lender to voluntarily accept less money is no easy task, but it can be done. If you are really struggling and willing to put in the work dealing with customer service, you could be rewarded for your efforts.

The borrowers that get creative will usually find that there are many options to get lower interest rates.

5.) Go beyond minimum payments

While the above strategies can help things a bit, paying extra on student debt is almost always the fastest way to get it paid off. Most borrowers understand this reality.

Making minimum payments as part of a debt elimination strategy can be nice, but it comes with a catch. The catch is the highest interest loan should be attacked with every available dollar. This is the fastest route to debt elimination.

What most borrowers don’t realize is that paying a tiny bit extra can make a huge difference. Paying an extra $10 per month could function as a double payment depending on the loan!

The post Getting the most from your minimum payment appeared first on The Student Loan Sherpa.

They write the contracts. They know bankruptcy is a long shot for any borrower. They have an army of call center representatives trained to collect payments. That same call center army is given little authority to make any meaningful changes to loan terms that might help borrowers.

To be blunt, borrowers looking to just call up Sallie Mae, Navient, or any other lender in order to get lower interest rates are likely in for a disappointment.

That all being said, interest rate negotiation can be done. The key is understanding the leverage available and knowing how to utilize it. Whether a borrower is struggling to keep up, or having success in repayment, lower interest rates can be achieved.

Negotiating Lower Interest Rates for Struggling Borrowers

Sometimes circumstances make it impossible to keep up with student loan payments.

An illness or a period of unemployment can cause student debt balances to grow out of control.

Borrowers asking for help are most commonly offered a deferment or a forbearance. For many borrowers, this is a mistake as a deferment merely delays payment and allows the balance to grow.

While the deferment/forbearance route may help some people facing a temporary hardship, longer-term difficulties will require a different option. Fortunately, some private lenders have shown a willingness to lower interest rates for six months to a year to help borrowers regain control of their debt. The best-known program of this nature is the Navient Rate Reduction Program. Not all Navient employees are aware of the program or able to enroll borrowers, but by asking to be transferred to someone with Rate Reduction Program authority, borrowers can potentially get signed up.

When lenders like Sallie Mae and Navient offer a program of this nature, it is not a term of the original borrower contract. This means that borrowers cannot demand a rate reduction. Instead, they have to persuade the lender to approve it. Borrowers will usually need to share income information as well as monthly debts.

The key to negotiating an interest rate reduction under these hardship plans is to show the following:

• A desire or willingness to repay the loan
• Financial circumstances that make it impossible without some help

Because enrollment is something of a judgment call for the lender, it is critical to be kind and patient with the call center employee helping out. Working in customer service means a stressful environment, low pay, and usually poor training. Borrowers who are understanding will be far more likely to get help. Additionally, because these call center employees have different levels of training, and because some are more helpful than others, it may be useful to call multiple times to make the request.

Negotiating a Better Rate by Threat of Refinancing

Many borrowers think that by calling a lender and threatening to take their business elsewhere, they will be able to get a lower interest rate.

The idea behind this approach is that the lender will want to keep the customer who hasn’t missed any payments and offer a better interest rate to keep them happy.

Unfortunately, this particular tactic usually will not work. Lenders know that if someone can get a lower rate elsewhere, they will just go elsewhere. As a result, the threat of refinancing is a hollow threat unlikely to make a difference.

However, making the threat less hollow can make a difference…

Using Other Lenders to Negotiate a Lower Interest Rate 

The threat of refinancing means little. Having an approval in hand can make a big difference.

Documenting a refinance opportunity takes a little bit of work, but because there are now 20 different lenders offering refinancing services, competition has forced these companies to make the process quick and easy.

The downside to this approach is that it does require a soft credit pull and at least 15 minutes. This strategy will also only work for borrowers who have a solid income and credit score.

The approach is pretty simple:

1. Apply to student loan refinance companies like SoFi, CommonBond, and LendKey,
2. Upload existing loan information to the refinance lender,
3. Go through the process up to the point of the new lender sending out a final contract, and
4. Take the final offer to the current lender and ask them to beat it.

Some lenders will be more receptive to this approach than others, but the key is to have that final contract, often called a rate disclosure. That document will prove that the “other” offer is real.

This approach will also work when shopping refinance rates. Because each lender has a different formula for evaluating applications, the company advertising the lowest rates may not be the company offering the lowest rates. However, these lenders will compete to win customers, so one refinance lender may adjust their rate offer to match or beat another lender. The key to this process is to shop around and then use the offers to get lenders bidding against each other.

Some companies are more receptive to matching the competition than others. When a lender refuses to beat the competition, borrowers can just choose the lender that offered a better rate.

Negotiating Interest Rates on Federal Loans

Federal loans are a different animal when it comes to negotiating lower rates.

Interest rates on federal loans are set by Congress. This means that federal loan servicers will not lower interest rates, regardless of the strategy used by the borrower.

Borrowers do have the option of income-driven repayment plans and student loan forgiveness, but despite these excellent federal protections, the rate will remain the same.

The only way to get a lower interest rate on this debt is to refinance the federal loans with a private lender. This move can be dangerous because it means that all of the federal protections will be gone forever. As a result, a private refinance of federal debt is only recommended for borrowers who are in a strong financial situation.

Making a Deal on a Loan Payoff

Rather than trying to get a better interest rate, some borrowers would rather try to negotiate a loan payoff, where they pay a large portion of the existing debt in return for the remaining balance being wiped away. As an example, a borrower might want to pay $15,000 upfront if it means a $20,000 loan would be eliminated.

The only time these sort of loan payoffs happen is if a borrower has fallen significantly behind on their debt and is severely delinquent or in default. In some circumstances, a lender may offer to resolve the debt in return for a large payment.

Borrowers who are current on their loans are highly unlikely to be able to get a loan payoff for less than the full amount owed. This is because the lender is making money on interest each month and has no incentive to offer a break. They know most borrowers have little choice but to repay the loan in full.

Looking Beyond Negotiation

Negotiation is one tool that can potentially get borrowers a better interest rate on their student loans, but it isn’t the only one.

By our count, there are at least 14 different ways to get lower interest rates on student loans. Expert dealmaking may be one way of getting better rates, but borrowers would be wise to explore all potential avenues of savings.

The post How to Negotiate a Lower Interest Rate with a Student Loan Lender appeared first on The Student Loan Sherpa.

However, getting lower payments has a huge advantage… flexibility. That flexibility can be used to eliminate high-interest debt and lead to student loan freedom sooner rather than later.

Benefits to Lower Payments

The key advantage to getting lower payments is that the money freed up each month can be used to attack higher interest debt.

Suppose a borrower has two loans, one with 5% interest and one with 9% interest. If that borrower is able to get a lower payment on the 5% loan and direct those same funds to the 9% loan, the total debt will be eliminated faster. This is because a larger portion of payments will be applied towards principal rather than interest.

Another way to take advantage of lower student loan payments is to attack high-interest credit card debt. Freeing up some cash each month to lower balances with interest rates above 20% is an excellent strategy. The quickest way to debt freedom is to pay off the high-interest debt first. Paying off credit cards first may cause student loans to last a bit longer, but it is the most efficient path.

A side perk is the improvement of the borrower’s debt-to-income ratio. When the lower monthly payments hit the credit report, lenders will see a borrower who is in a better position to afford new debts, such as a mortgage. This can be a huge benefit to anyone looking to purchase a house.

Downsides to Lowering Payments

This approach is not for all borrowers.

If you are someone who only makes minimum payments and lacks the self-control to use the savings to attack other loans, getting lower payments could be a mistake. If the savings from lower payments is used on anything other than existing debt, this strategy will backfire.

Lowering payments on federal student loans can also have additional consequences. Certain repayment plans such as the income-driven repayment plans IBR, PAYE, and REPAYE qualify for federal programs such as student loan forgiveness. Switching to the extended repayment plan could result in lower payments for some borrowers, but it definitely comes with risks.

Putting the Plan in Place

Federal Loans – Borrowers with federal loans should check out the federal student loan simulator. This tool will help them identify the repayment plan that offers the lowest payment. After that, a call to their student loan servicer can get the enrollment process started. Changing federal repayment plans does not require a credit check

Private Loans – Getting a lower monthly payment on private loans can be more difficult. Calling lenders to request a lower payment will occasionally work, but it depends upon the lender and the loan contract. Borrowers with a good credit score and decent income should also consider refinancing with another private lender. The refinance company pays off the old loans and the borrower repays the new lender per the terms of a new loan. The refinance process can lower monthly payments and lower interest rates.

Once lower monthly payments have been secured, the money freed up then gets spent on the highest interest student loan.

Once the highest interest loan is paid off, the next highest loan can be attacked. This process continues until all of the student loans are eliminated.

From the perspective of the borrower, monthly spending on student loan debt remains constant. However, student loans are eliminated much quicker due to the shift in strategy.

Bottom Line

Getting lower payments on your student loans can actually get them paid off faster.

The key is generating flexibility to make smarter, more efficient payments.

The post Sherpa Tip: Ask for Lower Payments Even If You Don’t Need Them appeared first on The Student Loan Sherpa.

One thing that complicates these options is marriage. In many circumstances, a married borrower could pay significantly more than a similarly situated single borrower on the very same income-driven plan. While there are ways to reduce the “marriage penalty,” it still does exist.

“Mixed” Couples vs. Double Borrowers

If you and your spouse both have federal student loans and enroll in an income-driven plan, the marriage penalty is reduced. Even though your incomes are combined for the calculation of your ability to pay, your debt is also combined when doing this math.

The math for these couples is complicated, especially for those with kids, but the potential savings from a divorce is usually small.

Things get far more expensive for couples who have only one federal borrower…

IBR, PAYE, and Marriage

Two popular repayment plans are IBR (Income-Based Repayment) and PAYE (Pay As You Earn). On these plans, borrowers are required to pay 10 to 15 percent of their discretionary income towards student loans.

Most couples file their taxes jointly because it usually results in several tax breaks. Couples that elect to file jointly must also use their combined income for purposes of calculating the IBR or PAYE payment. If your spouse has a high income, it means higher monthly payments.

The good news is that there is a way around this issue: filing taxes separately. By filing your taxes separately, your spouse’s income is no longer used for calculating student loan payments.

Unfortunately, this is not a perfect solution. Not only do you lose the tax breaks associated with being married, but filing separately also has different tax brackets than those for single people.

By filing separately, you may pay more in taxes than you would if you were single. This added taxation is the “marriage penalty” for borrowers on IBR and PAYE. The exact amount of this penalty will depend on many factors relating to your taxes and is something that should probably be discussed with an accountant.

REPAYE and Marriage

Things are much worse for married couples with one federal borrower who wants to enroll in the newly created REPAYE (Revised Pay As You Earn) Plan. The advantage of REPAYE is that it lowers payments for borrowers who are not eligible for PAYE. Instead of paying the 15% required by IBR, REPAYE borrowers are only required to pay the 10% as required in PAYE.

The problem comes with how REPAYE treats spousal income and taxes. Whether your file jointly or separately, spousal income is still used in your REPAYE calculation. If your spouse has a substantial income, that means much bigger payments each month. In this circumstance, the “marriage penalty” is much larger.

The only way around this issue is to avoid REPAYE completely. Borrowers should look into IBR or PAYE to evaluate different potential payments.

Should I get a divorce for lower payments?

Obviously, this is a major decision that goes far beyond finances.

Even from a purely financial perspective, it is very complicated. If you are considering going this route, be sure to have detailed conversations with your lender about different payments under various plans and various circumstances. Talking with an accountant can also help you figure out the tax implications of your options and potential savings.

Any potential student loan savings may also be offset by the costs associated with getting a divorce.

Another thing to keep in mind is that the “marriage penalty” really only refers to higher minimum monthly payments. Student loans are loans that, in most cases, must be paid back. Unless you are chasing Public Service Student Loan Forgiveness or another forgiveness program, a higher monthly payment that you can afford is not a bad thing. The sooner the loan is paid off, the less interest you will spend in the long run, and the more you will save.

The post Do I need a divorce for lower student loan payments? appeared first on The Student Loan Sherpa.