Restructuring vs. Refinancing: 2 Ways to Reduce Private Student Loan Payments

Federal student loan borrowers have many protections and repayment options to help make payments affordable. For example, forgiveness options such as Public Service Loan Forgiveness and various income-driven repayment plans are available. But what happens if you need to know how to reduce your private student loan payments?

Private student loan borrowers might need to reduce their private loan payments for a variety of reasons. Maybe your income has recently dropped, and you can no longer afford your monthly loan amount. Alternatively, maybe you just want to free up money right now for other financial or personal goals.

Unlike federal loans from the government, private student loan lenders are under no obligation to lower your monthly student loan payments. Once you sign the dotted line, you’re generally at the whim of your lender.

So, what’s a private student loan borrower to do? Read on to learn how to reduce private student loan payments.

Option 1: Restructure your existing private loan

If you’re struggling to afford your private monthly payment, your lender might be willing to restructure your existing loan.

Although they aren’t required to, some private lenders will work with you to choose a new, more affordable student loan repayment plan. This might also be the case if you’re at risk of defaulting on your loan. For example, some lenders may offer a graduated repayment plan where your payments start out lower and gradually increase over time.

Depending on the lender, they might propose other restructuring options, like extending your loan term to a longer period of time or providing a temporary interest rate reduction.

A new restructured loan helps both parties because it keeps the borrower current on payments and money flowing to the lender.

However, it could end up costing you more money in the end. For example, an extended repayment term or a temporary reduction of your loan payment will generally lead to paying more interest over the life of your loan.

Additionally, restructuring an existing loan usually won’t lower your interest rate, give you better loan terms or allow you to change lenders. This option should primarily be considered if you need a lower payment and don’t have access to alternative options, like refinancing your private student loans.

Action step: How to request your loan be restructured

Start by calling your private lender and providing details about your situation. They might have alternative options if your financial situation is temporary, such as a forbearance or deferment period. But keep in mind that interest will continue to accrue during these temporary payment suspensions, so you’ll end up owing more money over the life of the loan.

If you prefer a long-term solution, explicitly ask your loan holder to restructure your private student loan.

Keep in mind that each lender chooses what it deems as acceptable borrower relief. You’ll need to speak with your private lender directly to determine which restructuring options are available. Be ready to provide details, like your proof of income, if needed.

Option 2: Refinance your private student loan

If you want to lower your private student loan payment and are otherwise financially secure, you’ll probably be better off refinancing your loan.

Refinancing can reduce your monthly payment or lower your interest rate — or in some cases, both. You can often refinance your private student loans into a new loan with the same term or choose a shorter or longer term if it better fits your goal.

However, refinancing lenders typically have strict credit history and income eligibility requirements, including a good credit score and payment history. If your finances aren’t in the best shape, you might still qualify with a creditworthy cosigner.

Student loan refinancing can also get you away from your existing private lender if you’ve previously had bad experiences with their customer service or have other complaints.

As an added perk, competition among refinancing lenders is at an all-time high. Therefore, the top refinancing lenders offer huge cash-back bonuses.

Since you already have private loans, it’s best to check for a lower interest rate at least once a year or when your financial standing improves. You should also check when you see interest rates dropping due to economic factors.

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Action step: How to lower private student loan payments with refinancing

Here’s how to lower private student loan payments if you’re pursuing the student loan refinance route.

We recommend shopping around with at least three refinancing lenders to get the best interest rate and terms. Quickly compare multiple refinancing lender offers by using platforms like Credible or LendKey.

Alternatively, you can check rates with popular lenders like Earnest and Laurel Road.

We’ve written extensive reviews for each refinancing lender that details what to expect during the application process. We also include feedback from our readers’ experiences to help you make a more informed decision.

You can use the search bar in the upper-right-hand corner to quickly get all the information about any refinancing lender you might consider. You can also reach out to us directly at any time.

If you need to lower your student loan payment, take action now

If you’re having difficulty affording your payment, the last thing you want to do is ignore the problem.

Contact your lender or student loan servicer immediately if you struggle to make on-time payments. Temporary payment solutions, like forbearance or deferment, might be available depending on your lender. Additionally, restructuring and refinancing might be favorable paths to reduce your private student loan payments and avoid undue hardship.

You can also explore other financial changes to make your student loan payments less stressful. For example, you might need to reevaluate your budget to cut back on other expenses or consider taking on a side hustle to help you earn more cash for your student loans. You should also exhaust all repayment assistance programs for professionals through your employer or state.

Although your private student loan debt has fewer borrower protections compared to federal Direct Loans, you still have options. But you need to be proactive and address the situation head-on.