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Updated: Aug 04, 2023

Pay the Minimum for a Student Loan or Consolidate: Which is Best?

The student loan repayment process can be confusing, but one thing you should always do -- take advantage of lower student loan payments.

For most college graduates, earning a degree comes at a high price.

The average cost of attending a public, four-year college for the 2020-21 school year was about $11,171 ($26,809 if you attend an out-of-state school), according to the U.S. News & World Report.

Now that most college students have graduated, here comes the hard part: finding a job and paying down those pesky student loans.

Altogether, Americans have racked up more than $1.5 trillion in federal student debt.

If you're one of those graduates who has a lot of student loans to pay off, hopefully, you've been able to find a job and settle into the "real world", and started to make small payments to pay down your student loans.

For many college graduates, the question of how to handle paying off those students loans may loom in the back of your mind.

Should you defer payments?  What if you can't afford to pay off the loans right away? And should you go with the lowest minimum monthly student loan payment option?

Loan consolidation is one option for borrowers looking to simplify their bills, having one fixed interest rate, and getting certain advantages such as having a repayment plan that works for them, one example being based on their income.

Which option should you choose?

Quick answer: It really depends on your own personal circumstances.

But before you make a decision, lower student loan payments or a shorter pay period, it might help you to learn more about the repayment process.

Why Does the Repayment Process Take So Long?

The loan repayment process can be confusing, but the last thing you want to do is pursue a plan that you will regret later on -- especially because it's likely that you'll be making payments on your debt for many years to come.

One scenario many new graduates might face is having to decide whether to take longer to pay off their student debt with a lower monthly minimum payment or to pay more over a shorter period of time.

For instance, you could sign up for a 10-year repayment plan and have a minimum monthly payment of about $725 on your student loans.

Or, you could choose the 25-year repayment option, which means your monthly minimum payments would be lower, say about $625, but take longer to pay off.

Most students won't be able to pay off those big student loans so quickly -- otherwise, they would do so.

The time it takes to pay off the total balance of your loans might be affected by some of the options you choose to pursue.

Income-driven repayment plans

Do you plan to participate in federal repayment plans like Pay As You Earn, Income Based Repayment, Income Sensitive Repayment or Income Contingent Repayment?

These income-driven repayment plans are intended to make your debt more manageable by reducing your monthly payments.

Of course, that means you will be paying off those student loans for much longer than if you opted for a standard repayment plan.

In addition to repaying the loans over a longer period of time, it's likely that you'll be paying more, too; since you're extending your repayment period, you'll be accruing more interest over a longer period of time.

Example of Monthly Payment Under Various IDR Programs

IDR Program Monthly Payment*
Standard Plan $272 per month for 120 months
Pay As You Earn (PAYE) First payment $99, last payment $272 for 206 months
Revised Pay As You Earn (REPAYE) First payment $99, last payment $326 for 202 months
Income-Based Repayment (IBR) First payment $149, last payment $272 for 155 months
Income-Based Repayment (IBR) For New Borrowers First payment $99, last payment $272 for 206 months
Income-Contingent Repayment (ICR) First payment $172, last payment $209 for 192 months

Keep that in mind when you have to make a decision about how to repay your loans.

That said, these income-driven repayment plans are offered for a reason and you should seriously consider them.

If the total amount of debt you've accumulated from your federal student loans is higher than your annual income or represents a significant chunk of your annual income, you might consider an income-driven plan.

Another reason why your repayment plan might take longer than expected is if you choose to consolidate your loans.

Pros & Cons of IDR Programs

Pros Cons
  • You can decrease your monthly payments so that it accommodates your income and budget better
  • Certain loans may be able to be forgiven or reduced enough that your monthly payments are little to nothing
  • You have the option to change IDR plans if you decide one is not the right option for you
  • If you have loans of varying interest rates, you'll be able to pay one new minimum payment
  • Interest accumulates and capitalizes on your loans during the repayment period, so you could end up paying back more than before
  • Any forgiven loan balance is taxable on an IDR plan
  • You're making your repayment term longer with an IDR plan
  • Your monthly payments will change (most likely increase) so you have to be positive your income will also increase
  • You may not always qualify for a plan
  • What You Should Know About Consolidating Loans

    Consolidating all your loans into one total loan can simplify many aspects of your payments, especially the interest rate you pay.

    Your lender calculates the weighted average of your current loans' interest rates, and that figure gets rounded to the nearest 1/8 of a percent.

    The resulting number is your overall total student loan rate.

    If you prefer predictable payments, a consolidated student loan offers one fixed interest rate that doesn't waver, regardless of whether annual student loan rates fluctuate.

    Older non-consolidated student loans revolve around a variable interest rate, which can change each year on July 1, for better or for worse.

    What does this mean for you?

    It means that if you lock in a low rate in a market where interest rates are climbing, you're capitalizing on the tides of change, and get to keep that favorable rate.

    However, there is a chance you might lock in a higher rate which can sting if rates begin to drop and you're stuck with the higher rate you got locked into.

    RELATED: What To Consider Before Refinancing Student Loans

    You may even get a higher interest rate if you consolidate loans that have low rates with higher rate loans, so do the math and consider whether an increased rate is worth the tradeoff of having only one bill to pay each month.

    Help With Affordable Payments in the Short-Term

    If you're finding that your monthly payments are simply too much for you to pay, a consolidated income-based repayment plan may be a better plan for you.

    IBR plans operate based on how high or low a person's income is, and stretches the life of their plan by 15 to 30 years.

    The standard repayment plan for individual loans is usually 10 years, which means monthly payments are steeper.

    However, a longer plan offers smaller monthly payments, due to the length of the plan as well as its unique income-based aspect.

    • Who’s eligible? If your federal loan debt is higher than your annual discretionary income. The types of loans Income-Based Repayment covers is also the same. Generally, you can apply for IBR with any type of Direct, Stafford or FFEL loan, excluding loans made to parents.
    • Who is it good for? IBR doesn’t require you to consolidate any of your loans to qualify. If you want to get on a Pay As You Earn plan or Revised Pay As You Earn plan, you’d have to consolidate your loans first.

    Generally, Income-Based Repayment is good for borrowers who want a streamlined application and approval process, since PAYE can be harder to qualify for. It’s also a better choice than REPAYE if you’re worried about your monthly payments going up.

    You'll Pay More Over Time

    On the flip side of consolidated loan positives, are some drawbacks.

    Though your monthly payment amounts will decrease in the short-term, a lengthier consolidated plan may cause you to pay more over time in the long run.

    If you extend your repayment terms, you could be paying thousands more in interest payments when all is said and done.

    Convenience and No Hassle

    Consolidating your loans into one bundle can make things much easier on yourself.

    You'll have just one loan to whittle away, as opposed to many, and will have streamlined your repayment transactions.

    This will reduce your chance of missing a payment since you'll have only one bill to watch out for each month, and in general can be helpful in organizing your bills.

    Some loans cannot be consolidated

    Private loans cannot be consolidated.

    For borrowers with a combination of loans, the terms of federal loans are typically more generous, can be tax deductible, and come with lower interest rates than those offered with private loans.

    For these reasons, avoid allowing private lenders to take over federal loans.

    Simplifying May Not Reduce Your Payments

    Consolidated loans are a great route to take when it comes to reducing the number of your loans, but you risk losing benefits attached to specific loans.

    For instance, some lenders lessen the interest rate if individuals repay on time.

    Also, others loans, such as PLUS loans, offer additional flexible repayment options that are different than the options consolidated loans offer.

    With the toll of college mounting at a premium, students are taking out a staggering amount of loans, and departing graduates entering the workforce are having to contend with juggling loan payments and their round-the-clock search for employment while transitioning from graduates to young adults.

    Loan consolidation is one option for borrowers looking to simplify their bills, having one fixed interest rate, and getting certain advantages such as having a repayment plan that works for them, one example being based on their income.

    Remember, if you aren't sold on loan consolidation, you can always schedule your account to make automatic payments for all your loan accounts.

    As a form of organization, auto-pay works well if you have a steady job.

    Be wary however, if you have a fluctuating income, because you might be charged overdraft fees due to automatic payments continuing to draw cash from your account.

    All in all, the decision lies with your judgment, having now been presented the facts to make an educated choice about your loan repayment.

    Should You Not Lower Minimum Monthly Payment?

    Again, it depends on your personal circumstances.

    In general, you should take advantage of lowering your monthly minimum payments -- unless doing so means you will get penalized or cause your interest to increase.


    For starters, having a lower monthly minimum payment will help you save more for major expenses or emergencies.

     It will lower your total obligatory debt, which might help if you’re looking to buy a house or car.

    And lastly, a lower monthly minimum payment on your student debt means you can allocate more money to getting rid of your highest interest loan more quickly.

    What Do You Do With the Extra Money?

    Read this carefully:

    Don’t pay less on your loans just because your minimum amount due is lowered.

    Even if you are able to take advantage of a lower monthly minimum payment, you should absolutely pay the loan’s original minimum amount so that you aren’t stuck paying tons of interest.

    You don’t want to get stuck paying interest for your loans over the course of 30-plus years if you can help it.

    So contribute additional payments to your highest interest loans.

    Watch out for tricky lenders who might misapply your additional payments, though.

    Some lenders might apply the additional payments across all your loans, others might prorate them.

    You need to be completely clear with your loan servicer that you want your extra payments to go towards your highest interest loan.

    What Other Options Do You Have?

    If you face difficulty paying off your student loans, there are options:

    Deferment or forbearance

    You can try talking with someone from your loan servicer to establish a modified repayment schedule.

    Under certain circumstance, you might be able to receive a deferment or forbearance, which will allow you to temporarily postpone or reduce your loan payments.

    A deferment will delay payments on your loan for a temporary period of time.

    You can get a forbearance if you don’t qualify for a deferment, but can’t make your scheduled loan payments.

    A forbearance will allow you to stop making payments or reduce your monthly payments for up to a year, though interest will continue to accrue on the loan.

    You’ll have to work with your loan servicer to take advantage of either option.

    You must meet one of the following requirements to qualify for deferment or forbearance:

    Eligibility for Deferment & Forbearance

    Deferment Forbearance
  • You’re in school at least part-time
  • You’re unemployed or can’t find full-time employment
  • You’re experiencing economic hardship
  • You’re serving in the Peace Corps
  • You're on active duty military
  • You’re in a graduate fellowship program
  • You’re in a rehabilitation training program for the disabled
  • You’re working toward cancellation of your Perkins Loan
  • General forbearance
    • Financial hardship
    • Medical expenses
    • Employment changes or employment difficulty

    • Mandatory forbearance
    • You’re enrolled in a medical or dental internship, or you’re enrolled in a residency program
    • Your student loan monthly payments are 20 percent more than your monthly gross income
    • You’re serving in an AmeriCorps position
    • You’re in the process of qualifying for teacher loan forgiveness
    • You’re a member of the National Guard, but not eligible for military deferment
    • You qualify for partial repayment under the U.S. Department of Defense Student Loan Repayment Program

    Loan forgiveness programs

    You might also look into participating in a loan forgiveness program.

    These programs -- which can be broadly divided into community service, military, profession, and state-specific -- reward you for something you do, like giving to the community in a specific way.

    After participating in one of these programs, some of your student debt will be forgiven.

    Debt management help

    Another option you might consider is getting debt management help.

    There are some debt management services that focus on students that can help you come up with a plan to pay off your loans.

    A few good questions can help you understand all the terms and benefits of your debt management plan (DMP):

    • How will my DMP work? Can you guarantee that my creditors will be paid by the appropriate due dates in the correct billing cycle?
    • Will I be able to afford this monthly sum? How is my payment amount determined?
    • Will I have access to my accounts? How frequently can I receive status reports?
    • What debts won’t be covered in the DMP that I have to pay on my own?

    However you choose to handle repayment of your student loans, the important thing to do is act aggressively to pay them off.

    Your student debt may seem overwhelming at first, but with a strong plan of action, your loans will shrink over time.