More than 8.5 million Americans are enrolled in income-based repayment plans that can spread out payments for their federal student loans for two decades or more.
While the repayment plans lower the monthly payments of borrowers, these plans do not reduce the interest rates on student loans and can increase the total amount of interest borrowers pay over time.
Borrowers with good income and credit are using another strategy: student loan refinancing. This means taking out a loan with a private lender, usually at a lower rate, to pay off the debt on the federal loan. Borrowers save more than $18,600 by reducing the rates on their student loans by an average of 1.7 percentage points through refinancing, according to Credible.com, a marketplace of online lenders.