The U.S. Department of Education offers a number of affordable repayment options for borrowers who are struggling to pay back their student loans. The important thing to remember about all the options below is that it’s completely free to apply! Also, if you ever have questions or need FREE advice about your student loans, you can always contact your Department of Education loan servicer.
1. Switch Your Repayment Plan
You may be able to lower your monthly student loan payment by switching to a different repayment plan. Use this calculator to compare what your monthly payment amount could be if you switched your plan.
If you don’t pick a different plan when entering repayment, you are automatically enrolled in the 10-year Standard Repayment Plan. However, many borrowers don’t realize that you can switch your plan at any time by contacting your loan servicer.
One of the most popular options for borrowers who are looking to lower their payments is the income-driven repayment plans.
We offer three income-driven repayment plans:
- Pay As You Earn
- Your monthly payment will be a percentage of your income. Depending on the plan, that may be 10% or 15% of your discretionary income, or something else. What you ultimately pay depends on the plan you choose and when you borrowed, but in all cases, it should be something you can afford.
- Your monthly payment amount will be lower than it would be under the 10-Year Standard Repayment Plan if you qualify to make payments based on your income. In fact, it could be as low as $0 per month!
- Any remaining balance on your loans is forgiven if your federal student loans are not fully repaid at the end of the repayment period (20 or 25 years).
Income-driven repayment plans are a great option if you need lower monthly payments. However, like all benefits, there are also costs. All of these benefits will ultimately increase the amount of interest you pay over time. The income-driven repayment plans also have tax consequences for any forgiveness received.
If one of the income-driven repayment plans is not a good option for you, we offer other options. Your servicer can help you identify the best plan to fit your needs.
2. Consolidate your Student Loans
Loan consolidation can simplify your payments by combining multiple federal student loans into one loan. Consolidation can also lower your monthly payment.
- Can lower your monthly payment by extending your repayment period (spreading your payment out over more years). The repayment term ranges from 10 to 30 years, depending on the amount of your consolidation loan, your other education loan debt, and the repayment plan you select.
- Will allow you to qualify for additional repayment options. If you have FFEL or Direct PLUS Loans, consolidating your loans into a Direct Consolidation Loan will allow you to qualify for additional repayment plans, such as the Pay As You Earn or Income-Contingent Repayment Plans, that you wouldn’t have qualified for if you hadn’t consolidated.
- Your variable interest rate loans will switch to a fixed interest rate. It’s important to note that consolidation will lock-in interest rates on variable-rate loans, but will not lower them further. This would be a benefit if, like now, interest rates are low.
The benefits listed could provide relief to some borrowers. However, it’s important that you also weigh the costs before consolidating. For example, because you’re restarting and possibly extending your repayment period, you’ll pay more interest over time. Additionally, you may lose borrower benefits, such as interest rate discounts and loan cancellation benefits, offered with the original loans.
3. Postpone your Payments
Under certain circumstances, you can receive a deferment or forbearance that allows you to temporarily postpone or reduce your federal student loan payments.
Deferment and forbearance may be a good option for you if you are temporarily having a difficult time paying back your student loans. Deferment and forbearance are not good long-term solutions. If you think you’ll have trouble paying back your loans for more than a year or you’re uncertain, you should consider an income-driven repayment plan or consolidation.
- You do not need to make student loan payments during a deferment or forbearance.
- The federal government may pay the interest on your loan during a period of deferment. This depends on the type of loans you have.
Again, deferment and forbearance are not good long-term solutions for borrowers who are struggling to pay back their student loans. Some reasons why:
- With a deferment, interest will continue to be charged on your unsubsidized loans (or on any PLUS loans).
- With a forbearance, interest will continue to be charged on all loan types, including subsidized loans.
- The interest you accrue during periods of deferment or forbearance may be capitalized (added to your principal balance), and the amount you pay in the future will be higher.
If you can, you should consider making interest payments on your loans during periods of deferment or forbearance
To request a deferment or forbearance, contact your loan servicer
If you need help deciding which of these options is best for you, contact your loan servicer. They can help you weigh the different options based on your unique situation.
Nicole Callahan is a Digital Engagement Strategist at Federal Student Aid.