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Payment Plans & Forgiveness
- Federal student loans offer various repayment options, which can be broken down into two broad categories: (1) Traditional Plans and (2) Income Driven Repayment Plans.
- Traditional plans include Standard Repayment, Graduated Repayment and Extended Repayment. These plans are based on your total loan balance, interest rate, and a pre-determined payback period. There is no student loan forgiveness associated with these plans and your income is not considered for your monthly payment.
- Income Driven Repayment plans include Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE, soon to SAVE), Income Based Repayment (IBR), and Income Contingent Repayment (ICR). Under these plans your repayment amount is based on your modified adjusted gross income (line 11 of your 1040), family size, and loan balance. These plans have forgiveness after 20-25 years of repayment. If you are pursuing a forgiveness program, like the Public Service Loan Forgiveness or the Income Driven Repayment Forgiveness (IDRF), you must be enrolled in one of these plans.
- Your type of loan and loans disbursement dates may impact which plans you are eligible for. Most borrowers with Direct loans or Direct Consolidated loans will be eligible for the new SAVE plan. If you are married, you can exclude your spouse’s income by filing separately.
- If you have Parent Plus loans, your loans are only eligible for the Income Contingent Repayment plan (ICR) if you consolidate your Parent Plus loans into a Direct Parent Plus Consolidation. Get advice before consolidating, especially if you have Parent Plus and loans you took out for your education.
- The eligibility for Income Driven Repayment (IDR) plans is generally determined by your specific loan types and income. Here’s a quick guide:
- Saving on a Valuable Education (SAVE, replacing the REPAYE plan): Borrowers with Direct loans or those who consolidate FFEL or Perkins loans into a Direct loan are eligible. Parent Plus loans are excluded and not eligible.
- Pay As You Earn (PAYE) and Income-Based Repayment (IBR): To be eligible for PAYE and IBR, your required payment under these plans must be less than what you would pay under the 10-year standard repayment plan. Most borrowers meet this requirement.
- Income Contingent Repayment (ICR): ICR is available to all borrowers, regardless of the loan types they have. However, for Parent Plus loan borrowers, this is the only IDR plan available and you would need to consolidate your loans into a Direct Parent Plus Consolidation loan to be eligible for ICR.
- Tip: Use the Student Loan Simulator to determine your best IDR plan for you. Apply for the best plan via . Your servicer will process your application and let you know if you qualified for the plan selected and help you find an alternative IDR plan if you are not eligible for the one you chose.
- Absolutely! Borrowers have the flexibility to switch repayment plans at any time.
- If you want to switch to an Income Driven Repayment (IDR) plan, you can do so online through studentaid.gov.
- For traditional plans, simply reach out to your student loan servicer to initiate the process and make the switch.
- There are various forgiveness programs. Eligibility requirements are very specific. You can find more information about each of these programs at studentaid.gov. Here’s a summary of key programs and their respective eligibility.
- Public Service Loan Forgiveness (PSLF): Work full-time for a qualifying employer—non-profit or government agency and make 120 qualifying payments through an Income Driven Repayment Plan (IDR).
- Income Driven Repayment (IDR) Forgiveness: Enroll and repay your loans in an Income Driven Repayment plan—one of these: REPAYE, PAYE, IBR, ICR. After 20-25 years of payments, your remaining loan balance is forgiven.
- Teacher Loan Forgiveness (TLF): Teach full-time for five consecutive years in a low-income school or educational service agency. If you use the five years towards TLF, you can’t use that same time towards PSLF.
- Total and Permanent Disability (TPD) Discharge: Have a documented disability that prevents you from supporting yourself through wage earnings. If approved, your remaining loan balance is forgiven.
- Borrower Defense to Repayment: You attended a school that engaged in deceptive or illegal practices. Only loans associated with that school would be eligible for discharge. You must complete a BDR application, which is available at studentaid.gov.
- Death Discharge: If you die, your federal loans are discharged and do not pass on to your estate.
- Discharge in Bankruptcy: Demonstrate “undue hardship” in bankruptcy proceedings. This means showing that you’ve tried to repaid your loans, repaying would prevent you from maintaining a minimal standard of living, and your current financial situation is unlikely to improve significantly in the future.
- Please note that these requirements are general guidelines, and each program may have additional criteria and specific application processes. It's important to review the details and eligibility requirements of each program carefully.
Trouble Affording Monthly Payments
- To lower your monthly payments, enrolling in an Income Driven Repayment (IDR) plan is often the most effective approach as it adjusts your payment based on your income and family size.
- If your income is considered high, an extended repayment plan may yield a lower payment, but it's important to note that such plans typically do not qualify for loan forgiveness.
- If you're having difficulty with monthly payments, thoroughly explore repayment plan options, especially Income Driven Repayment plans.
- If the lowest option is unaffordable, temporary solutions like deferment or forbearance can help. Seek expert guidance for long-term planning.
- Additionally, don't overlook federal and state forgiveness and student loan relief programs. Some states provide student loan help.
- Deferment and forbearance provide temporary solutions to pause or reduce student loan payments, preventing delinquency and default when repayment plans are unaffordable. However, it's important to consider them as short-term measures. If your income has decreased, exploring an Income Driven Repayment plan is recommended.
- When considering deferment or forbearance, prioritize deferment if eligible. Deferment can be obtained for circumstances such as being in school, military service, or undergoing cancer treatment. For subsidized loans, interest does not accrue during deferment, but it continues to accumulate for other types of loans. Remember that time spent in deferment or forbearance does not count towards forgiveness programs like Public Service Loan Forgiveness or Income Driven Repayment Forgiveness.
- Missed payments can lead to delinquency, late fees, and credit damage.
- If federal loans reach 270 days of non-payment, they enter default. Defaulting can have even more severe consequences. The federal government can administratively garnish your wages, intercept your tax refunds, offset your social security retirement and disability benefits, and you will lose important options like deferment, forbearance, and repayment plans.
Miscellaneous
- By consolidating your federal loans into a Direct Consolidation Loan via studentaid.gov, you can streamline your repayment process. With fewer loans to track, managing your payments becomes more convenient.
- It is important to note, however, that loan consolidation does not reduce your interest rate. So, if you're expecting a lower rate, consolidation may not be the solution. Additionally, if you're pursuing forgiveness programs like Public Service Loan Forgiveness, consolidation could have implications. Be sure to weigh the pros and cons before making a decision.
- Note: If you have FFEL or Perkins loans, you should seriously consider consolidating before December 31, 2023, to be eligible for more generous repayment plans and forgiveness programs under the IDR Account Adjustment.
- The decision to pay more towards your federal student loans depends on your unique financial circumstances and goals. Consider the following:
- If you have a stable financial situation and emergency savings, it may make sense to pay more towards your federal student loans with zero interest to reduce the principal balance and save on interest in the long run.
- Prioritize paying off higher-interest debt like credit cards or private loans before allocating extra funds towards federal student loans with zero interest.
- If you are eligible for loan forgiveness programs, making minimum payments and utilizing the program may be more strategic than paying extra on your federal student loans.
- It depends on several factors, including the loan amount, interest rate, chosen repayment plan, and ability to make additional payments.
- Use an online student loan calculator to get a sense of how long it will take based on the payment amount you are required to make or can afford.
- Know that if you enroll in an Income Driven Repayment plan, any remaining loan balance will be forgiven after 20-25 years of repayment.
- If your federal student loans were transferred to a new servicer, it's important to note that your loans were not technically sold. Your student loan servicer is separate from your lender.
- If you have Direct loans, the U.S. Department of Education (ED) is the lender. ED contracts servicers to handle loan management, and changes in servicers can occur due to loan portfolio or servicer management adjustments.
- For FFEL loans, a third-party lender like Navient is the owner and manager of your loans.
Other helpful resources within this guide: