What repayment options do you have for your Student Loans if your income has decreased?

Experiencing a drop in income can make managing student loan payments challenging. Fortunately, the U.S. Department of Education offers several repayment options designed to ease this burden.

Understanding these options can help you maintain your financial stability while keeping your student loans manageable.

Income-driven repayment plans: Tailored to your earnings

Income-driven repayment (IDR) plans adjust your monthly student loan payments based on your income and family size.

These plans are particularly beneficial if your income has decreased, as they can significantly lower your monthly payments. There are four primary IDR plans:

• Income-Based Repayment (IBR): Payments are set at 10% of your discretionary income if you took out your first loan on or after July 1, 2014; otherwise, they are 15%. The repayment term is 20 years for newer borrowers and 25 years for others.
• Pay As You Earn (PAYE): Payments are 10% of your discretionary income, capped at the standard 10-year repayment amount. Forgiveness occurs after 20 years.
• Saving on a Valuable Education (SAVE): This plan, which replaced REPAYE, sets payments at 10% of your discretionary income, with a cap at 5% starting July 2024. Forgiveness is available after 20 years for undergraduate loans and 25 years for graduate loans.
• Income-Contingent Repayment (ICR): Payments are the lesser of 20% of your discretionary income or what you would pay on a fixed 12-year repayment plan. The repayment term is 25 years.

These plans can reduce your monthly payments, and if your income is low enough, you might qualify for $0 payments. Additionally, periods of economic hardship, such as the COVID-19 payment pause, count toward loan forgiveness under IDR plans.

Other options to consider

If IDR plans don't suit your situation, there are alternative options to manage your student loan payments:

• Extended Repayment Plan: This plan extends your repayment term to up to 25 years, which can lower your monthly payments. However, this means you'll pay more interest over time.
• Loan Consolidation: Consolidating your federal student loans into a Direct Consolidation Loan can simplify your payments and may offer access to different repayment plans. Be cautious, as consolidation can affect your interest rates and loan forgiveness eligibility.
• Refinancing: Refinancing through a private lender can lower your interest rate, potentially saving you money. However, refinancing federal loans with a private lender means losing federal protections, such as IDR plans and loan forgiveness options.

Stay informed and seek assistance

It's crucial to stay informed about your repayment options and any changes in federal student loan policies.

The Department of Education periodically updates repayment plans and forgiveness programs. For instance, the SAVE plan, initially promoted as a repayment option, has faced legal challenges and is currently in limbo.

Borrowers previously enrolled in SAVE were placed in interest-free forbearance starting July 2024.

If you're unsure about which repayment plan is best for you, consider consulting with your loan servicer or a financial advisor. They can help you navigate your options and find a solution that fits your current financial situation.