Can’t Pay Student Loans? Here Are Your Options

Income-driven repayment (IDR) plans are an option for federal student loans only. A range of plan options are available, each of which comes with unique rules and restrictions to benefit different borrowers depending on the types of loans you have. 

When you choose one of these plans, your monthly payment is capped based on a percentage of your discretionary income. You won’t pay more than you can afford due to this cap on your payment. 

Your loans will be forgiven after a set period under each plan. Unlike Public Service Loan Forgiveness (PSLF), you’ll need to pay taxes on the forgiven amount as if you’d earned it as income in the year it’s forgiven. It’s important to save for this tax bill in advance. 

Your plan options include:

• Pay As You Earn (PAYE): Your monthly payments are scaled to 10% of your income if you have newer Direct loans, with the remaining balance forgiven after 20 years. 
• Income-Based Repayment (IBR): One of the only options for borrowers with FFEL loans, this plan offers monthly payments of 10% to 15% of your income, with forgiveness after 20 to 25 years. 
• Income-Contingent Repayment (ICR): This is a more expensive and lengthy plan that requires you to pay 20% of your income over 25 years. However, it may be the only option for parents who took out PLUS loans for their kids’ education. 
• Saving on a Valuable Education (SAVE): Previously known as the Revised Pay As You Earn (REPAYE) plan, this plan offers the most affordable payments (between 5% and 10% of your income), easier income qualification, and forgiveness in as little as 10 years.

• Guide to Income-Driven Repayment Plans

Federal student loans come with two options for extended repayment plans. Whether private student loans are eligible for repayment term extensions depends on your lender. Most don’t offer this option, but it may be available in some cases.

Extending your repayment term or choosing graduated repayment can help you reduce the monthly payment cost of federal student loans. 

If you opt for graduated repayment, your payments start low and increase every two years. You’ll have the same 10-year term length, but payments are more affordable at the start. If you’ve consolidated your loans, you may be able to stretch that out to 30 years.

Extending your repayment term can also lower monthly payments by giving you more time to pay back what you owe. However, stretching out your term length means paying interest for a longer time, which increases your loan costs in the long run and leaves you less money to save. 

If you have private student loans, you can ask your loan servicer about options for extending your repayment plan. You could also refinance into a new loan with a longer repayment timeline. We’ll explain that below.

“Consolidation” is a specific term used for federal student loans only. This is opposed to “refinancing,” which you can also do with private student loans. (More on that below). 

Many people left college with several federal student loan types, such as Direct loans and FFEL loans. Repaying these independently and remembering all the rules and due dates can be complicated, so you can combine them all into one Direct Consolidation loan. 

In addition to qualifying for more options for income-driven repayment plans and loan forgiveness, it streamlines your repayment. 

You may also be able to stretch your loan term length up to 30 years, which can help lower your payments as we described in the previous section.  

• Guide to Direct Consolidation Loans

Anyone with student loans is eligible to refinance them, federal or private. However, we recommend you weigh the pros and cons of refinancing federal student loans because you’ll lose access to the abundant options for financial assistance. Private lenders are much less generous in this regard. 

Refinancing your student loans can help make them more affordable in three possible ways: by getting a lower interest rate, by stretching out your term length, and by getting access to new financial assistance options with a different lender.

A lower interest rate means your monthly payments may be smaller while saving you money on financing costs over the long run—a win-win scenario. A longer term length, as we described above, lets you shrink each payment if you agree to pay your loan for longer. 

However, this may not be an option if you’re struggling to make payments because you might not have the required income and credit score to qualify for a refinance loan. Most lenders require a good income and a strong credit score—or a cosigner who meets these qualifications. 

Depending on market conditions, it can also be tough to find a lender offering lower rates than you’re already paying. Lenders don’t always advertise their financial support options upfront, so it can be tough to find a lender offering better repayment assistance. 

• What is student loan refinancing?
• Can you refinance student loans?
• Should I refinance my student loans? How to decide
• Best companies to refinance student loans
• How to restructure your student loan

Federal student loans offer several types of deferment. Private student loans may offer deferment, but the term doesn’t mean the same as for federal student loans. It’s typically only available if you’re still in school.  

Deferment lets you pause your federal student loan payments during financial hardship, such as job loss or cancer treatment. While in deferment, the government covers interest on Direct Subsidized Loans, but interest accrues on Unsubsidized Loans, increasing your total repayment amount.

Deferment is not a long-term solution because it may affect loan forgiveness credit and raise your overall debt due to accumulated interest. Private lenders may offer deferment, but interest always accrues, making it similar to forbearance. Experts suggest making interest-only payments during deferment to minimize long-term costs.

• Guide to student loan deferment
• Guide to economic hardship deferment
• Student loan deferment or forbearance calculator

Federal student loans also offer loan forbearance, which can differ from deferment in how it treats interest. Most private student loan lenders also offer forbearance, but they generally use the term interchangeably with “deferment.”

Forbearance also allows you to pause your student loan payments. It may be easier to qualify for forbearance than deferment with federal student loans because it’s available in more scenarios, such as if you’re serving in the National Guard or Americorps, or completing medical training. 

The downside is that you don’t get the free pass on interest accruing on any Subsidized federal student loans as you do with a deferment. That makes it an all-around more expensive option. You may also lose credit toward certain loan forgiveness options.

Many private student loan lenders also offer forbearance, but it may be more limited in duration to three-month chunks at a time, with a lifetime total of 12 months of forbearance available. Some private student loan lenders also charge a fee for this option.

• Guide to student loan forbearance 

Student loan forgiveness is generally only possible with federal student loans. 

It’s not a short-term solution per se, but most federal student loans are eligible for loan forgiveness if you meet the requirements of certain loan forgiveness programs, which can take many years. 

PSLF is one of the most popular options, for example, and it will discharge eligible federal student loans if you work for a public employer such as a school or government agency for 10 years. This option has many individual forms and certification requirements.

Teacher student loan forgiveness is another popular option for educators. Income-driven repayment plans also offer loan forgiveness, but the forgiven amount of these loans is considered taxable income.

• Guide to student loan forgiveness programs

You may be able to negotiate a debt settlement with private and federal student loans.

If you’re already in student loan default, you may be able to negotiate a debt settlement with your private student loan lender or even the federal government. But you typically aren’t eligible for a debt settlement until you’ve defaulted on your loans, which can cause significant damage to your credit. 

You’re considered in default after nine months of missed payments with federal student loans. The timeline for private student loan default varies but is often much shorter, around four months. 

Debt settlement involves negotiating with your lender to pay back a smaller amount than you owe in exchange for being released from the debt. This can save you significant money and release you from your liability (albeit with scarred credit). 

However, because it requires a large lump-sum payment, it’s not an option for most people unless they get a windfall or have significant backup savings to rely on. You may also need to pay taxes on the amount your lender forgives.  

• How student loan debt settlement works

Federal student loans may be discharged in certain circumstances. Some—but not all—private student loan lenders will also discharge your loan under limited circumstances, but it’s less common. 

In rare cases, you may be able to discharge federal or private student loans in bankruptcy. 

You (or your family) may be able to get your federal student loans discharged in certain cases, such as if you pass away or become permanently disabled. A few other rare exceptions may also apply. 

Private lenders, on the other hand, are not obligated to offer private student loan discharge under any circumstances. Some lenders do, but many don’t, which can be especially dangerous if you have a cosigner on your loan. 

If you pass away, for example, your cosigner can be saddled with the debt. If you don’t have a cosigner and your lender doesn’t discharge your loans, the lender can require your estate or your heirs to repay the debt.

It may be possible to discharge your student loans if you file for bankruptcy. However, the legal bar for student loan bankruptcy discharge is higher than for other types of debt, requiring you to prove an exceptional case of undue hardship beyond the reach of most borrowers.