If you’re having trouble with your student loan payments, or you were counting on the debt cancellation that was recently blocked by the Supreme Court, it may be time to rethink your student loan repayment strategy. Here’s how to ensure you’ve chosen the best plan for your situation and look forward to a debt-free future.
Understand the Different Types of Student Loan Forgiveness Programs
Student loan forgiveness programs can be a lifeline for people struggling with school loan debt. If you qualify, these programs could put you on a path to having some or all of your federal student loan debt forgiven. One of the most popular student loan forgiveness programs is Public Service Loan Forgiveness (PSLF).
Qualified borrowers must do the following:
- Be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization
- Work full-time for that agency or organization
- Have federal Direct Loans (or consolidate other federal student loans into a Direct Loan)
- Be enrolled in an income-driven repayment plan (IDR)
- Make 120 qualifying payments across at least 10 years
- Submit a PSLF application as well as the required paperwork
Applying for PSLF is a complicated process. But once you complete the requirements, your remaining Direct Loan balance can be forgiven tax-free.
Here are some other student loan forgiveness programs to look into:
- Income-Driven Repayment (IDR) Forgiveness (recent changes to these plans make forgiveness accessible for even more borrowers)
- Teacher Loan Forgiveness
- Military Service
- AmeriCorps
Consider Your Eligibility for Income-Driven Repayment Plans
You don’t have to work in the public sector to be eligible for an Income-Driven Repayment (IDR) plan. IDR plans calculate your monthly payments based on your gross adjusted income rather than the amount of your loan, which can make repayment more manageable.
There are currently four main IDR plans:
- Income-Based Repayment (IBR)
- Pay As You Earn (PAYE)
- Saving on a Valuable Education (SAVE) (replacing REPAYE)
- Income-Contingent Repayment (ICR)
IDR plans may change the term of your loan and increase the total amount of interest you have to pay. But if you qualify for one, the lower payments can provide a little breathing room during a difficult time and can ultimately lead to forgiveness of your remaining balance.
Look Into Refinancing or Consolidating Your Student Loans
Refinancing can reduce your interest rate, and thus your monthly payments, leading to big savings. The only way to refinance a federal loan is through a private lender (see below for information on consolidating, which is different). Once refinanced, your student loan will no longer be eligible for government benefits such as IDR plans and loan forgiveness.
Consolidating multiple federal student loans into a Direct Consolidation Loan may provide you with a lower interest rate, more time to pay off the loan, and additional IDR plans that could lower monthly payments. But consolidating your student loans may also increase your principal balance, and you may wind up paying more interest in the long run.
Learn about Deferment and Forbearance Options
You might be able to postpone student loan payments for an extended period of time through a deferment if you meet certain criteria such as being unemployed, serving in the military, or returning to school. If you’re willing to pay your loans but are experiencing a brief financial setback, a forbearance could halt or reduce your principal payments for a short time. While both options can provide temporary relief from monthly loan payments, the interest on your loan may continue to accrue during this period. So, carefully consider your situation and make sure you understand all of the details and requirements before using these options.
Research Employer Benefits
Believe it or not, the benefits package at your job might include student loan debt assistance. Some companies help pay student loans as a way to attract and retain top talent. Check with your human resources department to see if your company offers this kind of benefit.
Keep Up with the Updates
Ultimately, you should review your student loan strategy often to ensure that your plan is in line with your current circumstances and long-term goals. Keep current with changes to federal repayment and forgiveness programs, and apply for any assistance that might help you manage your debt.
