June 2022
If you are feeling burdened by student loans, student loan repayment and forgiveness programs can provide a lifeline by reducing your loan or, in some cases, eliminating it altogether. The following are a few different types of programs that can help.
Income-based repayment program
If you have a large family or low income, you may qualify for an income-based repayment program. Under this program, your loan is based on a percentage of your income. According to finance expert Miranda Marquit, this amount is either 10 or 15 percent of your discretionary income. “Your payment will never be more than what you’d pay under the 10-year standard plan,” she writes in an article for TheBalance. After 20 years, IBR offers loan forgiveness. However, this program does require you to submit updated information about your family size and income every year to prove that you still qualify. One downside is that you will probably pay more over time than you would on the 10-year standard plan.
REPAYE Plan
The Revised Pay As You Earn Repayment Plan, or REPAYE Plan, is a different type of income-based repayment plan backed by the federal government since 2015. It is similar to other IBRs but, critically, does not come with an income requirement. Elyssa Kirkham, a student loan expert writing for TheBalance, says that “most borrowers can enroll in REPAYE if they have eligible federal student loans, including Direct Subsidized and Direct Unsubsidized Loans.” REPAYE is a great option if you do not qualify for other income-based repayment plans, but unlike IBR it does not have a cap on monthly payments and offers loan forgiveness only after 25 years.
Public service loan forgiveness
Depending on your employer, you may qualify for public service loan forgiveness. According to the U.S. Department of Education, qualifying employers are governmental organizations (including federal, state, local, and even tribal), 501(c)(3) organizations, and not-for-profit organizations that provide some public services like public health or education. You must also be a full-time employee and have a qualifying loan, as well as meet some other criteria. If you do qualify, the PSLF is well worth it. “[It] remains one of the best federal student loan forgiveness programs in existence,” Ken Clark, former CFP, writes for TheBalance. “The program offers complete federal forgiveness benefits…meaning that it can allow you to wipe out your outstanding federal loans.”
Refinance or consolidation
Two other methods for helping pay off student loans are refinancing and consolidation. Refinancing involves using a private lender to combine multiple student loans into a larger loan with a single monthly payment, one more affordable than all the previous payments put together. This comes with a great amount of loan flexibility but loses your access to federal benefits like loan forgiveness programs and repayment assistance. Alternatively, you may qualify for federal student loan consolidation, which does retain access to those benefits and does not include a credit check. “But you won’t be able to secure a lower interest rate with a student loan consolidation,” warns Tim Maxwell, contributor for Fox Business. “Your new interest rate will be the weighted average of all your existing federal loans.”
As you can see, there are many ways to help pay off student loans. The best methods will depend on the type of loans you have, your employment, income, and other factors. Do your research and contact your provider if you need help finding out which option might be best for you.