The options available depend on whether you have federal, private, or both types of loans. Here are some possible solutions.
Federal programs for student loan relief
There are several forms of relief for distressed borrowers carrying federal student loans.
Apply for an income-driven repayment plan
Both federal and private student loans may offer income-driven repayment plans. The monthly payment is a percentage of your income, ranging between 10-15%. If your income is low enough, this could result in more affordable payments, as low as $0. Contact your loan servicer to discuss your eligibility and potential options.
Explore a direct consolidation loan
You can combine all your federal student loan balances into a new loan with a term of up to 30 years. If you opt for a longer term than you already have, you’ll likely get a lower monthly payment.
The downside is that your borrowing costs could be higher over time. You'll also get the weighted average of all your interest rates, meaning the rate you receive could be slightly higher than your current rate. Ask your loan servicer about consolidation options.
Extend your loan term
Ask your loan servicer about an extended repayment plan. It comes with loan terms of up to 25 years. You also have the option to get a set monthly payment over the life of the loan.
Get temporary relief
Deferment allows you to postpone payments for a specific period. Another possibility is forbearance, which suspends or reduces your payment. Keep in mind that interest still accumulates with both options.
Inquire about loan forgiveness
It could take several years to qualify for student loan forgiveness. Still, it’s worth a shot if you work in the public service sector and meet the eligibility guidelines.The Public Service Loan Forgiveness (PSLF) program is generally available to borrowers who work full-time for an eligible employer and make 120 qualifying payments. Use the PSLF Help Tool to determine your eligibility.
Refinance into a private loan
If you have a solid credit score, refinancing could make you eligible for more attractive terms. It’s also likely that you’ll lower your monthly payment. But proceed with caution if you take this approach. You'll lose the perks and repayment flexibility afforded to federal student loan borrowers.
Private loan refinancing options
Private student loans come with different benefits than their federal counterparts. So, income-driven repayment plans won’t be an option. And opting for a deferment or forbearance may not be possible.
Still, you’re not entirely out of luck. Borrowers with private student loans often refinance to make their payments more affordable. The idea is to consolidate multiple loans into a single product with a lower interest rate. Doing so stretches out your loan term and lowers your monthly payment.
Remember that credit score and income determine your eligibility for refinancing. If you have less than perfect credit, you may not qualify for a competitive interest or may need a cosigner.
Bonus Tip: Revisit your budget
Take some time out of your busy schedule to review your budget. Are there line items you can cut or eliminate? If so, consider scaling back to make your student loan payments affordable, at least in the short term.
You may not be thrilled about scaling back, but there are upsides. You’ll get closer to lowering those balances and avoid adverse credit reporting. It’s also worth exploring other ways to increase your income and create more wiggle room in your budget.
The Bottom Line
Don’t let unaffordable student loan payments overwhelm you. Reach out to your loan servicer to learn more about relief options that may be available. You can also request a free financial coaching session to get personalized guidance on making your student loan payments more manageable.
