Read Time: 4 minutes

Today, we have a special guest post from Andy Josuweit, CEO of Student Loan Hero. He really knows that he’s talking about when it comes to student loans. You can learn more about Andy at the end of the post.

Are your student loan payments too much to handle?

Don’t worry, because you’re not alone.

As of December 2012, only 54% (20 million) student loan borrowers, out of 37 million were actively repaying their student loans.

If you’re overwhelmed by your student loans and need to lower your monthly payments, here are 5 student loan repayment programs that can help:

1. Student Loan Deferment and Forbearance

If you’re unable to afford your federal student loan payments, you can pause your student loan payments to avoid late fees, negative credit reporting, and expensive default fees. Student Loan Deferment and Forbearance can pause your payments for up to 3 years.

Are you eligible?

  • Enrolled at least half-time at an approved higher education institution (college, university, career school)
  • Enrolled in an approved graduate fellowship program or rehabilitation training program for the disabled
  • Unemployed or unable to find employment (up to 3 years)
  • Experiencing economic hardship
  • Actively serving in the Peace Corps
  • Actively serving in military service
  • 13 months after active duty military service

Pros:

  • Pausing payments can avoid late fees, negative credit reporting, and expensive default fees.
  • For Federal Perkins Loans, Direct Subsidized Loans, and Subsidized Federal Stafford Loans, the government will pay interest that accrues during the deferment period.

Cons:

  • For unsubsidized student loans, any PLUS loans, or private loans, you’ll accrue interest during the deferment period and monthly payments will be higher when the deferment period ends.

Learn More about Student Loan Deferment and Forbearance Here
Student Loan Payments

2. Graduated Repayment Plan

If you have federal loans, the Graduated Repayment Plan lowers your monthly payments, and gradually increases your payments over several years (usually every 2 years). Also, you’ll pay off your student loan in 10 years, which is the same as the standard repayment plan most borrowers are currently using.

Are you eligible?

  • Must be a Federal Student Loan borrower
  • Eligible loans include: Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, and all PLUS loans

Pros:

  • Lower your monthly payments

Cons:

  • Will accrue more interest over the lifetime of repayment

Learn More About the Graduated Repayment Plan Here

3. Extended Repayment Plan

If you have federal loans, the Extended Repayment Plan modifies the term of your student loan from 10 years on the standard plan to 25 years. Also, you can choose fixed or graduated payments that can further lower monthly payments in the beginning of your repayment period.

Are you eligible?

  • Must be a Federal Student Loan borrower
  • Eligible loans include: Direct Subsidized and Unsubsidized Loans, Subsidized and Unsubsidized Federal Stafford Loans, and all PLUS loans
  • You must have at least $30,000 in either FFEL loans or Direct Loans. (For example, if you have $25,000 in FFEL and $10,000 in Direct, you are not eligible. Also, if you have $35,000 in FFEL, and $10,000 in Direct, only your FFEL loans would be eligible.)

Pros:

  • Lower your monthly payments

Cons:

  • Will accrue more interest over the lifetime of repayment

Learn More about the Extended Repayment Plan Here

4. Income Driven Repayment

Several federal repayment programs modify your monthly payments based on your income. For example, Income Based Repayment (IBR) caps your federal student loan payments at either 10% or 15% of your monthly income. Income Contingent Repayment (ICR) caps payments at 20%, and Pay As You Earn (PAYE) caps payments at 10% of monthly income.

Are you eligible?

  • Most borrowers are eligible no matter your credit score, as long as you can provide sufficient income documentation
IBR Eligibility:

  • Direct Subsidized and Unsubsidized Loans
  • Subsidized and Unsubsidized Federal Stafford Loans
  • All PLUS loans made to students
  • Consolidation Loans (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents

PAYE Eligibility:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS loans made to students
  • Direct Consolidation Loans that do not include (Direct or FFEL) PLUS loans made to parents

ICR Eligibility:

  • Direct Subsidized and Unsubsidized Loans
  • Direct PLUS Loans made to students
  • Direct Consolidation Loans
Student Loan Payments
Pros:

  • Lower your monthly payments
  • Eligible for student loan forgiveness after 20 years of payments (Note: any student loan debt forgiven is considered taxable

Cons:

  • Will accrue significantly more interest over the lifetime of repayment

5. Private Student Loan Refinancing

Student loan refinancing is new opportunity that now exists for many student loan borrowers. If you want to lower your interest rates, consolidate student loans, switch lenders, or change the term of your repayment, student loan refinancing might be an excellent option for you.

What is student loan refinancing?

Essentially, a private bank will buy your existing federal and private student loans and issue you a new student loan with a new interest rate and term that may lower monthly payments and help you avoid unnecessary interest.

Many borrowers also refer to student loan refinancing as a “student loan consolidation”, not be to confused with a Direct Loan Consolidation from the federal government, which does not lower your interest rate.

Are you eligible?

  • Need a bachelors, masters, or doctorate degree from an accredited Title IV school
  • Each lender has different eligibility criteria, so you will need to do your research

Pros:

  • Lower monthly payments
  • Lower interest rate (Accrue less interest over the lifetime of repayment)

Cons:

  • You need a good or above average credit score (660+) and low Debt-to-Income Ratio (35-45% maximum)

Final Words

Be careful when choosing an alternative repayment plan, as you can end up paying significantly more in student loan interest than initially planned.

All of the options mentioned above, besides student loan refinancing, should typically be used as short term solutions.

Some heavily indebted borrowers might be able to take advantage of the 20 year student loan forgiveness clause under the IBR and PAYE programs.

About the Author:
This guest blog post was written by Andy Josuweit, CEO of Student Loan Hero, the smartest way to repay student loans. Student Loan Hero is a great place to go to learn more about student loans and how to pay off student debt.

Photo Credit: Morgan Burke, CollegeDegress360 #1, #2
Statistics: Liberty Street Economics