Knowing Your Options: Student Loan Repayment, Forgiveness, And Consolidation

Student loan debt has more than doubled in the last decade. As of 2022, there is almost 1.75 trillion in total U.S. student loan debt, with about 46 million Americans having student loan debt. About 11.1% of student loans were delinquent or in default before the coronavirus pandemic. The average student loan payment was $300 per month prior to the white house instituting the repayment moratorium. Student loan debt is impacting the lives of Americans every day. Arguably, many borrowers did not know what they were getting into by taking out student loans. Now, it is time to pay up, and many borrowers are wondering “What do I do?”. Fortunately, there are plans to help student loan borrowers repay their loans in a reasonable fashion. Below are plans for repayment, forgiveness, and consolidation of student loan debt.

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Repayment Plans

  • Standard Repayment Plan– Standard repayment consists of 120 equal monthly payments over a 10-year period. This is popular with individuals whose debt is less than their annual income. Standard repayment is the most popular repayment plan. A reported 42% of borrowers choose this option.
  • Graduated Repayment Plan– Under this plan, an individual’s payments start low, then increase every 2 years. The repayment term is determined by how much is owed in federal student loans. This plan is designed to adjust to expected income increases. This option will lead to higher payments than a standard 10-year student loan repayment plan.
  • Extended Repayment Plan– An extended payment plan enables a person to extend the time a person must repay a student loan from 10 years to 25 years. This plan is best for individuals with more than 30,000 in federal student loans. Extending the term of this loan will lead to more interest over time.
  • Revised Pay As You Earn Repayment Plan (REPAYE)– Revised Pay As You Earn is a federal student loan program launched on December 17, 2015. Payments are generally set to 10 percent of the borrower’s income. If a borrower’s income or family size changes, the REPAYE amount will reflect the change. Borrowers do not need to have a partial financial hardship to qualify for REPAYE. There is no payment cap under REPAYE. Payments under this program may exceed the payments required under the Standard Repayment Plan.
  • Pay As You Earn Repayment Plan (PAYE)– PAYE caps loan payments at 10% of the household income that exceeds 150% of the federal poverty guideline based on family size. The payment amount is adjusted annually based on changes in household income and household size. The repayment term for PAYE is up to 20 years. After 20 years, the balance is forgiven. The amount forgiven is taxable.
  • Income-Based Repayment Plan (IBR)– A reported 32% of borrowers choose this option (second to Standard repayment). Income-based repayment (IBR) is a federal student loan repayment program that adjusts the amount a person owes each month based on income and family size. With an IBR plan, payments are capped at the lower of a certain percentage of discretionary income or the amount one would pay under the 10-year Standard Repayment Plan.
  • Income-Contingent Repayment Plan (ICR)– An income-contingent repayment plan is a federal loan repayment plan that provides two methods of student loan payments based on income. There are two options for federal income-contingent repayment plans. Each is a monthly payment. The first has a fixed monthly payment over 12 years, adjusted based on income. The second option is 20% of an individual’s discretionary income, divided by 12. Discretionary income is the amount a person has left after paying for necessities like mortgage, rent, food, and utilities.
  • Income-Sensitive Repayment Plan– This is an income-driven repayment option. This plan only assists borrowers in paying off student loans made under the Federal Family Education Loan Program. In this plan, the borrower’s servicer determines the monthly payment amount by considering the total debt amount, gross monthly income, debt-to-income ratio, and interest rate. After considering these factors, the servicer sets up a payment amount that ranges from 4% to 25% of the borrower’s monthly income. Federal Family Education Loans have not been available to student loan borrowers since July 1, 2010.

Student Loan Forgiveness

  • Teacher loan forgiveness. Teachers that teach full-time for five years in certain elementary or secondary schools or educational service agencies that serve low-income families, and meet other qualifications, may be eligible for up to a combined total of 17,500 eligible student loans.
  • Public Service Loan Forgiveness (PSLF). Individuals working full-time for a government or not-for-profit organization may qualify for forgiveness of their entire remaining balance of Direct Loans after 120 qualifying payments (10 years). This option requires student loans to be repaid under an income-driven repayment plan. If interested in PSLF, contact FedLoan, the PSLF service, at 1-855-265-4038. If someone is denied loan forgiveness under PSLF because one or all of the payments made to Direct Loans fell under a nonqualifying repayment plan, they might be eligible for Temporary Expanded Public Service Loan Forgiveness (TEPSLF)
  • Income-Driven Repayment (IDR) Plan. This plan is based on income and requires the individual to make minimum payments over a certain period.
  • Military Service. There are special benefits and repayment options for student loans available from the U.S. Department of Education and the U.S. Department of Defense. Benefits include interest rate caps under Servicemembers Civil Relief Act and the Department of Defense student loan repayment programs.
  • AmeriCorps. The Segal AmeriCorps Education Award is a benefit received by participants who complete a term of national service in an approved AmeriCorps program. Approved AmeriCorp programs include AmeriCorps VISTA, AmeriCorps NCCC, or AmeriCorps State and National. After completing service, individuals are eligible to receive a Segal AmeriCorps Education Award, which can be used to repay qualified student loans.
  • Other options. If you need help, and these options do not apply, contact your loan servicer to potentially switch your repayment plan, consolidate multiple federal loans into one, or apply for deferment or forbearance to temporarily postpone or reduce payments.

Consolidating Student Loans

There are two types of student loan consolidation: federal and private. Private consolidation is referred to as refinancing. If your loans are in default, consolidation is one of the ways to get loans back on track.

Federal student loan consolidation combines multiple federal loans into a single federal loan through the department of education. Consolidation is sometimes needed to be eligible for some federal loan repayment programs. Federal consolidation does not lower interest rates. This option offers the benefit of a single loan bill and potentially lower payments. This option is not credit-based.

Student loan refinancing, also called private student loan consolidation, is a credit-based option. done through private lenders. This option sometimes saves money by reducing interest rates. Consolidating private student loans (refinancing) means replacing multiple student loans (federal, private, or combined) with a new private loan. This can save money if the interest rate is lower. This option means losing consumer protections specific to federal loans.

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Final Word

High student loan debt can cause people to not have enough to invest in other life goals, like a home, marriage, children, or even retirement. We are yet to see how student loan debt impacts the economic decisions of many Americans who must navigate with it looming over their heads. Hopefully, this article helps you overcome your student loan debt. Be sure to share with others.


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