Repaying Loans

FEDERAL STUDENT LOAN payments resumed in October 2023, after an extended pause because of the COVID-19 pandemic. If you’re struggling to pay your federal student loans or you’re simply overwhelmed by the number of loans you have to pay each month, consider both consolidating your federal loans through StudentAid.gov and enrolling in one of the income-based repayment plans.

The interest rate on the consolidated loan will be based on the weighted average interest rate of your existing loans. When consolidating, you might extend the term on the loan. Most federal loans are for 10 years, but you may be able to increase the repayment period to as long as 30 years, depending on the total sum involved. This will reduce your monthly payment, simply because you’re extending the loan’s repayment over more years. But thanks to that longer repayment period, you’ll also end up paying more in total interest. Among the loans that can be consolidated are Stafford, Perkins and PLUS loans.

One tip: Before consolidating, consider making extra-principal payments on a loan if it has a much higher interest rate than your other loans. That way, the higher-interest loan won’t have as big an impact on the average rate for the new, consolidated loan. Be sure to specify that you want your check applied to the loan’s principal—or there’s a risk the check will be put toward future regular monthly payments.

The federal government has a variety of income-based repayment plans, which can lead to lower monthly payments, depending on your income and family size. It can be tough to figure out how one plan differs from another. The latest iteration is the SAVE (Save on A Valuable Education) plan, which is open to anyone with federal direct student loans. Under the plan, loan payments are limited to 5% to 10% of discretionary income. Discretionary income is defined as income in excess of 225% of the federal poverty level for your family size and state of residence. Borrowers on the Revised Pay As You Earn (or REPAYE) plan—an earlier, much vaunted repayment plan—will automatically get the benefits of the new SAVE Plan.

You might also be able to get your student loans forgiven if you work for 10 years in the public or nonprofit sector. Others in the income-based repayment program will typically be eligible to have their undergraduate student loans cancelled after 20 years and their graduate school loans cancelled after 25 years, though borrowers with smaller balances could receive forgiveness after as little as 10 years. For more information, head to StudentAid.gov. Make sure you understand and follow all the rules—or you may not get your loans forgiven.

Private loans don’t offer the same array of standardized repayment options, so renegotiating your education debt can be trickier. If you refinance, you may be able to lower your interest rate or at least extend the term of the loans, thereby reducing your monthly payment. But to do so, often you will need a good credit score and possibly a cosigner on the loan, who is typically a parent, especially if you’re applying to refinance soon after graduating.

What if you’re overwhelmed by your student loans and considering bankruptcy? That isn’t an option. Borrowers can get help with credit card debt, auto loans and mortgages by filing for bankruptcy. But federal and private student loans can’t be discharged in bankruptcy, except in rare circumstances.

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