Student loan repayment has become a challenge for many borrowers, especially during the coronavirus pandemic. Unfortunately, not paying your debt can have serious consequences, including damage to your credit score, the potential seizure of your tax return, and other collection activities.
If you're having difficulty repaying your student debt, it's important to be proactive in exploring all the options available to you. These will differ depending on whether you have private student loans or federal loans. However, solutions exist for both types of debt that you may be able to take advantage of to make repayment less of a struggle -- and to avoid the consequences of default.
Here's what you need to know about how you can get help with a student loan repayment plan. And if you're thinking about refinancing, an online tool like Credible can be handy for comparing student loan refinancing rates from multiple lenders without affecting your credit score.
How can I get help paying for my federal student loans?
If you have federal student loans, there's good news: You don't currently have to make payments on them in most cases. As part of President Joe Biden's efforts to help student loan borrowers, the president extended a moratorium on payments put in place under former President Donald Trump.
President Biden extended the automatic forbearance period for federal student loans until at least September 30, 2021. During this time, no payments are due and no interest is accruing. President Biden also campaigned on providing immediate loan forgiveness of $10,000 in federal student debt, while some Democrats have argued for federal student loan forgiveness of as much as $50,000. It's not yet clear if loan forgiveness will occur or who would be eligible for it.
There are also some options currently available for when the automatic forbearance ends. If you are eligible, you could apply with your lender for continued forbearance or deferment (although depending on which you qualify for and your type of loans, the interest could begin accruing). You could also sign up for an income-driven payment plan that caps payments at a percentage of income. These include:
- Revised Pay as You Earn (REPAYE): This caps payments at 10% of discretionary income.
- Pay As You Earn (PAYE): This caps payments at 10% of discretionary income but it can't be higher than the amount owed on a standard plan.
- Income-Based Repayment Plan (IBR): This caps payments at either 10% or 15% of your discretionary income depending on when you first borrowed. Again, the payment can't be higher than the amount due under the standard plan.
- Income-Contingent Repayment Plan (ICR): This caps payments at 20% of your discretionary income or the amount you'd owe under a repayment plan with fixed payments over 12 years adjusted by income.
These income-driven plans were available prior to the pandemic and will remain so even after the automatic administrative forbearance ends.
While it's not always advisable to refinance a federal student loan, it is an option to consider if you have private student loans. If you can qualify for a student loan refinance at a lower rate than you're currently paying, there are often no downsides to refinancing. You can use Credible to compare student loan refinancing rates from multiple private lenders at once without affecting your credit score.
How can I get help paying for my private student loans?
Private student loan borrowers may not have quite as many options as those with debt from the Department of Education.
There are fewer private student loan repayment plans, as no private lenders offer income-driven options. And you can't just change your repayment timeline -- or monthly payment -- any time you'd like.
However, most private lenders will allow you to pause payments temporarily by putting your loans into forbearance for a limited time. And you can also refinance private loans. While this approach isn't typically wise if you have federal student loans since you'd be giving up borrower benefits, it can be the best approach with private debt.
Refinancing private loans won't mean losing out on income-driven plans, repayment flexibility or Public Service Loan Forgiveness since these options aren't available anyway. And by refinancing, you can choose your repayment timeline and hopefully reduce your student loan interest rate. Both of these steps can make repayment much cheaper.
If you're considering refinancing, you'll want to shop around to get the best student loan refinancing rates. You can use an online tool like Credible to view a rates table that compares rates from multiple lenders at once. And as you compare rates, Credible's online student loan refinancing calculator will help you understand how much your new monthly payments could be.
Make sure to call your student loan servicer
If you're having difficulty coming up with the money for your student loans, your first step should always be to call your loan servicer as soon as possible -- ideally before you miss a payment. Your loan servicer can explain payment plan options or forbearance options and can assist you in finding the best solution to avoid default and the damage that can come from it.
And if you’re considering refinancing, make sure to compare student loan refinancing rates before you apply, so you can make sure you find the best deal for you.