Options to Reduce Federal Loan Payments

If you have difficulty making ends meet while making your student loan payments, there are several options available.

Keep in mind, anytime you lower your payments and extend the repayment period, you pay more interest. In some cases, forgiven loan balances may be subject to federal and/or state income taxes. Review all your options carefully and discuss with your loan servicer.

Use the Federal Student Loan Repayment Calculator to see what repayment plan will fit your needs best. You can use your federal PIN for estimates based on your loan information in the NSLDS.

Repayment Plans

  • Income Based
  • Pay As You Earn
  • Income Contingent
  • Income Sensitive

Income Based Repayment Plan (IBR)

Income Based Repayment is a way to make your federal student loan payments more manageable. IBR uses a sliding scale based on your income and family size. For most eligible borrowers, IBR loan payments will be less than 10 percent of income and any remaining debt will be forgiven after 25 years of on-time IBR payments.

All Stafford, PLUS, and Consolidation Loans made under either the Direct Loan or FFEL Program are eligible for repayment under IBR, except loans that are currently in default, parent PLUS Loans, or Consolidation Loans that repaid parent PLUS Loans. The loans can be new or old, and for any type of education (undergraduate, graduate, professional, job training).

You may enter IBR if your federal student loan debt is high relative to your income and family size. While your loan servicer will perform the calculation to determine your eligibility, you can use the U.S. Department of Education’s Federal Student Loan Repayment Calculator to estimate whether you would likely qualify for the IBR plan.

Pay As You Earn Repayment Plan

The Pay As You Earn Repayment Plan helps keep your monthly student loan payments affordable, and usually has the lowest monthly payment amount of the repayment plans that are based on your income. If you need to make lower monthly payments, this plan may be for you. This repayment plan has a lower payment cap than the Income Based Repayment Plan and provides forgiveness after 20 years of on-time, Pay As You Earn payments.

You must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct Loan or FFEL Program loan as of Oct. 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program loan when you received a new loan on or after Oct. 1, 2007. Use the Federal Student Loan Repayment Calculator to see if this plan is right for you.

Income Contingent Repayment

Income Contingent Repayment is available if you need to make lower Direct Loan payments, but you do not qualify for the Income Based Repayment Plan or Pay As You Earn plans. Federal Family Education Loan (FFEL) and parent PLUS loans (unless consolidated into a Direct Consolidation Loan on or after July 1, 2006) are not eligible. Under this plan, your monthly payments are made for a maximum of 25 years and based on your adjusted gross income, your family size, and the total amount of your Direct Loans and the lesser of the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that changes with your annual income or 20 percent of your monthly discretionary income. Use the Federal Student Loan Repayment Calculator to see if this plan is right for you.

Income Sensitive Repayment

Income Sensitive Repayment is available to low-income borrowers who have Federal Family Education Loans (FFEL); Direct Loans are not eligible. Under this plan, your monthly payments increase or decrease based on your annual income and are made for a maximum period of 10 years. If you have loans owned by the U.S. Department of Education, contact your loan servicer. If you have FFEL program loans that are not owned by the U.S. Department of Education, contact your lender. If you are unsure who owns your loans, visit the National Student Loan Data System (NSLDS) to find out.