Lori Meadows
The US government offers several programs to help students pay off their federal student loans. These include the Income-Based Repayment, Income-Contingent Repayment, PAYE, and IDR plans. The US Department of Education and Department of Defense also offer special benefits for military service members with federal student loans, including interest rate caps and loan repayment programs. Additionally, the government provides loan forgiveness programs for those who work full-time for the government or not-for-profit organizations, as well as for teachers who serve in low-income communities.
| Characteristics | Values |
|---|---|
| Federal student loan financier | The American people |
| Number of borrowers in default | 5 million |
| Total amount owed by borrowers in default | $1.6 trillion |
| Number of borrowers in late-stage delinquency | 4 million |
| Percentage of borrowers in repayment and current on their student loans | 38% |
| Types of repayment plans | Income-Based, Income-Contingent, PAYE, Income-Driven (IDR) |
| Options for repaying federal student loans | Student loan forgiveness, refinancing, consolidation, direct consolidation loans, public service loan forgiveness |
| Federal student loan lender | U.S. Department of Education |
| Types of federal student loans | Federal Direct PLUS, Federal Direct Stafford, Federal Family Education Loan Program |
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What You'll Learn
Loan forgiveness for government employees
The US Department of Education offers the Public Service Loan Forgiveness (PSLF) program to help eligible public servants, including government employees, reduce their federal student loan debt. This program rewards public service workers by cancelling a portion of their federal student loans.
To qualify for PSLF, you must be a full-time employee of a government or non-profit organisation at the state, county, city, or local level. This includes independent agencies, school districts, public college systems, and public libraries, among others. Religious organisations are also included. Qualifying for PSLF depends less on the type of work you do and more on who your employer is.
To be eligible for loan forgiveness, you must make 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. This equates to 10 years' worth of payments. If you make these payments on an IDR (income-driven repayment) plan, you will save the most money. After making 120 qualifying payments, the remainder of your federal student loan debt can be forgiven if you submit the proper documentation to the federal government.
It is important to note that PSLF eligibility requires you to work at least 30 hours per week on average. Additionally, you must submit a PSLF employment certification form to confirm that your employer qualifies for the program. You can submit this form annually or whenever you change jobs, and it is recommended to do so for your records.
Aside from PSLF, there are other loan forgiveness programs and benefits offered by the US government. For instance, the US Department of Defense provides special benefits for military service members with federal student loans, including interest rate caps and loan repayment programs. Furthermore, if you teach full-time for five consecutive academic years in certain low-income schools, you may be eligible for forgiveness of up to $17,500 through the Teacher Loan Forgiveness (TLF) Program.
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Income-driven repayment plans
The US Department of Education offers income-driven repayment plans (IDR) that cap a borrower's monthly bill at a share of their discretionary income. Typically, after a certain period (usually 20 or 25 years), the loan is cancelled. The new Standard Plan, however, offers fixed payments over four different timeframes depending on the amount owed. For example, those who owe between $25,000 and $49,999 will pay back their debt over 15 years, while a debt of over $100,000 will have a 25-year repayment term.
The modified Standard Plan will be available from July 1, 2026, and will be one of two repayment options for borrowers who take out loans after that date. The other option is the Republicans' new IDR plan, the Repayment Assistance Plan (RAP). Borrowers with loans taken out before July 1, 2026, will still have access to existing repayment plans, including Income-Based Repayment (IBR) and the current 10-year Standard Plan.
It is important to note that borrowers with old loans who take out a new one after July 1, 2026, will lose the existing options for that loan. This means that a borrower with $100,000 in federal student loans, for example, would pay around $125,000 over 10 years under the current Standard Plan, but under the revised plan, they would pay over $175,000 during their 25-year term.
IDR plans often provide a slower route to becoming debt-free compared to the Standard Plan, but they can be a more affordable option for those with high loan debts.
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Direct Consolidation Loans
A Direct Consolidation Loan is a federal programme that allows borrowers to combine multiple federal education loans into a single loan. This loan is issued through the Federal Direct Student Loan Program, which allows students and parents to borrow directly from the US Department of Education. The application for this programme is free.
The Direct Consolidation Loan simplifies the borrower's payment process by consolidating multiple monthly payments and lenders into a single monthly payment and lender (the US Department of Education). The interest rate on the Direct Consolidation Loan is fixed, based on the weighted average of the interest rates on the loans being consolidated, and rounded up to the nearest one-eighth of 1%interest rate will not change year to year, but it also means that borrowers may end up paying more in interest over the life of the loan.
Most federal loans are eligible for consolidation, but private loans are not. Borrowers can consolidate once they complete, withdraw from school, or fall below half-time student status. Borrowers who obtain a Direct Consolidation Loan also gain access to loan forgiveness options, such as the Teacher Loan Forgiveness Program and the Public Service Loan Forgiveness (PSLF) program. However, borrowers may lose benefits associated with their original loans, such as interest rate discounts, principal rebates, or loan cancellation benefits.
The repayment period for a Direct Consolidation Loan starts immediately upon consolidation, with the first payment due in about 60 days. Borrowers may be eligible for repayment terms of up to 30 years, depending on the amount of the Direct Consolidation Loan and other student loan debt. The longer the repayment period, the lower the monthly payment but the more the borrower will pay in interest over time.
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Interest-free forbearance
During interest-free forbearance, you won't make progress toward student loan forgiveness, including income-driven repayment forgiveness and Public Service Loan Forgiveness. Federal student loan forbearance typically lasts no more than 12 months at a time, and you may be limited to a total of three years of forbearance over the life of your loan. However, this limit varies depending on the type of forbearance.
While in forbearance, interest will typically accrue on your debt, increasing the overall amount you will pay. If you have commercially-held FFELP loans, interest capitalizes on your student loans or is added to your balance at the end of the forbearance. This means that if you don't pay down the interest as it accrues, you will end up paying more overall. For example, after putting $30,000 in loans on hold for 12 months at 6% interest, $1,800 worth of interest would accrue, resulting in a new total of $31,800.
However, for Direct Loans, interest will not be added to your principal balance. For other federal loans not owned by the Department of Education, the interest that accrues during forbearance may be added to your principal balance.
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$16.53 $22.99
Involuntary collections activities
Wage garnishment allows the loan holder to order an employer to withhold up to 15% of disposable pay to collect the defaulted debt, without taking the borrower to court. This can result in a significant reduction in the borrower's income, impacting their ability to meet other financial obligations.
The Department of Education's Office of Federal Student Aid (FSA) is responsible for resuming collections on defaulted federal student loans. This includes sending notices and urging borrowers to contact the Default Resolution Group to make monthly payments, enroll in income-driven repayment plans, or sign up for loan rehabilitation. The FSA also restarts the Treasury Offset Program, allowing them to offset defaulted loans with tax refunds and other government payments.
The Trump Administration's approach to student loan collections and the pause on repayments during the COVID-19 pandemic have contributed to confusion and challenges for borrowers. Experts recommend borrowers reach out to their elected officials for assistance and take proactive steps to manage their loan repayments to avoid involuntary collections.
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Frequently asked questions
An IDR plan bases your monthly payment on your income and family size. If you repay your loans under an IDR plan, the end-term balance on your student loans may be forgiven after you make a certain number of payments over 20 or 25 years.
The U.S. Department of Education and Department of Defense have special benefits for military service members with federal student loans. Benefits include interest rate caps and loan repayment programs.
Loans are privately issued by a bank, credit union, or other lenders that participate in the Federal Family Education Loan Programs. These loans are insured by the Department of Education.
The Treasury Offset Program is administered by the U.S. Department of the Treasury. All borrowers in default will receive email communications from the FSA, urging them to contact the Default Resolution Group to make a monthly payment, enroll in an income-driven repayment plan, or sign up for loan rehabilitation.
