Janice Lozano
Student loan debt is a significant concern for many people, with over 43 million Americans carrying educational loans as of 2025. The options for paying off these loans vary depending on whether the loans are federal or private. Federal loans offer more flexibility, with programs such as income-driven repayment (IDR) plans, loan rehabilitation, and consolidation. Private lenders may be willing to negotiate, but there are typically fewer options for repayment assistance. It's important to carefully consider the risks and benefits of different repayment strategies, such as using credit cards or home equity, and to be cautious of scams offering loan forgiveness.
| Characteristics | Values |
|---|---|
| What happens when you miss a payment? | Private student loans may be reported delinquent as early as 30 days without a payment. Federal loans owned commercially in the Federal Family Education Loan (FFEL) program are considered delinquent at day 60. Federal loans (Direct and FFEL) owned by ED are reported delinquent at day 90 of no payment. |
| What happens when you default? | Default occurs after 270 days of no payment. A default note will go on your credit report, which can negatively impact your credit score. The lender can file a lawsuit against you to collect on the debt. You could lose your eligibility for federal student aid and face garnishment of your federal tax returns, wages, and Social Security payments. |
| What to do if you can't pay off the loan immediately? | You have two options: rehabilitation and consolidation. Rehabilitation will remove the default note from your credit report, but it takes 9 months. Consolidation is faster, but the default will stay on your credit report. |
| What are some tips for paying off student loans? | Dedicate your tax refund to paying off your student loan debt. Research loan forgiveness and repayment programs for teachers, public servants, members of the military, and more. Make a budget and use the Education Department's Loan Simulator to compare plans. Avoid using credit cards or home equity to pay off student loans. |
| What are some repayment options? | Income-driven repayment (IDR) plans can reduce your monthly payment to as low as $0. Income-Contingent Repayment (ICR) plans offer affordable monthly payments based on your income and loan forgiveness after 20-25 years. |
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What You'll Learn
Loan forgiveness programs
Forgiveness plans often require a repayment plan throughout the process, with monthly payments for 10 to 25 years, after which the remaining balance can be forgiven. The amount to be repaid under an IDR (Income-Driven Repayment) plan is calculated as a percentage of the borrower's discretionary income, which is the income left after paying taxes and essential expenditures. The repayment period and monthly payment amount depend on the specific IDR plan chosen.
There are loan forgiveness programs for teachers, public servants, members of the US Armed Forces, and more. For example, teachers may be eligible for forgiveness of up to $17,500 if they teach full time for five complete and consecutive academic years in certain elementary or secondary schools serving low-income families. The Segal AmeriCorps Education Award is another example of a loan forgiveness program, where participants who complete a term of national service in an approved AmeriCorps program become eligible to receive an education award that can be used to repay qualified student loans.
Borrowers with a disability that severely limits their ability to work may also qualify for a TPD discharge, which means they don't have to repay any of their federal student loans. Additionally, the US Department of Education and Department of Defense offer special benefits for military service members with federal student loans.
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Rehabilitation
If you have defaulted on your federal student loan, you have two options to get it back into good standing: rehabilitation and consolidation.
To start the rehabilitation process, contact your loan servicer to discuss your options and next steps. Reliable lenders will want to work with you to help you get out of default.
Consolidation
Consolidation is a faster option than rehabilitation, which is helpful if you want to enrol in school soon. However, the default will remain on your credit report. Consolidation involves rolling multiple federal loans into one loan or into a private loan with a lower interest rate (refinancing).
There are significant risks and benefits to consolidating or refinancing. The biggest danger is losing the protections and benefits of the original loans, such as eligibility for the PSLF program, loan forgiveness, or an income-driven repayment plan.
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Consolidation
If you are struggling to afford your student loan payments, federal loans offer rehabilitation and consolidation. Consolidation can lower your monthly payments, but it could also extend your repayment period, which may increase the total interest you pay over the life of the loan.
Before consolidating, you can check how consolidation will impact your monthly payment and total repayment period by logging in and viewing the Direct Consolidation Loan Application. You don't have to consolidate all your federal student loans, and once you have consolidated, you can't undo it.
If you are considering consolidating your federal student loans, you can contact your loan servicer for free help.
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Income-driven repayment plans
If you are struggling to afford your student loan payments, you should reach out to your servicer to ask about your options. Federal loans offer rehabilitation and consolidation. Private lenders may be willing to negotiate a deal with you.
The U.S. Department of Education offers Income-Driven Repayment (IDR) plans, which are a good option for those seeking to pay off their student loans. IDR plans are designed to make your student loan debt more manageable by reducing your monthly payments. These plans are based on your income and family size, and they can help you avoid defaulting on your loans.
There are a few different types of IDR plans available:
- Income-Based Repayment (IBR) Plan: Under this plan, your monthly payments are generally capped at 10% of your discretionary income. Your payments may increase or decrease each year based on changes in your income and family size. After 20 or 25 years of qualifying payments, any remaining loan balance will be forgiven.
- Pay As You Earn (PAYE) Plan: The PAYE plan is similar to IBR, but it generally caps your monthly payments at 10% of your discretionary income. To qualify for PAYE, you must be a new borrower as of October 1, 2007, with a disbursement of a Direct Loan on or after October 1, 2011. After 20 years of qualifying payments, any remaining loan balance will be forgiven.
- Revised Pay As You Earn (REPAYE) Plan: The REPAYE plan is another option that generally caps your monthly payments at 10% of your discretionary income. This plan is available to all federal student loan borrowers with eligible loans. One unique feature of REPAYE is that if you have any remaining loan balance after 20 years of qualifying payments (for undergraduate studies) or 25 years (for graduate studies), that balance will be forgiven.
- Income-Contingent Repayment (ICR) Plan: Under the ICR plan, your monthly payments are calculated based on your income, family size, and total loan amount. Your payments may be higher than the standard repayment plan, but you have up to 25 years to repay your loans. After 25 years of qualifying payments, any remaining loan balance will be forgiven.
To apply for an IDR plan, you can visit StudentAid.gov/idr and fill out the updated IDR application. You will need to provide information about your income, family size, and loan details. It's important to carefully review the eligibility requirements for each IDR plan to determine which one is the best fit for your financial situation.
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Private lenders
Private student loans are offered by banks and other financial institutions. They are necessary when a student's financial aid package doesn't cover the full cost of their education. Private student loans should only be taken out after federal loan options have been exhausted, as federal loans typically have lower interest rates.
Private student loans are based on your creditworthiness. Your credit history and that of your co-signer will be evaluated, along with other information provided on your application. A co-signer with a good credit score can increase your chances of approval and help you secure a better rate.
There are a variety of private student loan options, and it's important to research which option is best for you. Key information to understand includes the annual and cumulative loan limits, interest rates, fees, and loan terms. Tools are available on student loan comparison sites to help you find loans that match your criteria.
It's worth noting that private student loans may be reported delinquent as early as 30 days without a payment. Banks and private lenders typically charge off private education loans when they become 120 days past due, but charge-off rules vary by lender. A default note will go on your credit report, negatively impacting your credit score. Reliable lenders will want to work with you to help you get out of default, and private lenders may be willing to negotiate a deal.
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Frequently asked questions
The first step is to make the time and space to take stock of where you are. How much student debt do you have? Do you have private student loans, federal loans, or both?
Private student loans may be reported delinquent as early as 30 days without a payment. Federal loans are considered delinquent at day 60. Federal loans (Direct and FFEL) owned by ED are reported delinquent at day 90 of no payment.
An IDR plan can reduce your monthly payment to as low as $0. IDR plans require you to renew your paperwork every year. To be safe, set a reminder for a month early.
The ICR plan has two major benefits: (1) affordable monthly payments based on your income instead of your loan balance, and (2) a loan forgiveness feature after 20 or 25 years, depending on the particulars of your plan.
Do not use credit cards or home equity to pay off student loans. Credit cards will cost you more in interest. If you refinance your loans using home equity and run into trouble paying your mortgage, you could lose your house.
