Lori Meadows
Federal student loans are financed by the American people, and as of 2024, 42.7 million borrowers owe more than $1.6 trillion in student debt. With such a large amount of debt, it is important to know how to manage and repay federal student loans. There are several options for repayment, including income-driven repayment plans, loan rehabilitation, consolidation, deferment, and forbearance. It is important to act quickly to avoid consequences such as wage garnishment and collections fees. This paragraph introduces the topic of repaying federal student loans and provides an overview of the key considerations and options available to borrowers.
| Characteristics | Values |
|---|---|
| Number of borrowers in default | 5 million |
| Number of borrowers in repayment | 38% |
| Number of borrowers | 42.7 million |
| Amount owed by borrowers | $1.6 trillion |
| Options for repayment | Rehabilitation, Consolidation, Income-Driven Repayment (IDR), Public Service Loan Forgiveness |
| Types of pauses | Deferment, Forbearance |
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What You'll Learn
Loan rehabilitation
The first step in loan rehabilitation is to contact your federal student loan holder, which may be the Default Resolution Group or another company, depending on your loans and how long they have been in default. You can log in to your studentaid.gov account to find out who to contact. You will then need to send a copy of your most recent tax return or tax transcript to the Education Department, which will determine your monthly payments and send you a rehabilitation agreement.
Rehabilitation payments must be "reasonable," typically meaning 10% or 15% of your discretionary income, depending on when you took out the loans. However, if this amount is not affordable for you, you can request an alternative payment based on your overall finances. These alternative payments can be as small as $5 per month.
After successfully completing the rehabilitation process, your loan will usually be assigned to a new federal student loan servicer, and your loans will return to good standing. Collection activities will stop, and you will regain access to federal student aid and repayment options, such as income-driven repayment plans. It is important to have a strategy to afford your payments post-rehabilitation to avoid re-defaulting on your debt.
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Consolidation
Federal Consolidation Loan Programs are designed to help individuals manage their federal student loan debt. This program allows borrowers to consolidate all or some of their outstanding education loans into a single, new loan with one monthly payment. This is especially helpful for those with high monthly payments or multiple lenders and loan types.
To qualify for a Federal Consolidation Loan, borrowers must have at least two federal student loans and be in the grace period or already making repayments. It is important to note that consolidating loans during the grace period will result in losing any remaining grace period. Additionally, borrowers should consider the potential loss of benefits associated with certain loans, such as interest rate discounts and principal rebates, and discharge/forgiveness benefits. Once a consolidation loan is made, it cannot be undone.
The interest rate for a consolidation loan is fixed for the life of the loan and is calculated as the weighted average of the interest rates of the loans being consolidated, rounded up to the nearest 1/8th percent, or 8.25 percent, whichever is less. This fixed interest rate provides stability, but it is important to be mindful of potential federal interest rate increases, which may result in higher overall repayment costs.
Repayment terms for consolidation loans typically range from 10 to 30 years, depending on the cumulative debt. While consolidation can provide lower monthly payments and extended repayment periods, it may also result in increased finance charges over the lifetime of the loan. Additionally, consolidation loans have fewer deferment, cancellation, and forgiveness options compared to some original student loans.
In conclusion, loan consolidation can offer borrowers the benefit of simplified repayment with a single lender and lower monthly payments. However, it is important to carefully consider the potential advantages and disadvantages, including extended repayment periods and the potential loss of certain benefits associated with specific loan types.
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Loan forgiveness
Federal student loans are financed by the American people. As of August 2025, 42.7 million borrowers owe more than $1.6 trillion in student debt. Over 5 million borrowers have not made a monthly payment in over 360 days and are in default.
The US Department of Education offers several options for borrowers to repay their federal student loans. These include:
- Income-Based Repayment (IBR) plans: These plans are designed to make student loan payments more affordable by capping monthly payments at a certain percentage of the borrower's discretionary income. After a set period, typically 20 or 25 years, any remaining debt is cancelled.
- Public Service Loan Forgiveness (PSLF): This program offers loan forgiveness for borrowers who work full-time for the government or a not-for-profit organisation.
- Teacher Education Assistance for College and Higher Education (TEACH) Grant: If you teach full time for five complete and consecutive academic years in certain schools that serve low-income families, you may be eligible for forgiveness of up to $17,500.
- Total and Permanent Disability (TPD) Discharge: Borrowers with a physical or mental disability that severely limits their ability to work may be eligible for a TPD discharge, which means they don't have to repay their federal student loans.
- Closed School Discharge: If your school closes while you're enrolled or soon after you withdraw, you may be eligible for a discharge of your federal student loan if you meet certain requirements.
It's important to note that there have been recent setbacks in student loan forgiveness, with the Trump administration pausing debt cancellation for borrowers enrolled in the IBR plan. However, lawmakers have been urging the resumption of loan discharges, and borrowers can explore other options for loan forgiveness or repayment plans in the meantime.
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Payment pauses
Federal student loan repayments were paused for over three years due to the Covid-19 pandemic. However, this pause was set to end in 2023, with interest accruing from September 1 and payments resuming in October. The US Department of Education informed borrowers at least 21 days before payments restarted.
During the pause, the Education Department stopped debt collection from borrowers in default. This collection will resume unless borrowers claim a Fresh Start, a one-time opportunity to start making payments again as if they had never defaulted. The Fresh Start program allows borrowers who defaulted on federal direct, FFEL, or federally held Perkins loans to restore their good standing in 10 minutes or less.
Borrowers who signed up for auto-pay or continued making payments during the shutdown don't need to update their billing information. However, borrowers who had their loans serviced by Navient, the Pennsylvania Higher Education Assistance Agency, Granite State Management and Resources, or Great Lakes Higher Education Corp. will have a different company and online portal for their loans. Some borrowers will have to create new online accounts, while others will only need to follow the instructions provided by their new servicers.
To prepare for the resumption of payments, borrowers can enrol in income-driven plans to avoid high initial payments. They can also log in to their accounts on their loan servicer's website to check how much they owe and how much they will be expected to pay each month. Additionally, borrowers can refer to the Department of Ed's website to find out where their loans are, as many loans changed servicers during the pause.
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Income-driven repayment plans
Federal student loan borrowers can apply for Income-Driven Repayment (IDR) plans, which are designed to make monthly payments more affordable. IDR plans include Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR). Under these plans, monthly payments are calculated based on income, family size, and other factors. In some cases, payments can be as low as $0 per month.
IDR plans can be a good option for those struggling to make their monthly payments, as they can provide much-needed financial relief. Additionally, contributions to a 401(k) plan can decrease the payment amount on IDR plans, offering further financial flexibility. However, it's important to note that IDR plans may not be the best option for everyone, as they can extend the repayment period and result in paying more interest over time.
To apply for an IDR plan, borrowers can visit StudentAid.gov/idr, where they can access the updated IDR application. It is recommended to use the Education Department's Loan Simulator to choose the right plan, as there are several options available, each with its own pros and cons. By reviewing these options and seeking advice from the Consumer Financial Protection Bureau, borrowers can make informed decisions about their federal student loan repayment journey.
It is worth noting that IDR plans have been subject to legal changes. In February 2023, the U.S. Department of Education was prevented from implementing the Biden Administration's SAVE Plan and parts of other IDR plans due to an injunction by the 8th Circuit Court of Appeals. As a result, the online IDR application was temporarily unavailable, but it has since been revised and reopened for borrowers.
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Frequently asked questions
There are a few options available to you. You can request a pause in payments, which can come in the form of deferment or forbearance. Alternatively, you can look into loan rehabilitation, which can remove the default note from your credit report. If you are in the military or work for a government or nonprofit organization, you may also be eligible for public service loan forgiveness.
With deferment, you may be able to avoid paying interest during the pause period, but with forbearance, interest will continue to compound.
You can use the Education Department's Loan Simulator to compare plans and check if you qualify for student loan forgiveness.
