Managing Student Loans: Repayment Strategies During Tough Times

Consolidation, Income Dependent Repayment and more

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If you’re finding it difficult to squeeze enough out of your budget to make student loan payments each month, maybe it’s time to review the many programs available to help you through the tough times. In a previous article, we talked about deferment and forbearance. Here are several additional programs you might find useful.

Please note that these strategies apply to federally backed or federally issued student loans.

Private student loans are administered by the private financial institutions that issued them. Those lenders are not bound by these programs, and you will need to contact them directly to find out what programs they might have available for borrowers.


If you owe more than one federal student loan, you might consider consolidating them into one new loan. For instance, Federal Family Education Loans (FFEL) can be combined with Direct loans into a new Direct Consolidation loan with a repayment as long as 30 years, depending on the total amount refinanced.

When to consolidate is an important consideration because you can only do it once, although you can add eligible loans later, if necessary.

Income Dependent Repayment

Income Dependent Repayment bases your monthly payment on a formula that takes into account your outstanding balance, your income, and your family size. The formula in effect assumes that making the standard payment on a standard schedule is a financial hardship and it adjusts the payment.

You remain responsible for the interest that accrues. In fact, your payment may be less than the interest amount that accrues each month, which will be capitalized.

There are actually three IDRs:

  • The Income Contingent Repayment Plan (ICR) is available only for Direct Loans:
  • The Income-Based Repayment Plan (IBR) includes Direct Loans, FFEL Loans and Direct Consolidation Loans that do NOT include Parent PLUS Loans. Parent PLUS loans can be included in ICR if they are part of a Direct Consolidation Loan.  
  • The Income-Sensitive Repayment Plan is only available for loans made under the FFEL Program, including FFEL PLUS Loans, FFEL Consolidation Loans, and Stafford Loans.

There are additional differences between IBR and ICR in how the payment amounts are calculated and how unpaid interest is capitalized (added to the principal). Direct Loans are not eligible for this program.

To ensure that your circumstances still warrant a lower payment, you will probably be asked to re-apply or supply your servicer with updated financial information each year. As your circumstances change, your payment may change also.

Besides the lower payment schedule, Income Dependent Repayment also has other perks:

1.    The repayment schedule can extend to 25 years for IBR and ICR. If you still owe a balance at 25 years, the balance will be forgiven.

2.    Even if you would not ordinarily qualify for Income Dependent Repayment on your own based on your personal or family income, you may qualify if you consider any loans that your spouse also owes. This is especially helpful if one spouse is the primary breadwinner and the other spouse is unemployed or works part time. If you and your spouse have loans serviced by different companies, you can still qualify.

You will be required to apply jointly to both companies, and each spouse will authorize the other company to access their student loan information.

Extend Your Payments

You may be able to extend your student loan payments from ten to 25 years without formally consolidating or entering into an Income Dependent Repayment program. Under the Extended Repayment Plan, your monthly payment amount will likely be reduced, but will increase the total amount of interest you will pay over the life of the loan. But that may not matter much to you, although it’s a little like going into the car dealership and saying, “I don’t care how much the car costs. I just don’t want to pay more than $200 per month.”

To qualify to extend your payments, you must have more than $30,000 in outstanding Direct Loans, or more than $30,000 in outstanding FFEL loans.

If you owe less than $30,000 to one, you can still use the Extended Repayment Plan for the other.

Graduated Repayment Plan

Perhaps you don’t really need to extend your payments out to 25 years. You may  be able to take advantage of a plan that will allow you to reduce your payments early in the loan, while you’re not making much money, but increase the payments periodically over the life of the loan when you will presumably be better able to manage higher payments. This program is called, appropriately, the Graduated Repayment Plan. With graduated repayment, you will pay just the interest on your loan for up to four years. Still, you may end up paying more in interest than you would have with a standard repayment schedule.

Pay As You Earn Repayment Plan

If you are a recent graduate or borrower, you may qualify for the Pay As You Earn Plan. Under the Pay As You Earn Plan, you will reduce your Direct or Direct Consolidation loans to a maximum of 10 percent of discretionary income. Your payments change as your income changes, and you can participate for up to 20 years, after which any outstanding balance will be forgiven.

The catch? You must be a new borrower on or after Oct. 1, 2007, and you must have received a disbursement of a Direct Loan on or after Oct. 1, 2011.

For lots more information on managing your student loans during difficult financial times, see our articles on the following issues:

General Issues

What Kind of Loans Do You Have?

Your Options for Managing Student Loans in a Nutshell

Glossary of Helpful Student Loan Terms

When You Can't Make Your Payments

Delinquency and Default

Deferment and Forbearance

Repayment Strategies During Tough Times

Surviving a Student Loan Default

Dealing with Student Loan Collectors

Managing Private Loans

Loan Forgiveness

Loan Forgiveness for School Status

Loan Forgiveness for Disability or Death

Public Service Loan Forgiveness

Student Loans in Bankruptcy

Bankruptcy Discharge

Discharging Private Loans

Using Chapter 13 Repayment Plans