What to Do If You Don’t Qualify for Student Loan Forgiveness

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By Mark Kantrowitz

June 22, 2020

What should a borrower do if they have a large loan balance but they don’t qualify for student loan forgiveness? Options include income-driven repayment, extended repayment and graduated repayment. 

Most federal student loans can qualify for an income-driven repayment plan. 

  • Federal student loans in the Federal Family Education Loan Program (FFELP) are eligible for income-based repayment. 
  • Federal student loans in the Direct Loan program are eligible for income-contingent repayment (ICR), income-based repayment (IBR), pay-as-you-earn repayment (PAYE) and revised pay-as-you-earn repayment (REPAYE).
  • Federal Parent PLUS Loans are not directly eligible for an income-driven repayment plan, but will become eligible for income-contingent repayment if included in a Federal Direct Consolidation Loan. Federal Parent PLUS Loans may also be eligible for alternative repayment plans, which include a repayment plan that is similar to income-driven repayment, if the borrower has exceptional circumstances and none of the other repayment plans are suitable. 
  • Federal Perkins Loans are not directly eligible for an income-driven repayment plan, but will become eligible for any of the income-driven repayment plans if included in a Federal Direct Consolidation Loan. 

Other Repayment Options

If a federal loan is not eligible for income-driven repayment or the borrower is not interested in income-driven repayment, there are two repayment plans that offer lower monthly loan payments.

  • Extended repayment will usually give you the lowest monthly payment. Extended repayment reduces the monthly payment by stretching out the loan term. 
  • Graduated repayment starts off with low payments that are barely above interest-only, and increases the monthly loan payments every two years. No payment can be more than three times greater than the lowest monthly payment. 

Reducing the monthly loan payment will increase the total interest over the life of the loan. Borrowers should choose the repayment plan with the highest monthly payment they can afford to reduce the total interest paid. 

Private Student Loans

Most private student loans are not eligible for loan forgiveness or income-driven repayment plans. Lenders may be unwilling to increase the repayment term on a fixed-rate loan, since that increases the lender’s cost of funds. They may be more willing to increase the repayment term on a variable rate loan, since the interest rate increases as the lender’s cost increases. 

Another way to get a different repayment term is to refinance the private student loan into another loan. Refinancing high-interest student loans into a new loan with a lower interest rate could save you money overall. Depending on what payment term you choose, you could potentially lower your monthly payment. 

Keep in mind the pros and cons of student loan refinancing. Refinancing federal student loans means a loss in many benefits – income-based repayments, potential loan forgiveness, and generous deferment options. 

If you decide refinancing private student loans is for you, Credible is a great tool for comparing multiple lenders at once. 

The ChangEd app helps student loan borrowers pay down their debt faster. Link your credit and debit cards and with every purchase you make, the total is rounded up, and that “spare change” is added to your student loans. You can also earn points for potential free payments. Read our review to learn more.

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