Income-driven repayment plans allow student loan borrowers to make monthly payments based on their income and family size, as opposed to the amount they owe. However, this benefit is available only for federal student loans. Most private student loans do not offer income-based repayment options.
Why Don’t Private Student Loans Offer Income-Based Repayment?
The option to make student loan payments based on your income could be very appealing to borrowers who are struggling with large monthly payments. But, income-driven repayment plans can lead to borrowers not repaying their debt in full or taking longer to repay their loans.
Private student loan lenders are unwilling to offer income-driven repayment plans because they increase the lender’s costs. This is also why lenders are often resistant to other forms of loan modification.
Income-driven repayment is one of the benefits that are available to federal student loan borrowers, but not to private loan borrowers. Other perks that are available with federal loans and not private, include:
- an option to have student loans forgiven
- more generous options for pausing payments if you lose your job or experience an economic hardship
- subsidized loans, where interest is paid during times of deferment
Options for Lowering Payments for Private Student Loans
Call your lender and ask about repayment options. Some lenders offer flexible payment terms. You could possibly extend your repayment term, which would lower your monthly payment. This would also mean you’ll pay more in interest overall and have your debt hanging around for that much longer.
Consider refinancing. Depending on the new interest rate and the new loan term, refinancing your private student loans could lower your monthly loan payment. Refinancing a student loan means you are taking out a completely new loan with a new lender. This comes with new terms and a new interest rate. A lower interest rate will help you save money.
If you’re refinancing a private student loan in hopes of getting a lower monthly payment, shop around to see which lenders can offer this. You may want to also consider which lenders offer options for pausing payments if you lose your job or experience economic hardship.
Consider the pros and cons of refinancing. Think twice about refinancing any federal student loan debt you have, since you’ll lose the option for loan forgiveness, income-based repayment, generous deferments, and the chance at widespread loan forgiveness.
Ask your lender about deferment and forbearance options. If you are struggling to make payments, you could ask your lender about options to temporarily pause payments. Some private lenders offer you a chance to defer payments due to a job loss, medical condition or other financial hardship. You may be asked to submit proof of this. Keep in mind, unlike subsidized federal loans, interest will continue to accrue.
Use our Cost of Deferment Calculator to evaluates the impact of interest capitalization at the end of a deferment or forbearance on the monthly loan payment and the cost of the loan, assuming that the loan payments are re-amortized after the deferment or forbearance.
Have other people pay your student loans. It may sound too good to be true, but there are ways other people can pay your student loans. Many loan forgiveness options, such as Public Service Loan Forgiveness, are limited to federal loans. But it is possible.