If you're struggling to make your student loan payments and haven't looked into alternative repayment options for federal education loans, don't wait any longer. According to a 2013 report from the Consumer Financial Protection Bureau (CFPB), 33 million workers -- or nearly a quarter of the American workforce -- may qualify for student loan forgiveness because of the types of jobs they have today.
Yet the vast majority of borrowers don't take advantage of the programs because they're too hard to figure out, says the CFPB.
"The problem is that almost 90 percent of the public, the majority of the news media and even most members of Congress are unaware of the desirable provisions that come with (federally funded student loans)," says Jack Schacht, president and founder of My College Planning Team.
Not all of the repayment options below offer loan forgiveness -- though two of them do -- but they all offer options for managing your student loan repayments more effectively.
1. Pay as you earn repayment (PAYER) plan
PAYER is the newest of two attractive income-dependent repayment options (the second is below).
"Most borrowers choose either PAYER (if eligible) or Income-based repayment (IBR), since they offer the lowest monthly payments," says Mark Kantrowitz, senior vice president & publisher of Edvisors Network Inc. and author of "Filing the FASFA."
The program bases monthly payments on 10 percent of discretionary income (defined as adjusted gross income minus 150 percent of the poverty line). "Regardless of the size of the debt, the payments remain the same," says Schacht. "Monthly payments on an $80,000 debt are the same as they are on a $30,000 debt."
If you work in a qualifying nonprofit, education or government job and make all payments on time, you can have your remaining balance forgiven at the end of 10 years. If your career path is for-profit, balances can be forgiven after 20 years.
This program is available for Direct Loan borrowers with loans made since Oct. 1, 2011 and other types of loans made after Oct. 1, 2007. (Note: PLUS Loans made to parents are not eligible.)
2. Income-based repayment (IBR) plan
For those who don't qualify for PAYER, IBR bases monthly payments on 15 percent of discretionary income (adjusted gross income minus 150% of the poverty line). The plan is available to both Direct Loan and FFEL borrowers, depending on the lender, and and bases monthly payments on 15 percent of discretionary income, says Kantrowitz.
Remaining debt can be forgiven after 25 years of repayment.
3. Graduated repayment plan
This plan benefits medical school graduates and other professionals in careers that start with low incomes that increase steadily over time.
"Payments start off low, at or slightly above the new interest that accrues, and are increased every two years," says Kantrowitz. "No payment will be more than three times the first payment."
If loans are consolidated, the loan term can be extended up to 30 years. All federal student loans are eligible and there is no forgiveness provision.
4. Extended repayment plans
Under the standard plan, payments are fixed for a 10-year term, but an extended plan can lengthen the loan repayment period to 20, 25 or 30 years, depending on the size of the balance and whether the loans have been consolidated.
If you suspect you might benefit from an extended repayment plan, check out the Department of Education's Repayment Estimator to find the option that's best for you.
Tips for paying student loans more effectively
To pay your loans as quickly and painlessly as possible, Kantrowitz offers this additional advice:
- Choose the shortest repayment term you can afford, so you pay off your debt as rapidly as possible
- Add a note to your calendar about when each loan enters repayment so you don't miss a payment
- Sign up for auto-debit so your monthly payments are automatically transferred from your checking account (many lenders offers a slight interest rate reduction as an incentive)
- Deduct any qualifying student loan interest on your federal income tax return (and save a few bucks)
- If you can pay extra, apply the additional amount as a prepayment toward your loan with the highest interest rate (this will save you the most money). There are no prepayment penalties for student loans (this is true for federal and private debt).
Finally, if you're at risk for default, Kantrowitz suggests talking to your lender before you miss a payment. "There are options you lose if you default, such as deferments, forbearances and alternate repayment plans," he says. Although missing a payment may provide some short-term relief, losing those options can make it harder to pay off your debt in the long-run.