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Lower Your Student Loan Bill in 3 Steps

Jan. 7, 2016
Loans, Student Loans
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“Paying back your student loans will be easy and fun,” said no one ever.

It shouldn’t be such a struggle that you have to skip your payments, though. Federal student loans come with income-driven repayment plans, which make loan bills affordable if you’re between jobs or have a lot of debt compared with your earnings.

The first hurdle for many borrowers is knowing that income-driven repayment is available to them. Once you decide to apply, fill out one form on annually, and you’ll never pay more than you can manage. Here’s how.

1. Evaluate income-driven repayment options

While fewer grads are signed up for income-driven repayment plans than are eligible, that’s changing. Twenty-four percent of borrowers with federal direct loans who are repaying their debt are doing so on an income-driven plan, according to a November 2016 U.S. Government Accountability Office report.

Those who sign up have the advantage of paying less and having their loans forgiven. The federal government offers four income-driven options:

For a breakdown of the number of borrowers on each type of plan, check out NerdWallet’s student loan debt statistics page.

Income-based repayment and PAYE restrict eligibility based on your income or the year you took out your loans. Income-contingent repayment doesn’t offer big savings.

REPAYE, however, is a new plan that extends the most generous repayment benefits to all federal direct loan borrowers. It caps your monthly payments at 10% of your discretionary income, and your remaining undergraduate loans will be forgiven after 20 years (25 years if you have any graduate school loans).

“The REPAYE plan specifically, at 10% — it’s pretty hard to beat that,” Hanlon says.

2. Apply online for an income-driven plan

Applying for an income-driven repayment plan takes about 30 minutes, so you can do it online in one sitting. You don’t even need to know the specifics of each plan to sign up. The Income-Driven Repayment Plan Request Form gives you the option to let your student loan servicer choose the best plan for you.

  • Log in to with your Federal Student Aid ID. Create an FSA ID if you haven’t already.
  • Click on “Complete Income-Driven Repayment Plan Request,” then pick “Start Application.”
  • Choose one of the four repayment plans, or check “I want my loan holder to place me on the plan with the lowest monthly payment.”
  • Enter your family size and income information, plus your spouse’s income if you’re married. Note: There are differences in the way some plans determine loan payments based on married borrowers’ incomes. REPAYE, for example, includes your spouse’s income in the calculation even if you file separate tax returns.
  • Review the form, sign it and submit it electronically. You can also mail the form to your student loan servicer, but it may take longer to process.

3. Renew every year

You can’t “set it and forget it” when you sign up for an income-driven repayment plan. Fill out the Income-Driven Repayment Plan Request Form every year so your servicer can recalculate your payment based on any changes to your income. You can transfer information from your IRS tax return to the form.

It’s crucial to fill out the form within 10 days of the deadline from your loan servicer. Under some plans, if you apply late, the interest that’s accumulated will be added to your balance and the amount due will jump to whatever you would owe on the 10-year standard repayment plan. That could mean a huge sudden increase in your bill.

If your income drops and you want to pay less sooner, you can submit the form early. The key is that in just one 30-minute session, you’ll secure affordable loan payments for a whole year, and you’ll be one of the growing number of grads taking advantage of the relief income-driven repayment offers.

Learn more about student loan repayment

This article was written by NerdWallet and was originally published at USA Today.

Brianna McGurran is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter:@briannamcscribe.

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