Millions of Americans (44 million, to be exact) are tackling student debt right now, one payment at a time.
Many have been dealing with monthly student loan payments for years, so long they’ve become a bill as normal as any other. Send in the monthly payment, check it off, onto the next one.
But even the most financially stable of people can find themselves struck by hard financial times and unforeseen circumstances, whether it’s unemployment, underemployment (although unemployment is on the decline, underemployment is still over 12%), medical bills, or emergency expenses.
Suddenly, routine payments feel oppressive and student loan debt becomes completely unmanageable.
Luckily, it is possible to reduce your monthly payment. While it’s wise to pay off debt as quickly as possible, it’s also not always the best option for your current circumstances.
If you have more pressing debt (read: debt with a higher interest rate) to attend to than your student loan debt, or simply can no longer afford your monthly payments as they are, consider switching to a different repayment plan. Paying less is always better than just not paying your student loans at all.
The Student Debt Challenge
Earlier in 2016, the White House announced the Student Debt Challenge, an initiative to educate people about their repayment plans and give those who are having difficulty repaying their loans more affordable options.
The challenge was created, in part, to bring down the high default rates on student loans, which hit almost 15% in 2010. Now, the default rate has been brought down to just over 11% thanks to more manageable repayment options for the 5 million Americans who have switched to one of the income-driven repayment plans, according to the White House.
Income-driven repayment plans are student loan repayment plans with payments that are calculated based on a percentage of your income. Sometimes, they can come all the way down to $0 in times of economic hardship. If you really can’t afford to make any student loan payments, consider other options such as forbearance or deferment.
These income-driven repayment plans also often allow for student debt to be completely forgiven after 20 years of on-time payments. For many public servants, teachers, nursing, non-profit, and government employees, their loans are forgiven after only 10 years of on-time payments.
It’s important to note that your loans cannot be in default for any of these plans, otherwise you do not qualify.
The three major income-driven repayment plans are: the Pay-As-You-Earn plan (PAYE), the Revised Pay-As-You-Earn plan (REPAYE), and income-based repayment (IBR). They have many similarities, but here are the key differences between the three.