Student loans tend to stick around years and even decades after graduation. If your financial situation changes, then you may want to consider an income driven repayment plan at some point.

Woman sitting along window on laptop, feet propped up, with text overlay "how to lower your student loan payment"Continuing to make both student loan payments as well as fund your life goals − starting a family, saving for a down payment, starting a business − is easy when your income growth resembles the steep incline of Mt. Everest's North Face.

But how about sustaining that monthly payment plus fulfilling your life goals with an income progression that more closely resembles the shallow, up-and-down edges of a saw blade?

While making payments to my own student loans, I bobbed between a $40,000 salary to a post-layoff, $35,000 salary. After building back up to $43,000, I suffered another layoff and had to take a $36,000/year position I was darn lucky to snag from a 28-job application rally.

Yet my student loan bill remained the same.

Turns out that my 20-something self, you, and anyone else looking to tie their monthly payment amount with their uncertain and evolving life situation has another option.

Student loans tend to stick around years and even decades after graduation Click To Tweet

What are Income-Driven Repayment Plans?

Upon graduation, your federal student loans are automatically placed in a 10-year standard repayment plan through your loan service provider. While this guarantees you'll pay your loans off in 10 years − with consistent payments − it also locks you into a bill amount without considering your income or cash flow needs.

Under one of the four types of income-driven repayment plans, your monthly payment is calculated based on your income, family size, and state of residence instead of on a 10-year time-frame.

But it gets even sweeter than just lowering your monthly payment.

A repayment plan tied to your financial capabilities has perks

While each of the four plans look different, they offer the following same perks:

  • Will not ding your credit score: Paying a reduced monthly payment is no concern to the credit bureaus.
  • You can get your payment changed in a pinch: You have to recertify annually for one of these programs. If you happen to suffer from a financial change, like losing your job, then you can submit an application for a payment recalculation early.
  • Built-in student loan forgiveness: Each of the plans comes with a repayment period of between 20 or 25 years. After that? Your remaining balance is forgiven.
  • Financial Hardship Deferment won't extend the repayment period: The months you're in an economic hardship deferment (should you need to be) generally count as qualifying months towards the 20-25 year repayment period on income-driven repayment plans.

Given all of these benefits, you'd think that signing up for one of these plans is the sure way to move forward.

Soooo….

Why wouldn't you sign up for an Income-Driven Repayment Plan?

There are potential financial consequences and other headaches with these programs. Consider that:

  • Private student loans don't count: This is a federal student loan program only. Other loans that don't count? Federal loans in default, Parent PLUS loans, or privately consolidated federal loans.
  • You'll likely pay lots of extra interest: Extending any type of loan to get a more manageable monthly payment means you're increasing the overall amount of interest.
  • Your career field could make a difference: A big perk to these plans is getting the remaining chunk of student loans forgiven at the end of the repayment period. If you're on a career path that tends to offer that Mt. Everest-type income progression, then you could end up paying off your loans ahead of schedule due to increasing monthly payments over the years.
  • Loan forgiveness could equal a large tax bill: Any loans forgiven in the end of the repayment period typically result in a tax bill because the IRS views forgiven debt as income.
  • Your payment will change: You must recertify your repayment plan annually, which could change your monthly payment amount.
  • Lots of different loan servicers equals lots of different applications: Do you have lots of loans you want on an income-driven repayment plan? Unfortunately, you'll be sending different applications to each loan service provider separately.

5 Alternatives to Income Driven Repayment Plans

Did you know that there are strategies out there to get your student loans paid off for you?

I'm talking about how to save money on your student loans after you actually rack them up (because you're likely past the trying-to-get-scholarships-and-grants phase, and in the oh-crap-look-at-all-these-loans phase).

Qualifying for these programs takes varying amounts of commitments from you, but if you see something that you are interested in, or that describes your current financial state of affairs, then you just might want to apply.

Who knows…these could be your smartest way to pay off student loans.

Did you know that there are strategies out there to get your student loans paid off for you? Click To Tweet

#1: Get Your Employer to Pay Off Your Federal or Private Student Loans

Some employers offer student loan payback programs – talk about alternative ways to pay off student loan debt! It's through something called loan repayment assistance programs (LRAPs), which some employers in non-profit, for-profit, and government agencies offer. Rather than pay your loans directly, an LRAP provides money for you to put toward your loan payments.

An example from the U.S. Office of Personnel Management for government jobs, “Although the student loan is not forgiven, agencies may make payments to the loan holder of up to a maximum of $10,000 for an employee in a calendar year and a total of not more than $60,000 for any one employee.”

Bonus: This program is particularly useful for someone with private student loans, because some of the other programs don't offer assistance with those.

Also, beware that this could come in the form of a taxable benefit to you, especially if it's through a private employer. So be sure to ask if you are offered this benefit!

#2: Get Your Federal Direct Student Loans Forgiven in Exchange for Your Service

Are you into living like a college student − lower income level, high desire for experience, and able/willing to travel − for awhile? (Especially if you'll get free money to pay off student loans)?

I once daydreamed about putzing around the world as my job (aka, the Peace Corps). While it didn't pan out for me, that doesn't mean it's not a good option for you, particularly if you fit the description above and are in need of student loan forgiveness. And it doesn't end with the Peace Corps; there's AmeriCorps, and many other types of positions you could have that fall under the Public Service Loan Forgiveness (PSLF) Program. You need to work for a qualifying employer full-time as well as make on-time payments under a qualifying repayment plan for 120 months in order to have your loans forgiven this way.

#3: Get Random Companies to Pay towards Your Loans

You probably know by now that UPromise allows you to save up for someone's college education by companies contributing a percentage of your transaction money into an account that you can then roll into a 529(k) for someone (and if you didn't know that, then you might want to sign up! I've got close to $200 saved for my niece this way without spending a dime more than I would have anyway).

But did you also know that you can create a UPromise account and make your Sallie Mae loans the beneficiary to free money earned? It's through the UPromise Loan Link program. All you have to do is, after creating your UPromise account, link it to your Sallie Mae Loan account. This will help towards how to pay off student loans (the private ones as well!)

#4: Get Your Federal Perkins Loans Cancelled in Exchange for Choosing a Particular Job

There are some types of careers where you can get your Federal Perkins Loans cancelled altogether after a certain number of years. Professions include things like firefighter, nurse, medical technician, and lots more very specific niches (such as “Full-time employee of a public or nonprofit child- or family-services agency providing services to high-risk children and their families from low-income communities”).

#5: Get Federal Student Loans Forgiven Due to Low Income

Do you struggle paying your monthly federal student loan payments because you simply don't earn enough money (not because of an untamed shopping habit)? Then an Income-Based Repayment program with an end date for loan forgiveness might be the ticket. Go to Studentloans.gov for more information and to apply to any of these programs: the Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), or Income-Contingent Repayment (ICR) plans.

Do any of these programs appeal to you? Would they make you change your current career choices in order to pay down a huge load of student loan debt? I'd love to hear more about your situation in the comments below.

It's decision-making time

Let me take you plus your loans through this decision so that you can walk away knowing you've chosen the best option.

Step #1: See if you qualify

It's best to see all the options you have to consider. Plug your numbers into this repayment plan calculator (go ahead, I'll wait) to see if you qualify.

Write your new estimated monthly payment down, then move onto the next step.

Step #2: Consider your alternatives

Desperate to decrease your monthly student loan bill but wary of the terms above? You'll want to look into the following four alternatives:

  • Student loan refinancing: Do you have private student loans or a mixture of private and federal loans? Refinancing them may be your best option. Research available interest rates to see how a refinance would impact your monthly payment. You'll need to consider what protections you'd give up by refinancing any federal loans into a private loan.
  • Student loan consolidation: Consolidating your federal and/or private student loans may result in a lower monthly payment for you as well. However, that could be due to longer repayment terms, which generally leads to larger interest payments. Again, beware of losing any federal loan protections when consolidating federal loans with a private loan.
  • Request a Deferment: Perhaps you're just in a short-term financial situation that should fix itself. Instead of signing up for an income-driven repayment plan, temporarily “pausing” your student loan bills might work for you. Make sure you understand whether or not your loans are subsidized or unsubsidized, and how this may result in a higher interest tab.
  • Request a Forbearance: You'll be charged interest during forbearance whether your loans are subsidized or not (hint: paying that interest during the forbearance period will help lower your overall interest bill).

Step #3: Compare the numbers between options

You've read over each of your options plus the pros and cons they come with. Your final consideration should be the cold, hard numbers: which option will give you the lowest monthly payment?

Note: answer the following questions, with the help of these Student Loan Hero calculators.

Three questions to answer:

  1. Which option will save me the most money each month?
  2. What's the estimated extra interest I will pay over the life of the loan because of that option?
  3. Is that amount of monthly savings worth the extra interest I'll have to pay?

Step #4: Apply to the option you've chosen

Depending on which option you chose, here's how you can apply:

Income-driven repayment plans may or may not be for you today. So you'll want to bookmark this page under a “financial tools” favorites folder in case you need help opening up cash flow in the future. And if you don't qualify for a plan, keep in mind that you may as circumstances change. For example, in the span of a year when my income went from $40,000 down to $35,000 I didn't qualify in the beginning, but I did qualify by the time the New Year's ball dropped.

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Amanda L. Grossman is a Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 10 years, her money work helping people with how to save money and how to manage money has been featured in Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here.
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