How to Change Your Student Loan Plan If You Can’t Afford Payments

Federal student loan borrowers are automatically assigned the 10-year standard repayment plan, unless they actively choose a different plan. But the standard repayment plan doesn’t always make sense for everyone. This is especially true for borrowers who are struggling to make payments or for those that could benefit more from pursuing loan forgiveness.

The good news is that you can switch repayment plans at any time for free. And it’s a fairly simple process.

Here’s how to change your student loan plan if you can’t afford your student loan payments.

Step 1: Explore your repayment options

There are a variety of alternative repayment plans to choose from, including graduated repayment, extended repayment and several income-driven repayment (IDR) plans.

IDR plans offer the most flexibility by providing a more manageable monthly payment based on your current financial situation. In some cases, you might even qualify for a monthly payment as low as $0.

Available IDR plans include:

• Revised Pay As You Earn (REPAYE). Monthly payments are based on 10% of your discretionary income.

• Income-Based Repayment (IBR). Monthly payments are based on 10% or 15% of your discretionary income, depending on when you received your first loans.

• Income-Contingent Repayment (ICR). This plan is based on 20% of your discretionary income (or on a fixed amount over 12 years, adjusted according to your income).

• Pay As You Earn (PAYE). Monthly payments are based on 10% of your discretionary income.

Additionally, IDR plans can open the door to loan forgiveness after 20 to 25 years of qualifying payments, or through Public Service Loan Forgiveness (PSLF) for eligible borrowers.

Step 2: Contact your loan servicer

If you’re interested in changing your student loan plan to a more affordable repayment plan, start by reaching out to your loan servicer. They can crunch numbers and provide you with an estimated monthly payment based on your most current finances.

But if you already know what plan you’d like to switch to, you can initiate the process on your own online without directly contacting your servicer.

Step 3: Complete the IDR application

Start by logging into your StudentAid.gov account and begin the IDR plan request process, which can be completed in about 10 minutes.

You’ll need to provide personal details related to your employment and family size. And then provide income information to determine your eligibility and to calculate your monthly payment under an IDR plan.

You can opt to use the IRS Data Retrieval Tool that is linked within the process. You can also choose to provide additional documentation if your income is lower than what’s listed on your most recent tax return.

You’ll have the chance to review the estimated monthly payments under each available repayment plan. But keep in mind that your loan servicer will ultimately evaluate and determine your eligibility and payment amount.

Once you indicate which plan you’d like (or direct your loan servicer to choose the plan with the lowest monthly payment), you’ll enter any remaining personal information including your permanent address, email address, phone number and the best time to reach you.

Finally, you’ll be prompted to review all entered information, certify, and sign your IDR application.

If you’re married and file a joint tax return, your spouse is also required to sign your IDR application and provide their own income documentation.

However, if you file separate returns, your loan servicer will only consider your own income when applying for PAYE, IBR or ICR plans. But, your spouse’s income is still considered, regardless of how you file when applying for the REPAYE plan.

Step 4: Submit supporting income documentation

If you choose to use additional income information instead of your tax return, you’ll be provided with instructions to submit documentation to your loan servicer.

This typically includes uploading documentation to your student loan account via your loan servicer’s secure portal. But each loan servicer has its own procedures.

Your loan servicer will also let you know which forms of income documentation are acceptable. This generally consists of recent pay stubs or a letter from your employer (or yourself if you’re self-employed) detailing your gross pay.

If you have extenuating circumstances, you can attach a signed statement explaining each source of taxable income (e.g. wages, unemployment income, tips, etc.).

Any submitted supporting income documentation must not be older than 90 days from the date you sign the form.

Step 5: Continue making payments until your new repayment plan is approved

It might take your loan servicer several weeks to process your request to change your student loan repayment plan. So, your loan servicer might apply a temporary forbearance to your student loan account during the processing period.

But if not, you’ll need to continue making payments as scheduled until you get an official notice that your new repayment plan is approved.

Step 6: Recertify your income annually

Once you’ve switched to an IDR plan, you’ll need to recertify your income and family size each year since these factors can change your monthly payment.

You’ll receive notifications from your loan servicer prior to your recertification date, which is 12 months after you start or renew your IDR plan.

The recertification process will be similar to your initial IDR application, so plan to submit a new request and income documentation each year.

Can private student loan borrowers change repayment plans?

Unfortunately, borrowers with private student loans have very limited repayment options.

Depending on your lender, you might have access to relief options (e.g. forbearance) if you’re experiencing financial hardship. But these types of benefits and protections aren’t common among private student loan lenders.

The best way to lower your monthly payment for private student loans is to shop around for student loan refinancing offers.

Refinancing can provide you with a lower interest rate, reduce your monthly payment or improve your loan terms. And you can refinance as many times as you want. I recommend checking for a better deal at least every six months.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes