If you're having trouble making payments on your federal student loans, you can change your repayment plan as many times as you need to get a payment you can afford. Plus, you can switch plans at any time. Some private student loan lenders offer similar payment flexibility — at least temporarily. Contact your servicer or check your promissory note to discover the options you have to lower your monthly payments.
It makes sense to change plans if you need a lower monthly payment or want to qualify for loan forgiveness after 20-25 years of payments. But if you want to get rid of the interest that's accrued on your loans, switching plans won't help. It could make things worse. Changing plans can capitalize unpaid interest, increasing the amount you owe.*
Keep reading to learn how to change repayment plans, when switching plans is right for you, and other ways to lower your student loan bill.
* The Education Department has proposed to end interest capitalization at the end of a deferment or forbearance or when you default. But the proposed rules changes won't stop accrued interest from being added to your original loan balance when you move from one repayment plan to another. That type of change will require federal lawmakers to pass a new law.
How to change your student loan repayment plans
Switching your repayment plan is easy, and you can do it for free. Just follow these steps:
- Find out what type of loans you have. Use the Federal Student Aid website, studentaid.gov, to see what kind of loans you have. If you have Parent PLUS Loans, Federal Perkins Loans, or loans made under the Federal Family Education Loan Program, you'll need to consolidate your loans into a Direct Consolidation to qualify for the best repayment options and the latest forgiveness programs. Read more about consolidation and student loan forgiveness.
- Estimate your monthly payments. You can use the Education Department's Loan Simulator to figure out how much your monthly payments would be under different repayment plans based on your adjusted gross income and family size. You'll also be able to see how your payments will change over time and the amount of interest that will be added to your balance during the loan term.
- Complete the paperwork. You'll need to complete a request form to switch to an income-driven repayment plan like IBR or REPAYE. You can apply online at studentaid.gov or submit a paper application to your servicer.
- Follow-up with your servicer. Changing repayment plans can take a few weeks. Make sure you reach out to your student loan servicer to determine your payment amount and due date. And if you signed up for an IDR Plan, ask the servicer for your IDR recertification date. That's the deadline for submitting updated income and family size information to your servicer to remain in your chosen plan.
FYI. Paying your loans back under an income-based plan like the Pay As You Earn or Income-Contingent Repayment Plan won't lower your credit score. So long as you pay your bills on time, your score should increase throughout the repayment term.
Related: IDR Waiver Student Loans
Options to switch repayment plans
Most federal student loan borrowers have five repayment options to choose from. Some base your monthly payment on your income and family size, while others have a fixed monthly payment. The best plan for you depends on your budget, how much you owe, and whether you want to qualify for loan forgiveness.
- You need a lower monthly payment. Choose one of the income-driven repayment plans — IBR, ICR, PAYE, and REPAYE.
- You're retiring. Moving to a payment plan based on your discretionary income and family size can drop your bill to zero each month if your only source of money comes from Social Security benefits. Read more about student loan forgiveness for seniors.
- You have Parent PLUS Loans. See if consolidating your loans and enrolling in the ICR plan will give you an affordable payment. Read more about Parent PLUS Loan forgiveness & retirement.
- You're working on Public Service Loan Forgiveness. Sign up for an IDR Plan like income-based repayment and consolidate any loans made under the Perkins or FFEL Program into a Direct Loan. Related: Should I consolidate my student loans for PSLF?
- You're waiting for loan forgiveness after 20 years. Enroll in the best IDR Plan for your situation. Read more about student loan forgiveness after 20 years.
- You have a high income. Compare your payments under the Graduated or Extended Repayment Plan to what your bill would be under one of the IDR plans. Read more about IDR income limits.
- You're worried about interest. Switch to the Standard Repayment Plan and pay your student loan debt as quickly as possible. Refinancing is another option — especially if you can score a lower interest rate. But if you refinance, you'll lose federal benefits like debt cancellation, deferment, forbearance, and so on. Read more about how to refinance federal student loans.
Learn More: How to Reduce Student Loan Payments
You can switch plans at any time throughout your repayment period if you have a student loan from the U.S. Department of Education. But there's a cost to this freedom: the total amount you owe may increase rapidly due to interest capitalization.
If you work in public service or plan to have your remaining balance forgiven after 20 years of payments, that's not a problem. The government will write off the debt no matter how much interest is added to your balance.
Switching to the Standard Plan is better if your goal is to pay off your loans quickly. The move won't change your interest rate or lower your bill. But it will reduce the amount of interest that accumulates on your loans, lowering the total loan amount you'll pay back.