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Help! I’m Afraid to Lower My Student Loan Payments

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If you are having trouble paying your federal student loans, you may be eligible for programs that will get you lower student loan payments. Under the Income-Based Repayment program (IBR) or Pay As You Earn (PAYE) programs your payments can be as little as $0 per month if you are unemployed.

But not all borrowers are eager to lower their payments. Take our reader “Liz,” for example. She writes:

I have significant student debt (started paying 2006, close to $94,000 still outstanding) and I chose the 30-year repayment plan, initially because of the size of the debt and it made payments affordable.

I am currently unemployed and put the loans in unemployment deferment rather than IBR…I thought that if I used IBR and paid nothing that when I went back to the 30-year plan my payments would be a lot higher. The reason why this matters is that I have cancer that will eventually kill me well before my 30 years is up and my priority is to save money for when I have to live on Social Security disability (the cancer has a 12-18 year life span typically). I was under the impression that my monthly payments would remain the same, just extending the loan, if I used the deferment — presuming I made a payment to pay off the capitalized interest since about $36,000 or so of this loan is unsubsidized loans.

Of course getting reliable information out of the servicers can be iffy at best (call more than once and the odds are you will get a different answer).

What is my best choice if my goal is to have the lowest monthly payments so that I can save more money now? I will need that money when I am sicker with this cancer as Social Security disability pays out, in my case, less than $1,000/mo which is not enough to live (I do know I can then apply to have the loans written off due to total disability).

Getting Lower Student Loan Payments

By avoiding IBR, Liz may be missing out, according to student loan lawyer Joshua Cohen. He says:

“Income-based repayment is always the way to go here. IBR will always be lower than the 30-year extended payment, especially with a high balance and low income. If the borrower is sick and can’t work, income is $0, the payment under IBR is $0.

For this particular borrower, her income would have to be over $103,000 a year to no longer qualify for IBR. The 30-year extended payment plan on this balance is approximately $650. The amount of income required for an IBR payment higher than the extended plan is still close to $70,000.

The point is the borrower can’t avoid the payment now and she will not likely ever be able to afford to, not with cancer. And deferments don’t last forever. The maximum amount of time you can take an unemployment deferment is three years. With IBR, if the borrower remains unemployed for longer than that, her payments can still remain at $0.

She can get on IBR and if she lives another 25 years, any remaining balance will be forgiven. If, however, the cancer gets to the point that she can’t work, she’ll qualify for the permanent and total disability discharge.”

Another fear that keeps some borrowers from obtaining lower student loan payments is that doing so will affect their credit scores. However, deferment, forbearance and IBR do not in and of themselves hurt borrower’s credit scores.

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  • James

    My question regarding IRB is more so related to the less likely situation that one would come off of IBR for whatever reason and then not be eligible to have his/her loan forgiven. Should a person stop qualifying for IBR for whatever reason. For x amount of years and then qualify again would the 30 year forgiveness rule continue where that person left off? Or would they have to start the count down one again?

    • Deanna Templeton

      Much would probably depend on the reason or cause for no longer being eligable –non-payment vs. job change, for example. To find out for sure, you might try checking with the Federal Student Aid website, where they provide a more in-depth look at how IBR works and answer individual eligibility requirements. IBRinfo.org is another great resource, which also includes a pretty extensive FAQ that should help answer some of your questions/concerns about IBR.

      Gerri also wrote a more recent article entitled “How to Pay Student Loans You Can’t Afford,” which covers a bit more about IBR and the newer Pay As You Earn (PAYE) program that you may find helpful.

  • The Dude

    You don’t have to be unemployed to get an IBR at $0. I make $30,000 for a family of 4 and my IBR payment is $0.

  • bubb

    I believe a discharge for disability is taxable income. Thus, it may be better for Liz just to stick with IBR even if she becomes disabled. I am so sorry for her illness. However, if she passes before the IBR period is up, the loans will be forgiven. If I’m right, the sad truth (again I am so sorry for your illness) is that she might be better off not using the disability discharge.

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