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Student Loan Relief Options

Listen, there are a lot of student loan relief options out there. And the closer we get to federal student loan relief ending, the more you’re going to hear about all the possible “solutions” for managing your loan payments. But most of them don’t actually give you the relief you’re looking for. Let’s talk about some of the most common types of federal student loan help and what they really mean for you in the long run.

Student Loan Deferment

Student Loan Forbearance

Income-Driven Repayment Plans

Student Loan Consolidation

Service Member Benefits

Student Loans and Bankruptcy

Student Loan Deferment

Student loan deferment is a way to stop paying on your federal student loans—temporarily.

You might qualify for deferment if you’re:

  • Currently in school
  • Currently unemployed
  • In the military
  • Being treated for cancer
  • Having a financial hardship (that means you can’t afford to pay your bills—and you can prove it)

The length of a deferment depends on the type. For example, students enrolled in eligible colleges and programs may qualify for an In-School Deferment for the entire time they’re enrolled and possibly up to six months after they leave. And an Economic Hardship Deferment can last up to three years.

With deferment, interest may or may not keep adding up while your payments are paused—but it depends on the loan. For deferred subsidized federal student loans or Perkins loans, you don’t have to pay for the interest, and more interest doesn’t build up. But for other types of student loans, the interest does build up during deferment. That means your loan balance (what you owe) could be higher when the deferment period is over.

Student Loan Forbearance

Most borrowers have recently gotten a taste of student loan forbearance. Because of the CARES Act, federal student loans were automatically put into forbearance since March 2020. But when there’s not a global pandemic, student loan forbearance works very differently than what you may have experienced for the last few years.

Normally, when a student loan is in forbearance, payments are put on hold—but the loan continues to build up interest. In other words, the amount you owe increases. Sometimes a lot. You might be hitting the pause button on payments, but your balance is getting bigger the whole time.

So, if you think you can just reapply for forbearance once student loan relief ends, know that it’s not going to be the zero interest you’ve gotten used to. Federal interest rates will kick right back in—which means, you won’t be able to just sit back and not pay on your student loans anymore without expecting a bigger balance in the end.

There are two types of forbearance: general and mandatory. In a general forbearance, you make a case for why you can’t keep up with the payments, and then the lender decides to approve or deny your request.

You can apply for general forbearance if you have:

  • Financial difficulties
  • Medical expenses
  • Change in employment
  • Other reasons you can’t cover your loan payments

If you think you qualify, you can submit a general forbearance request, and the loan provider will review it. But keep in mind, only Direct Loans, Federal Family Education Loan (FFEL) Program loans and Perkins loans are eligible for general forbearance.

Mandatory forbearance is, well, mandatory. That means if you qualify, the loan provider has to accept your request.

You may qualify for mandatory forbearance if:

  • You have a Direct loan or FFEL Program loan.
  • You’re serving with AmeriCorps, working in your medical or dental internship or residency, or working as an activated member of the National Guard.
  • The total amount you owe every month for all your federal student loans is 20% or more of your total monthly income.

But here’s the deal: When you put your student loans into deferment or forbearance, you risk losing control of your debt. You may feel some relief in the moment, but your debt isn’t going away. You’re only pushing it in a corner to deal with later. Plus, your student loans could keep growing interest even while they’re in deferment (they definitely will if they’re in forbearance). That just means your problem will keep getting bigger and bigger.

The only time you should apply for deferment or forbearance is if you’re in a financial situation where you can’t cover your Four Walls: food, utilities, shelter and transportation. You don’t pay Perkins if you can’t feed your family. But if you’re still able to meet your basic needs, keep fighting the good fight of paying off these loans. Yes, it’s tough. But your future self will thank you for getting rid of your student loans sooner.

Income-Driven Repayment Plans

If you’re having trouble making your student loan payments, your loan servicer may try to talk you into an income-driven repayment plan (IDR).

Basically, income-driven repayment plans give you a lower monthly payment and a much longer loan term—usually 20 or 25 years. And there’s also a theoretical promise to forgive any remaining balance at the end of the term, but this rarely works out and it has a lot of conditions around it.

IDRs are offered as a way to help borrowers with really big student loan balances and not a lot of income stay on top of their student loan payments. But that’s assuming your debt amount and your income will stay the same—which isn’t the case.

As your income grows (and it should be growing), your debt will shrink because you’re able to throw more money at it. But with IDRs, the opposite happens. You’re locked into making very small payments. Meanwhile, your student loan continues to grow because interest is being added faster than you can make a dent in it. Imagine paying on your student loan for over two decades, only to have it be even more out of control than when you started!

Recently, President Biden made changes to expand income-based repayment plans (a type of IDR). As a result, about 40,000 borrowers are expected to have their student loans immediately forgiven and more people will qualify for income-based repayment. But here’s the thing—those 40,000 borrowers have been paying on their student loans for at least 20 years. Yeah, they may have had a smaller monthly payment, but they’ve also paid thousands more than someone who paid off their loans in half that time. When all is said and done, student loan forgiveness didn’t do them any favors.

Just so we’re clear: We do not recommend any income-driven repayment plan (or any payment plan, for that matter) as your best strategy to get rid of your debt. They might look nice at first with their promises of a lower monthly student loan payment and possible forgiveness. But they also drag out your loan for way longer. Which means you’ll pay way more over time. Not. Worth. It.

Your best bet is to get a bigger shovel (aka income) and use the debt snowball method to dig yourself out of student loan debt as fast as you can!

Student Loan Consolidation

The goal with student loan consolidation is simple: to roll all your different student loan payments into one lump payment. Ideally, this will get you a lower interest rate and shorter term. This is also a way to get your student loans out of default if you’ve fallen behind on payments. But only federal student loans can be consolidated. Private loans have to be refinanced.

Student loan consolidation is the only form of consolidation we ever recommend—but it isn’t right for everyone.

You should only consolidate your student loans if:

  • It won’t cost you anything to consolidate them.
  • You can get a lower net interest rate.
  • You can get a fixed interest rate instead of a variable rate.
  • You don’t have to sign up for a longer repayment period.
  • You haven’t consolidated your federal student loans before (you only get one shot at it).
  • You don’t get so relieved by the thought of a single payment that you lose your motivation to pay off your debt fast.

But even if you’re able to consolidate your student loans, don’t look at it as your golden ticket. You should still aim to pay more than your minimum monthly payment to get that loan out of your life!

Service Member Benefits

Military service members may be eligible for several programs that help with student loans. If that’s you, here are a few of those benefits:

  • Interest Rate Reductions: The Servicemembers Civil Relief Act (SCRA) limits your interest rate to 6% while you’re on active duty—and if you’re serving in a hostile area, you may even qualify for 0% interest.
  • Payment Reduction: In certain situations, the HEROES Act waiver may allow you to extend your general income-based repayment options if they expire while you’re on active duty.
  • Postponed Payments: For federal loans only, Military Service Deferment allows you to postpone monthly payments during and right after certain forms of active duty.
  • Post-Active Duty Student Deferment: This program can allow you to put off payments after active duty if you plan to go back to school.
  • National Guard Duty Mandatory Forbearance: This was created for National Guard members who don’t qualify for the Military Service Deferment.

But even if you qualify for any of these, it should not be your main plan of attack to get rid of your student loans. Don’t let an interest rate reduction or deferment be an excuse to slow down on paying off your loans quickly and getting them out of your life forever.

Student Loans and Bankruptcy

You might be thinking you can just declare bankruptcy to make your student loans disappear—but that’s not exactly the case. As a general rule, student loans can’t be erased through bankruptcy. But there’s the rare chance of student loans being discharged through something called an adversary proceeding. It’s a separate process from normal bankruptcy where you have to prove to the bankruptcy court that repaying your student loans would “impose undue hardship on you and your dependents” (meaning you wouldn’t be able to eat if you paid your student loan payments).19

If the court decides you pass the undue hardship test, you may have some or all of your student loans discharged, or you may be put on a new repayment plan that allows you to make a lower monthly payment. But the odds aren’t great. Less than 1% (0.1% to be exact) of people who try to have their student loans discharged through bankruptcy are actually successful.20 Plus, bankruptcy is a long and brutal process that should be avoided at all costs. There are steps you can take to help you get out of debt—without putting yourself through the emotional stress of bankruptcy.

Learn More About Student Loan Relief
Explore your options and get the plan to ditch your student loans with our new video course—The Ultimate Guide to Getting Rid of Student Loan Debt.