Student Loans Archives | Page 6 of 156

Mar

2025

Student Loan Hardship Forgiveness Plan

By Jennifer Calonia | Financial Topics, Student Loans | Comments Off

Student loan hardship forgiveness was a plan that could have offered relief to federal student loan borrowers who faced “persistent financial burdens” like medical bills, natural disasters, and child care. Former President Biden sought to help relieve this financial burden through a hardship-based student loan forgiveness plan that he proposed while still in office.

The plan was ultimately pulled from consideration shortly before the Biden administration transitioned out of the White House. Here’s what to know about the proposed hardship forgiveness for student loans, plus other options for student loan borrowers dealing with financial hardship.

Key Points

• The Biden administration’s proposed student loan hardship forgiveness plan aimed to provide relief to federal student loan borrowers who were facing significant financial burdens.

• Automatic one-time forgiveness would have been offered to those with an 80% chance of default, based on financial indicators.

• An application-based forgiveness option would have allowed others to apply if not eligible for automatic relief.

• The plan was withdrawn in December 2024 due to operational challenges and limited time left in the administration’s term.

• Other student loan forgiveness options include income-driven repayment plans, although applications for these plans are on hold as of March 2025.

Understanding the Hardship Forgiveness Plan

In 2022, President Biden proposed a sweeping student loan cancellation plan that promised qualifying borrowers up to $20,000 in loan cancellation. The plan was blocked by the Supreme Court in 2023. Following the court’s decision, the student loan relief initiative was reworked by the administration into a student loan forgiveness plan, known as Plan B. The student loan hardship proposal was part of Plan B.

Overview of the Initiative

The student loan hardship forgiveness proposal was designed to offer relief to borrowers who were struggling with ongoing financial challenges. It enabled access to hardship forgiveness for student loans through two pathways:

• Automatic one-time forgiveness: In this pathway, if the Department of Education, using a “predictive assessment,” determined that a borrower had at least an 80% chance of defaulting on their student loan debt within two years, it may have automatically forgiven the loans on a one-time basis.

• Application-based forgiveness If borrowers did not qualify for the automatic student loan hardship forgiveness, they could submit an application that would “holistically assess” how likely they were to default or experience severe and persistent financial hardship.

Eligibility Criteria

For a borrower to qualify for automatic forgiveness, an assessment of varying indicators would be done by the Secretary of Education. If the assessment determined that a borrower’s loans had at least an 80% likelihood of going into default in the following two years, they would qualify for hardship forgiveness under the proposed rule.

Some of the indicators used to assess automatic forgiveness included:

• Income

• Total debts owed

• High costs associated with medical bills

• Child care and other essential expenses

• Whether the borrower had qualified for a Pell Grant

Under the application-based forgiveness, borrowers would need to demonstrate that they faced a high probability of loan default or other severe negative outcome if the hardship forgiveness wasn’t granted. The assessment also had to find that no other student loan payment options would adequately resolve the borrower’s hardship circumstances.

Application Process

Only borrowers experiencing an exceptional financial hardship who did not qualify for the automatic one-time forgiveness would need to complete a student loan hardship application for a holistic assessment.

However, since the hardship-based student loan forgiveness plan was withdrawn before its launch, no formal application was publicly available.

Recommended: Understanding Your Student Loan Statement

Implementation Timeline

The proposal for a student loan hardship forgiveness plan had been in the works for some time under the Biden administration. Here’s what to know about the proposal’s timeline.

Proposed Schedule

If the hardship forgiveness proposal had moved forward, the U.S. Secretary of Education in the Biden administration anticipated finalizing the new forgiveness plan and having it go into effect in 2025.

Legal and Political Considerations

The student loan hardship proposal would have given borrowers facing financial hardship tremendous relief. However, the proposed hardship-based student loan forgiveness plan, like many of the Biden administration’s forgiveness plans, had legal and political opposition.

Legal Challenges

Biden’s student loan hardship forgiveness initiatives were stymied by numerous legal challenges. First, the administration’s initial forgiveness plan that offered up to $20,000 in loan forgiveness was struck down by the Supreme Court in 2023. After that, different iterations of the proposal also faced legal hurdles.

For example, in 2024, seven states — Alabama, Arkansas, Florida, Georgia, Missouri, North Dakota, and Ohio — filed a lawsuit against the Biden administration, alleging that the proposed student loan hardship plan was an overstep of executive power.

Political Climate

In February 2025, the U.S. Court of Appeals for the 8th Circuit ruled that former President Biden’s student loan forgiveness plans were unconstitutional. With the Republican party currently holding the majority in Congress, and President Trump’s executive order in March 2025 to dismantle the Department of Education, a broad student loan hardship forgiveness plan appears unlikely to happen under the Trump administration.

Impact on Borrowers

Had Biden’s proposed hardship forgiveness for student loans been successful, an estimated eight million borrowers would have had their student loan balances erased.

Instead, these borrowers will need to repay their student loans through other alternatives, such as using another repayment plan or consolidating student loans.

Another option some borrowers might consider is student loan refinancing. When student loans are refinanced, the borrower’s current loans are replaced with a new loan from a private lender. Ideally, a borrower may be able to get better loan terms or a lower interest rate, if they qualify.

If you decide to explore how to refinance student loans, just be aware that refinancing federal loans makes them ineligible for federal programs, such as IDR plans and federal deferment.

Recommended: Student Loan Refinancing Calculator

Financial Relief

When borrowers default on their student loans, the remaining balance becomes due upfront, which further compounds their financial challenges. The hardship forgiveness plan would have provided relief to federal student loan borrowers who are at the highest risk of defaulting on their debt.

Credit Implications

With the proposed hardship forgiveness plan, some borrowers in a dire financial situation might have been able to avoid the negative mark of student loan default on their credit record.

Here’s why: A student loan balance that’s forgiven shows up on a credit report as a closed account. This lowers borrowers’ debt-to-income (DTI) ratio, which can impact their access to new credit. A DTI ratio is a formula used by creditors to determine whether an applicant can reasonably make payments toward a new credit account — the lower this percentage is, typically the more favorable it is for borrowers.

Alternatives and Additional Support

For borrowers who are experiencing financial hardship, student loan forgiveness is usually accessible through other federal programs, such as income-driven repayment (IDR) plans. However, as of March 2025, a federal court injunction has prevented the implementation of parts of the IDR plans, and applications for the plans are on hold. You can find out more about this situation and get any updates on the Federal Student Aid (FSA) website.

In the meantime, here is more about these plans and how they typically work.

Income-Driven Repayment Plans

IDR plans offer student loan relief — and ultimately, forgiveness — to borrowers who need lower student loan payments. These plans calculate your monthly payment based on your discretionary income and family size, which must be recertified annually. Depending on the plan, repayment terms are extended to 20 or 25 years, with payments set at 10% to 20% of your discretionary income. After successfully making all payments under your IDR plan, any remaining Direct Loan balance is forgiven.

There are technically four IDR plans, though one of them is no longer available:

• Saving on a Valuable Education (SAVE) Plan: This plan is no longer available after being blocked by a federal court.

• Pay As You Earn (PAYE) Repayment Plan

• Income-Based Repayment (IBR) Plan

• Income-Contingent Repayment (ICR) Plan

However, as discussed, applications for the PAYE, IBR, and ICR plans are on hold as of March 2025, and the application to change student loan repayment plans to an IDR option is unavailable.

The Takeaway

The Biden administration’s hardship-based student loan forgiveness plan would have forgiven student loan debt for an anticipated eight million federal student loan borrowers. However, the proposal was met with legal challenges and ultimately withdrawn by the administration in December 2024.

Although other federal loan forgiveness options, like forgiveness through income-driven repayment, currently still exist, new applications for these plans are not currently available. Borrowers looking for help managing their student loan debt may want to consider other options.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Will the forgiven loan amount be considered taxable income?

Whether a forgiven student loan amount is considered taxable income depends on the forgiveness program that granted the loan cancellation. However, the American Rescue Plan Act of 2021 provides federal loan borrowers a temporary federal tax exemption on forgiven student debt through 2025. Just be aware that some states impose a tax liability on forgiven student loans, regardless.

How does the hardship plan differ from previous forgiveness initiatives?

The proposed student loan hardship forgiveness program was unique in that it offered two different pathways for student debt relief. The first was automatic forgiveness qualification for borrowers who demonstrated an 80% likelihood of defaulting on their student loans. The second was a “‘holistic assessment’ of the borrower’s circumstances” in which forgiveness was to be assessed on a case-by-case basis after the borrower submitted an application.

What legal challenges could affect the plan’s implementation?

The Biden administration withdrew the student loan hardship plan in December 2024, citing operational challenges, and the plan is no longer moving forward. In February 2025, the 8th Circuit Court ruled that former President Biden’s overall student loan forgiveness efforts were unconstitutional.

photo credit:iStock/Damir Khabirov
SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOSLR-Q125-007

Mar

2025

Student Loan Forgiveness Tax Bomb, Explained

Do You Have to Pay Taxes on Forgiven Student Loans?

By Jennifer Calonia | Fresh Out of School, Student Loans, student_loan | Comments Off

The Internal Revenue Service (IRS) generally requires that you report a forgiven or canceled debt as income for tax purposes. But tax on student loan forgiveness is a different matter.

The American Rescue Plan (ARP) Act specifies that student loan debt forgiven between 2021 and 2025, and incurred for postsecondary education expenses, will not be counted as income, and therefore does not incur a federal tax liability.

This includes federal Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, nonfederal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans may also qualify.

However, some states have indicated that they still count canceled student loans as taxable income. Read on for more information about taxes on student loans, including which forgiven student debt is taxable and by whom.

Key Points

• Because of the American Rescue Plan Act, student loans forgiven between 2021 and 2025 are exempt from federal taxation.

• Five states — Arkansas, Indiana, Mississippi, North Carolina, and Wisconsin — still tax forgiven loans.

• Use a student loan forgiveness tax calculator to estimate potential state tax liability.

• Set aside monthly payments to save for potential tax bills on forgiven student loans after 2025.

• Explore the student loan interest deduction to help reduce federal taxable income.

Types of Student Loan Forgiveness Programs

Federal student debt can typically be canceled through an income-driven repayment plan (IDR) or forgiveness programs. However, as of March 2025, applications for income-driven repayment plans are on hold while the Trump administration reevaluates them. You can find out more about this situation on the Federal Student Aid (FSA) website.

Here are some common federal forgiveness programs and how typically they work.

Public Service Loan Forgiveness (PSLF)

If you are employed full-time for the government or a nonprofit organization, you may be eligible for Public Service Loan Forgiveness for federal student loans like federal Direct Loans.

After you make 120 qualifying payments under an income-driven repayment plan for an eligible employer, the PSLF program forgives the remaining balance on your federal student loans.

However, because IDR plans are currently not accepting applications, and you must achieve forgiveness by repaying your loans under one of these plans, you will likely need to wait before you can start working toward PSLF. You can get more details about PSLF on the FSA website.

Income-Driven Repayment (IDR) Forgiveness

IDR options generally offer loan forgiveness after borrowers make consistent payments for a certain number of years. However, forgiveness on all but one of the IDR plans is paused as of March 2025.

On an IDR plan, how much you owe each month is based on your monthly discretionary income and family size. These are the types of IDR plans.

• Income-Based Repayment: With IBR, payments are generally about 10% of a borrower’s discretionary income, and any remaining balance is forgiven after 20 or 25 years. On the IBR plan, forgiveness (after the repayment term has been met) is still proceeding as of March 2025, since this plan was separately enacted by Congress.

• Saving on a Valuable Education (SAVE): As of March 2025, the SAVE plan is no longer available after being blocked by a federal court. Forgiveness has been paused for borrowers who were already enrolled in the SAVE plan, and they have been placed in interest-free forbearance.

• Pay As You Earn (PAYE): The monthly payment on PAYE is about 10% of a borrower’s discretionary income, and after 20 years of qualifying payments, the outstanding loan balance is forgiven. As of March 2025, forgiveness has been paused for borrowers who were already enrolled in this plan, and they have been placed in interest-free forbearance.

• Income-Contingent Repayment (ICR): The monthly payment amount on ICR is either 20% of a borrower’s discretionary income divided by 12, or the amount they would pay on a repayment plan with a fixed payment over 12 years, whichever is less. After 25 years of repayment, the remaining loan balance is forgiven. As of March 2025, forgiveness has been paused for borrowers who were already enrolled in the plan, and they have been placed in interest-free forbearance.

Teacher Loan Forgiveness

With Teacher Loan Forgiveness (TLF), teachers who have been employed full-time for five consecutive years at an eligible school and meet certain other qualifications may be eligible to have up to $17,500 of their federal Direct Subsidized and Unsubsidized Loans and federal Stafford Loans forgiven.

Recommended: Do Student Loans Count as Income?

Which Student Loan Cancellations Are Not Federally Taxed?

When it comes to student loan forgiveness and taxes, under the provisions of the ARP Act, private or federal student debt for postsecondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that these borrowers are not required to report their discharged loan amount as earned income, and the forgiven amount is not taxable.

Beyond the special five-year window of tax exemption provided by the ARP Act, participants in the Public Service Federal Loan program who receive forgiveness don’t have to pay taxes on their canceled loan amount. The PSLF program explicitly states that earned forgiveness through PSLF is not considered taxable income.

Which Student Loan Cancellations Are Federally Taxed?

Borrowers who receive loan cancellation after successfully completing an income-driven loan repayment plan can generally expect to pay taxes. However, those whose debt was or will be discharged in the years 2021 through 2025, will not need to pay federal taxes on their forgiven loans due to the ARP Act.

Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation.

💡Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

Which States Tax Forgiven Student Loans?

Typically, states follow the tax policy of the federal government. But some states have announced that their residents must include their forgiven or canceled student loan amount on their state tax returns.

As of March 2025, the five states that say certain forgiven loans are taxable are:

• Arkansas (except for loans forgiven through PSLF)

• Indiana (except for loans forgiven through PSLF, TLF, and certain other programs)

• Mississippi

• North Carolina

• Wisconsin (except for loans forgiven through PSLF and TLF).

It’s important to consult a qualified tax professional who is knowledgeable about forgiveness of student loans in your state to confirm the latest information of how much you owe.

How to Prepare for Taxes on Forgiven Student Loans

If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take to get ready.

Step 1: Calculate Your Potential Tax Bill

The first step when preparing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.

To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.

Step 2: Choose the Right Plan

Although IDR plans are not currently accepting applications, they are designed to help keep borrowers’ monthly payments to a manageable amount while they’re awaiting loan forgiveness. All of these repayment plans calculate a borrower’s monthly payment based on their discretionary income and family size.

Step 3: Prioritize Saving

If you’re expecting loan forgiveness after 2025, it might be beneficial to start allocating extra cash flow to a dedicated tax savings fund now. Incrementally setting money aside over multiple years can ease the burden of a sudden lump-sum tax bill down the line.

Another way to potentially save some money is to take the student loan interest deduction on your taxes each year, if you qualify. The deduction, which is up to $2,500 annually, can reduce your taxable income.

You’ll need your student loan tax form to make sure you are eligible for the deduction. The form should be sent to you by your loan servicer or lender. You’ll file the form with your taxes.

Recommended: Guide to Student Loan Tax Deductions

What If I Can’t Afford to Pay the Taxes?

If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest may accrue on such plans.

The Takeaway

Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due on forgiven loans, depending on where the borrower lives.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Is loan repayment considered taxable income?

If your employer offers loan repayment assistance benefits, they would typically be considered taxable income. However under the CARES Act, which was signed into law in 2020, employer assistance loan payments up to $5,250 made each year from 2021 through 2025 are tax-free.

Will refinancing my student loans help me avoid taxes?

Refinancing student loans does not involve taxes. However, the interest you pay on a refinanced student loan may qualify for the student loan interest deduction. If you’re eligible, you may be able to deduct up to $2,500, which could lower your taxable income.

Will student loan forgiveness be taxed after 2025?

The American Rescue Plan Act stipulates that forgiven student loans will not be taxed from 2021 through 2025. Currently, there are no plans to extend that tax relief beyond 2025.

Are state taxes different for forgiven student loans?

While states typically follow the federal tax policy, five states say that certain forgiven loans are taxable. Those five states are: Arkansas (except for loans forgiven through Public Service Loan Forgiveness), Indiana (except for loans forgiven through PSLF, Teacher Loan Forgivenesss, and certain other programs), Mississippi, North Carolina, and Wisconsin (except for loans forgiven through PSLF and TLF).

What steps should I take if I owe taxes on forgiven student loans?

If you owe taxes on forgiven student loans, calculate how much you’ll owe in taxes with the forgiven loan amount factored into your taxable income. Then, once you have the estimate of what you owe, you can start saving up to pay it. One way to do this is to put away the monthly amount you previously paid on your student loans to help offset the amount you owe. So if your student loan payment was $100 a month, deposit that amount monthly into a savings account, and use it to help pay what you owe in taxes.

Photo credit: iStock/fizkes

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOSLR-Q125-020

Mar

2025

Income-Contingent Repayment Plan, Explained

By Rebecca Lake | Debt Payoff, Student Loans, student_loan | Comments Off

Income-contingent payment (ICR) plans are one kind of Income-driven repayment plan, which can help make federal student loan payments more affordable. The income-contingent repayment plan allows you to extend your loan repayment period while reducing monthly payments to help them better align with your income. Any remaining loan amounts due at the end of your ICR plan term may be forgiven.

An ICR may be a good fit if you’re just starting your career and aren’t earning a lot of money. You may also consider an income-contingent repayment plan if you’re hoping to qualify for federal Public Service Loan Forgiveness (PSLF).

But is an ICR plan right for you? And what are the pros and cons of income-contingent repayment? Weighing the benefits alongside the potential downsides can help you decide if it’s an option worth pursuing managing your student loan debt.

What Is Income-Contingent Repayment (ICR)?

Income-driven repayment plans, including ICR, determine your monthly payment amount based on your household size and income. Depending on how much you make and how many people there are in your household, it’s possible that you could have no monthly payment at all.

Like other income-driven repayment plans offered by the Department of Education (DOE), an ICR plan aims to make it easier to keep up with federal student loan payments.

With income-contingent repayment, your monthly payments are capped at the lesser of:

• 20% of your discretionary income

• What you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted for your income

Of the four income-driven repayment options, income-contingent repayment is the oldest plan, and it is the only one that sets the payment cap at 20% of a borrower’s discretionary income. With income-based repayment (IBR) and Pay as You Earn (PAYE), monthly student loan payments max out at 10% of your discretionary income. The Department of Education recently introduced a new IDR plan called Saving on a Valuable Education (SAVE), and starting in July 2024, borrowers on the SAVE plan could see their payments reduced from 10% to 5% of income above 225% of the poverty line.

The interest rate for an ICR plan stays the same for the entire repayment term. The rate would be whatever you’re currently paying for any loans you’ve consolidated or the weighted average of all loans you haven’t consolidated.

💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How an ICR Plan Works

Income-contingent repayment can reduce your federal student loan payments, allowing you to pay 20% of your discretionary income each month or commit to making fixed payments based on a 12-year loan term.

You have up to 25 years to repay all loans enrolled in the plan. If you still have remaining payments after 25 years of monthly payments, the DOE will forgive the balance. But while you may not owe any more payments on the loan, the IRS considers student loan debts forgiven through ICR or another income-driven repayment plan to be taxable income, so you may owe taxes on it.

Income-contingent repayment plans base your monthly payment on your income and family size. This means that if your income, or your family size, changes over time, your monthly payments could change as well. With all of the federal IDR plans, borrowers must recertify their loan every year to show any changes to your income or family size.

If you’re enrolled in the 10-year Standard Repayment Plan, your monthly payments would be the same for the entire repayment term, and you never have to recertify your loan.

Here’s an example of what your payments might look like on an ICR plan versus a Standard Repayment plan, assuming you’re single, make $50,000 a year, get 3.5% annual raises, and owe $35,000 in federal loans at a weighted interest rate of 5.7%.

	Standard	ICR Plan	Savings
First month’s payment	$383	$319	$64
Last month’s payment	$383	$336	$47
Total payments	$45,960	$49,092	-$3,132
Repayment term	10 years	12.4 years	-2.4 years

As you can see, an income-contingent repayment plan would lower your monthly payments. But it will take you longer to pay your loans off and you pay more than $3,000 in additional interest charges over the life of the loan. If you start earning more while you’re on the ICR plan, your payments could also increase.

If you get married, and you and your spouse file your taxes jointly, your loan servicer will use your joint income to determine your loan payment. If you file separately or are separated from your spouse, you’ll only owe based on your individual income.

Who Is Eligible for an Income-Contingent Repayment Plan?

Anyone with an eligible federal student loan can apply for the income-contingent repayment plan. Eligible loans include:

• Direct student loans (subsidized or unsubsidized)

• Direct consolidation loans

• Direct PLUS loans made to graduate or professional students

Other types of federal student loans may also be enrolled in income-contingent repayment plans if you consolidate them into a Direct loan first. For example, you could use an ICR plan to repay consolidated:

• Federal Stafford loans (subsidized or unsubsidized)

• Federal Perkins loans

• Federal Family Education Loan (FFEL) PLUS loans

• FFEL consolidation loans

• Direct PLUS loans for parents

The income-contingent repayment is the only income-driven repayment plan option that includes loans taken out by parents. So if you borrowed federal loans to help your child pay for college, you could enroll in an ICR plan (after consolidating your loans) to make the payments more manageable.

Two types of loans are not eligible for income-contingent repayment or any other income-driven repayment plan:

• Private student loans

• Federal student loans in default

If you’ve defaulted on your federal student loans you must first get them out of default before you can enroll in an income-driven repayment plan. The DOE allows you to do this through loan consolidation and/or loan rehabilitation. Either one can help you get caught up with loan payments and loan rehabilitation will also remove the default from your credit history.

Pros and Cons of ICR Plans

Income-contingent repayment is just one option for paying off student loans, and it may not be right for everyone. It’s important to look at both the advantages and potential disadvantages before enrolling in an ICR plan.

Pros of income-contingent repayment:

• Can lower your monthly payments

• Parent loans are eligible for income-contingent repayment, after consolidation

• Extends the loan term to 25 years to repay student loans

• Remaining loan balances are forgivable

• Qualifying repayment plan for PSLF

Cons of income-contingent repayment:

• Other income-driven repayment plans like PAYE or SAVE base monthly payments on 5 to 10% of your discretionary income

• Taking longer to repay loans means paying more in interest

• If your income changes, your payments could increase

• Enrolling certain loans requires consolidation first

• Forgiven loan amounts are taxable

If you’re interested in an income-driven repayment plan, it may be helpful to do the math first to see how much you might pay with different plans. An income-based repayment option, for example, might lower your payments even more than ICR so it’s worth running the numbers through a student loan repayment calculator.

The Takeaway

Income-contingent repayment plans are something you might consider if you have federal student loans. With an ICR plan, your monthly payments may be lower than they are with the Standard Loan Repayment Plan, allowing you more money for other bills.

You won’t receive a lower interest rate when you sign up for an income-driven repayment plan. The only way to change your interest rate is through student loan refinancing. But if you refinance your federal loans, you will lose access to benefits like ICR and other income-driven repayment plans.

When you refinance student loans, you take out a new loan to pay off your existing ones. If you’re able to secure a lower interest rate on the new loan and don’t extend the term length of the loan, you could pay less in total interest over the life of the loan while having lower monthly payments. This could give you more breathing room in your budget. If you have both federal and private loans, you may choose to place the federal loans in an income-driven repayment plan and then refinance the private loans.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSL09230679

Mar

2025

Smart Strategies to Lower Your Student Loan Payments

By Lisa Moran | Fresh Out of School, Student Loans, student_loan | No Comments

March 26, 2025: The SAVE Plan is no longer available after a federal court blocked its implementation in February 2025. However, applications for other income-driven repayment plans and for loan consolidation are available again. We will update this page as more information becomes available.

Staying on top of student loan payments is an important part of your overall financial health. If you’re concerned about making payments on time, or if you’re reevaluating your budget, you may be wondering how to lower student loan payments.

Many borrowers may be eligible for options that can reduce their student loan payments. Read on to learn about some strategies that could help.

Key Points

• Borrowers struggling to pay student loans have several options for reducing their monthly payments.

• Enrolling in autopay can reduce the student loan interest rate by 0.25%, helping to make monthly payments more manageable.

• Federal student loan repayment plans like the Graduated Repayment Plan and the Extended Repayment Plan can lower monthly payments but increase total interest paid.

• Loan assistance and forgiveness programs might help reduce or eliminate student loan debt for some borrowers.

• Refinancing private student loans can potentially lower interest rates and result in more favorable loan terms for those who qualify.

Can You Reduce Your Student Loan Payments?

There are several ways you may be able to lower your monthly payments. For example, if you have federal student loans, the Graduated Repayment Plan, in which your payments start small and gradually go up over time, is an option you can explore.

Borrowers might also want to consider refinancing student loans at a lower interest rate or with a longer loan term, both which may lower monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.) It’s possible to refinance private and federal student loans, although there are many factors to consider.

Assessing Your Student Loan Repayment Situation

Before you can determine if you can lower your student loan payments, however, it’s important to know the type of loans you have, since this can affect your student loan repayment options.

You can find all of your federal student loans and the individual loan servicers, by logging into your account on Federal Student Aid.

Unless you choose another plan, federal loans are automatically placed in the Standard Repayment Plan, which sets your monthly payments at a fixed amount so your loans will be paid off within 10 years. Some private loans also follow the 10-year repayment timeline, but it varies depending on the lender.

The next step is to assess how much debt you have in total. By calculating what you owe, you can get a better understanding of how your current repayment plan is working and whether you want to consider changing it.

Once you have all of your loan information, you can use a student loan payoff calculator or contact your loan servicer to find your current payoff dates for your student loans. The calculator can also help you determine which repayment plans you qualify for. Keep in mind that if you change to a longer term to lower your monthly student loan payments, you may end up paying more over the life of the loan since interest will continue to accumulate over the longer term.

If you only need temporary relief, consider contacting your loan servicer to see if you are eligible for student loan deferment or forbearance. Both options let borrowers temporarily pause or lower loan payments for reasons such as unemployment or going back to school. Depending on the type of loan you have, interest may still accrue during this time.

Ways to Lower Your Monthly Student Loan Payments

There are different ways to reduce your student loan payments. One or more of these methods might be right for your situation.

1. Enroll in Autopay for Interest Rate Reductions

Federal loan servicers and some private lenders offer incentives if you elect to make automatic payments, such as a 0.25% interest rate reduction. With auto payments, you won’t have to worry about missing student loan due dates. Autopay can also help you incorporate your student loan payments into your budget as an expense that must be accounted for every month.

2. Talk to Your Loan Servicer About Alternative Repayment Plan Options

If you’re interested in changing federal repayment plans to help lower student loan payments, contact your loan servicer to learn more.

One option is the Graduated Repayment Plan, as mentioned, which has a payment timeline of 10 years (or up to 30 years for Direct Consolidation loans), and starts out with lower monthly payments. The payment amount gradually increases, usually every two years. Note that you will likely pay more in interest with this plan.

If you have more than $30,000 in eligible outstanding student debt on most loans, you can also ask about the Extended Repayment Plan, which lengthens your loan repayment timeline to 25 years and can make your monthly payments smaller. However, you may end up paying more in interest over the life of the loan on the extended plan.

3. Consider Income-Driven Repayment for Federal Loans When Available

As of March 2025, access to income-driven (IDR) plans for new borrowers is currently on hold while the Trump administration reevaluates these plans. You can find out more about this and any new developments on the Federal Student Aid website. In the meantime, here is a quick rundown of how these plans typically work.

On an IDR plan, how much you owe each month is based on your monthly discretionary income and family size. IDR options typically offer loan forgiveness after borrowers make consistent payments for a certain number of years. However, forgiveness on all but one of the IDR plans is currently paused.

These are the types of IDR plans.

• Income-Based: Payments are generally about 10% of a borrower’s discretionary income, and any outstanding balance is forgiven after 20 or 25 years.

Note that on the IBR plan, forgiveness after the repayment term has been met is still proceeding as of March 2025, since this plan was separately enacted by Congress.

• Saving on a Valuable Education (SAVE): As of March 2025, the SAVE plan is no longer available after being blocked by a federal court. Forgiveness has been paused for borrowers who were already enrolled in the plan and they have been placed in interest-free forbearance.

• Pay As You Earn (PAYE): A borrower’s monthly payment on PAYE is roughly 10% of their discretionary income, and they’ll make 20 years of payments. As of March 2025, forgiveness has been paused for borrowers who were already enrolled in the plan, and they have been placed in interest-free forbearance.

• Income-Contingent Repayment (ICR): The monthly payment amount on this plan is either 20% of a borrower’s discretionary income divided by 12, or the amount they would pay on a repayment plan with a fixed payment over 12 years, whichever is less. The repayment term is 25 years. As of March 2025, forgiveness has been paused for borrowers who were already enrolled in the plan and they have been placed in interest-free forbearance.

4. Explore Loan Assistance and Forgiveness Programs

If you’re eligible, a Loan Repayment Assistance Program (LRAP) can provide funds to help you lower your student loan payments. Since private loans are not eligible for the federal income-based repayment plans mentioned above, an LRAP could be helpful for those with both private and federal student loans.

Some states, organizations, and companies may offer LRAPs, especially if you work in certain fields like health care or education. LRAPs often include a requirement that you work in your eligible job for a certain number of years, typically in public service.

There are also federal and state forgiveness programs you may be eligible for. For example, if you have federal student loans and you’re employed by government entities or nonprofits, you might qualify for Public Service Loan Forgiveness (PSLF). Borrowers pursuing this program agree to work in underserved areas and must meet specific requirements to have their loan forgiven after 120 qualifying payments on an income-driven repayment plan.

A number of states also have student loan forgiveness programs, especially for individuals working in health care and education. Check with your state’s department of education to see what’s available.

5. Refinance to Potentially Lower Interest Rates

Student loan refinancing is an option that may be helpful if you have student loans with high interest rates or private student loans.

When you refinance student loans, a lender pays off your existing loans and gives you a new loan with new terms. Refinancing may save you money in the long run if you get a lower interest rate, or you could change your term to get more time to pay off your loan and lower the cost of your monthly student loan payments, though you may pay more in interest in the long run.

Keep in mind, however, that if you refinance a federal student loan, you’ll lose access to federal benefits and protections.

What to Do if You Can’t Afford Your Student Loan Payments

With most federal student loans, if you don’t make a payment in more than 270 days, you’ll default on the loan. Private loans are often placed in default as soon as after 90 days.

Defaulting can impact your credit score, and have other negative consequences, including losing eligibility for deferment, forbearance, and other valuable repayment options. The best path forward is to avoid default. If you are having trouble making payments, contact your loan servicer right away.

Planning for Life After Student Loan Repayment

Along with managing your student loan payments, it’s also important to save for your future. That might include a down payment on a house, putting money away for your child’s education, and investing for retirement.

To plan for life after student loan repayment, work to build an emergency fund to handle sudden expenses, such as medical bills or job loss. Aim to have at least three to six months’ worth of expenses in your emergency fund, and keep it in a separate bank account so you won’t be tempted to spend it.

Also, open a savings account, if you don’t already have one, to put away money each week or month for your financial goals. Participate in your 401(k) at work, if that’s an option. And you might also want to consider opening an IRA to help maximize your retirement savings and secure your financial future.

Refinancing Student Loans With SoFi

There are several strategies to make your student loan payments more manageable, including choosing a new repayment plan, signing up for autopay, and student loan refinancing. Explore the options to determine what makes sense for your situation.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can you negotiate student loans down?

You generally can’t negotiate student loans unless you’ve stopped making payments and your loans are delinquent or in default, a situation that has serious financial consequences, such as potentially damaging your credit score.

There are other options to lower student loan payments, however. If you need temporary relief, you can contact your loan servicer to see if you’re eligible for deferment or forbearance. If you have federal loans, you may be able to change your loan term or enroll in a different repayment plan. Borrowers with private loans can explore refinancing their student loans to see if they qualify for a lower interest rate or more favorable loan terms.

How do I negotiate student loan payoff?

If your student loans are delinquent or in default, you may be able to negotiate a settlement for a lower payment amount, but this is generally seen as a last resort because of the negative financial consequences. If you are struggling to make your payments, contact your lender to see what other options may be available to you.

What is average student loan debt?

The average student borrower has $38,375 in student loans to pay off, according to the Education Data Initiative.

What are the pros and cons of refinancing student loans?

The pros of student loan refinancing include potentially getting a lower interest rate on your loan or better loan terms if you qualify. Your loans may also be easier to manage because you can streamline them into one new loan with one monthly payment.

The disadvantages of student loan refinancing include potentially paying more in interest if you lengthen your repayment term to lower your monthly payments and losing access to federal benefits if you refinance federal loans. Weigh the pros and cons to decide if refinancing makes sense for you.

Does deferment or forbearance affect my credit score?

Neither deferment nor forbearance affect your credit score. Both options allow you to temporarily stop payments on your student loans if you are struggling to afford them. The main difference between them is that with deferment, some federal student borrowers may not be required to pay the interest that accrues on certain types of loans during the deferment period. With forbearance, a borrower is generally required to cover accruing interest while the loan is in forbearance.

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Mar

2025

What’s the Average Student Loan Interest Rate?

By Ashley Kilroy | Fresh Out of School, Student Loans, student_loan | No Comments

Student loans, like any loans, have an interest rate. While interest rate accrual on existing federal student loans was paused for more than three years due to the Covid-19 forbearance, interest accrual resumed on September 1, 2023, and payments resumed in October 2023. And of course, any new student loans — federal or private — will have an interest rate that impacts the total cost of the loan.

So what is the average student loan interest rate? In this guide, we’ll look at the interest rates of new federal student loans, as well as the range of rates for private student loans.

Table of Contents

What Is The Average Student Loan Interest Rate?
How Student Loan Interest Is Calculated and Applied
How to Evaluate Student Loan Interest Rates
Average Interest Rates for Student Loans FAQ
What Is a Good Fixed Interest Rate for Student Loans?
Ways to Lower Your Student Loan Interest Rate
Fixed vs. Variable Interest Rates: Which Is Better?

Key Points

• Federal student loan interest rates for 2024-25 are 6.53% for undergraduates, 8.08% for graduate students, and 9.08% for PLUS loans.

• Private student loan interest rates range from 3.50% to 17.00% as of March 2025.

• Federal interest rates are fixed rates that are set annually using formulas tied to the 10-year Treasury note and a statutory add-on percentage.

• Lenders set their own rates for private student loans. The interest rate on these loans may be fixed or variable.

• Interest rates for federal loans have increased from the previous year, while private loans have a wide range of rates influenced by market conditions.

What Is The Average Student Loan Interest Rate?

The interest rate on a student loan varies based on the type of student loan. Federal student loans issued after July 1, 2006, have a fixed interest rate. The rates on newly disbursed federal student loans are determined annually by formulas specified in the Higher Education Act of 1965 (HEA).

These are the federal student loan interest rates for the 2024–25 school year:

• 6.53% for Direct Subsidized or Unsubsidized loans for undergraduates

• 8.08% for Direct Unsubsidized loans for graduate and professional students

• 9.08% for Direct PLUS loans for graduate students, professional students, and parents

All three of those rates have risen from the 2023-2024 school year, and the undergraduate rate has more than doubled since the 2020-2021 school year.

Federal Student Loan Rates by Borrower Type
Source: Studentaid.gov

This means that the average student loan interest rate for the three main types of federal student loans is 7.89%.

Average Interest Rate for All Federal Student Loans
Source: Studentaid.gov

Private student loan interest rates vary by lender and each has its own criteria for which rates borrowers qualify for. Private student loans can have either fixed interest rates that remain the same over the life of the loan, or variable rates that may start lower than a fixed interest rate but then go up over time, based on market changes.

Private loans require a credit check, and lenders may offer different interest rates if you have strong credit or a cosigner on your student loan. The interest rates on private student loans can vary anywhere from 3.50% to 17.00% (as of March 2025), depending on the lender, the type of loan, and on individual financial factors including the borrower’s credit history.

How Are Interest Rates Determined?

As mentioned, the interest rates on federal student loans are set annually by formulas specified in the HEA. The rates are tied to the financial markets — federal law sets them based on the 10-year Treasury note and a statutory add-on percentage with a maximum rate cap.

Since July 2006, all federal student loans have fixed interest rates. Although federal student loans are serviced by private companies or nonprofits selected by the federal government, these loan servicers have no say in the federal interest rate offered.

For private student loans, the lenders set their own rates, though they often take cues from federal rates. The rates quoted for student loans vary based on each applicant’s individual situation — though generally the better a potential borrower’s credit history is, the better rate they may be able to qualify for.

To learn more about private and federal student loans, check out our student loan help center.

How Student Loan Interest is Calculated and Applied

Interest on federal student loans typically accrues daily. To calculate the interest as it accrues, the following formula can be used:

Interest amount = (outstanding student loan principal balance × interest rate factor) × days since last payment

In other words, you will multiply your outstanding loan balance by the interest rate factor, which is used to calculate the amount of interest that accrues on a student loan. Then, multiply that result by the days since you last made a payment.

To calculate the interest rate factor you can divide the interest rate by the number of days of the year (365). For example, let’s say you have an outstanding student loan balance of $10,000, an interest rate of 4.75%, and it’s been 30 days since your last payment. Here’s how to calculate your interest:

$10,000 x (4.75%/365) = $1.30 daily interest charge

$1.30 x 30 days = $39

Interest amount $39

Many private student loans will also accrue interest on a daily basis; however, the terms will ultimately be determined by the lender. Review the lending agreement to confirm.

Recommended: Do Student Loans Count as Income?

How to Evaluate Student Loan Interest Rates

When you take out a federal student loan, you’ll receive a fixed interest rate. This means that you’ll pay a set amount for the term of the student loan. In addition, all of the terms, conditions, and benefits are determined by the government. Federal student loans also provide some additional perks that you may not find with private lenders, like deferment.

Private student loans can have higher interest rates and potentially fewer perks than federal student loans. You may want to take advantage of all federal student loans you qualify for before comparing private loan options.

One thing to keep in mind is that interest you pay on student loans may allow you to take the student loan interest deduction on your taxes.

What Is a Good Fixed Interest Rate for Student Loans?

The lower the interest rate, the less a borrower will owe over the life of the loan, which could help individuals as they work on other financial goals. If you’re taking out federal loans, the student loan interest rate is set by federal law, so you don’t have a choice for what is and isn’t a reasonable interest rate.

When it comes to private student loans, it’s wise to shop around and compare your options to find the most suitable financing solution. Since every lender offers different terms, rates, and fees, getting quotes from multiple lenders may help you select the best option for your personal needs. Keep in mind that the rate you receive on a private student loan is largely dependent on your credit score and other factors, whereas federal student loan interest rates are based on HEA formulas.

Also keep in mind that private student loans do not have the same borrower protections as federal student loans, including deferment options, and should be considered only after all federal aid options have been exhausted.

Ways to Lower Your Student Loan Interest Rate

The interest rate on federal student loans, while fixed for the life of the loan, does fluctuate over time. For example, the rates for Direct Subsidized and Unsubsidized loans for undergraduates more than doubled from 2.75% in 2020–21 to 6.53% in 2024–25.

To adjust the rate on an existing student loan, borrowers generally have two options. They can refinance student loans or consolidate them with hopes of qualifying for a lower interest rate.

Refinancing a federal loan with a private lender eliminates them from federal borrower protections such as federal deferment or Public Service Loan Forgiveness. The federal government does offer a Direct Consolidation Loan, which allows borrowers to consolidate their federal loans into a single loan. This will maintain the federal borrower protections but won’t necessarily lower the interest rate. When federal loans are consolidated into a Direct Consolidation Loan, the new interest rate is a weighted average of your original federal student loans’ rates.

Refinancing student loans with a private lender may allow qualifying borrowers to secure a lower interest rate or preferable loan terms. Note that extending the repayment term will generally result in an increased cost over the life of the loan.

To see how refinancing could work for your student loans, try this student loan refinance calculator.

Fixed vs. Variable Interest Rates: Which Is Better?

Whether fixed or variable interest rates are better depends on a borrower’s specific situation. For many borrowers, fixed rates are often a better option because they are stable and predictable. Your payments won’t change, and you won’t have to worry about rate hikes. Borrowers may want to consider a student loan with a fixed interest rate if interest rates are rising overall and they anticipate needing a number of years to repay their loan.

Because variable interest rates fluctuate with the market, they can be unpredictable. That means your payments can potentially change from one month to the next.

The Takeaway

The average student loan interest rate varies depending on the loan type. The interest rate for federal Direct Unsubsidized and Subsidized loans is set annually by federal law and fixed for the life of the loan.

The interest rate on private student loans is determined by a variety of factors including the borrower’s credit history and may range anywhere from 3.50% to to 17%.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

How often do student loan interest rates change?

The rates on federal student loans are determined and set annually by formulas specified in the Higher Education Act of 1965. Private student loan rates vary by lender, and they may be fixed or variable. Private loans with variable rates can change based on market changes.

How do federal student loan interest rates compare to private loans?

The interest rate on federal student loans is often lower than the rates for private student loans. The rate you may qualify for with a private loan depends on your circumstances. If you have strong credit or a loan cosigner who has strong credit, you may be able to get a loan with a lower interest rate.

Keep in mind that federal student loans have fixed interest rates, which means the interest and your monthly payment won’t change. Private student loans may have fixed or variable rates, and variable rates can go up or down with market changes.

Can I negotiate my student loan interest rate?

Federal student loans have fixed rates that are non-negotiable. With a private student loan, it’s possible that you may be able to negotiate the interest rate, especially if you are struggling to make payments or dealing with financial hardship. Call your private lender and explain the situation.

What factors determine my student loan interest rate?

Federal student loans have a fixed interest rate that is determined and set each year based on formulas specified in the Higher Education Act of 1965. With private student loans, each lender sets their own rates. Private loans require a credit check, and the interest rates vary based on an applicant’s credit and other factors. Generally speaking, the stronger a borrower’s credit is (or if they have a loan cosigner with strong credit), the lower the rate they may be able to qualify for.

Is it better to choose a fixed or variable interest rate for student loans?

For many borrowers, fixed rates may be a better option because they are stable and predictable, which means the monthly payments won’t change over the life of the loan. If you are planning to repay your loan over a period of years, you may want to consider a student loan with a fixed interest rate.

Variable interest rates fluctuate with the market, which makes them unpredictable. As a result, your payments can go up (or down), and may be harder to budget for.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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