Many professions pay low salaries, especially for entry-level positions. If you find that your federal student loan payments are more than 10-15% of your monthly discretionary income, you may be able to qualify for a program that would cap your monthly payment. Even better, the federal programs offer principal forgiveness. For example, if you want to commit yourself to working for a non-profit and expect a low salary throughout your career, your payment could be capped at 10% of your discretionary income and the remaining principal balance would be forgiven after 25 years. You can learn about the various program on the Federal Student Aid website. The website also offers a repayment calculator, where you can estimate your payment and your savings.

MagnifyMoney (my website) recently conducted a national poll. Only 40% of college graduates are aware of these income-based repayment options. If you want to take advantage of the savings, you have to be proactive.

Just remember the following:

  1. These options are only available for federal loans. And the level of potential forgiveness varies by program.
  2. Your payments are generally based upon income from your tax return. If you are married and file jointly, both incomes will be considered in the calculation.
  3. If you have federal student loan debt and refinance to a private lender, you will forfeit your ability to use these programs in the future.

These programs have the potential to be incredibly generous. If you have federal student loan debt and need help, you should start doing your homework and consider taking advantage of these programs.

None Of The Above

If you have a private student loan and do not qualify for a refinance, you should continue to work on improving your credit risk profile. That means making your student loan payments on time, sticking to a budget and avoiding building up credit card balances. Over time, your risk profile should improve and you may be able to qualify. The student loan refinance companies continue to expand their credit criteria as they grow, so you may find that you qualify at the same lender in a year from now.

But if you are in financial difficulty right now, you should just call your servicer and explain your situation. The programs offered vary by private student loan company. It never hurts to call and ask. One thing is certain: if you don’t ask for help with your payment, your servicer will not give it to you.

Unfortunately there are no perfect solutions to the growing student loan problem. If you can qualify, refinancing or taking advantage of income-based repayment could be a big help.