Can't Afford Your New Student Loan Bill? Here's What to Do

Some federal student loan borrowers could soon see their monthly payments jump by hundreds of dollars after years of paying little — or nothing at all.

Millions of borrowers are now starting a 90-day countdown to choose a new repayment plan as the Saving on a Valuable Education (SAVE) plan comes to an end. Notices explaining the transition are being sent out in waves, giving borrowers three months from the date they receive one to select a new option.

For some, the biggest surprise might not be that SAVE has been discontinued — the plan has been on the chopping block for years, after all — but the size of the payment they're now expected to make. Because the pandemic-era payment pause was followed by years of administrative forbearance while lawsuits challenging SAVE played out, it's possible some SAVE borrowers haven't made regular payments on their student debt in more than six years.

However, a higher monthly bill doesn't necessarily mean you're out of options. Experts say the most important step is to act before the 90-day deadline rather than assume you'll automatically be placed into the repayment plan that's best for your financial situation.

Before anything else, compare your repayment options

If you're expecting your monthly payment will increase because of what you've read in the news or heard other borrowers talk about, the first step is to take the time to research your individual situation.

The easiest way to review your options is by using Federal Student Aid's repayment calculator. The tool estimates your monthly payment under each available repayment plan based on information like your income, loan balance and family size.

The repayment calculator can also help you determine which plans you’re eligible for. Eligibility varies based on your loan type and when you borrowed, and not every borrower will qualify for every repayment option.

Before deciding a payment is unaffordable, make sure it's being calculated using the most accurate information. For example, if your income has fallen since you last filed a tax return, you may be able to recalculate your payment using more recent documentation, such as a pay stub.

While it's smart to start researching your options now, you don’t need to rush into a decision. Once you receive notice from your student loan servicer, you’ll have 90 days to select a new repayment plan.

Stanley Tate, a lawyer who specializes in student loans, says borrowers should use that time to understand their options.

“Borrowers assume they have to make a decision right now, and they don't,” Tate says. “It's important to use that window strategically. You want to make sure you know what plan you're switching into and what your estimated payment will be, [and] you may need to use that time to prepare your budget.”

That advice does not mean you can drag your feet and ignore the fact that your repayment plan is changing, though.

“You can’t just do nothing in this time span, and assume [the Department of Education] will put you in the best repayment plan,” says Megan Walter, senior policy analyst at the National Association of Student Financial Aid Administrators (NASFAA). “If you don’t make a decision, ED will place you into one of the standard plans, regardless of your eligibility for an income-driven repayment plan.”

If you're concerned about affording your payments, that's the last thing you want: The standard plan is often the most expensive one because it's designed to pay off the loan over a shorter period.

If your payment is too high, here are your options

If updating your information still leaves you with a payment you can't comfortably afford, there are a few options that could help:

Consider an extended or graduated repayment plan

If you can’t comfortably afford the payment amount under your income-driven options, an extended or graduated repayment plan may help lower your monthly bill by stretching repayment over a longer period.

Extended repayment is only available to borrowers with more than $30,000 in outstanding federal student loans. While spreading payments out can make them easier to manage, it also increases the amount you'll pay in interest. According to Jennifer Finetti, director of student advocacy at ScholarshipOwl, borrowers on an extended repayment plan may ultimately repay “double or triple” what they originally borrowed. These plans also generally don’t qualify for Public Service Loan Forgiveness (PSLF) or time-based forgiveness.

Graduated repayment works a bit differently. Rather than simply extending the repayment period, it starts borrowers with lower monthly payments that increase every two years. That can make your payments more affordable upfront, particularly for recent grads or borrowers experiencing temporary financial hardship, according to Finetti. However, borrowers should be prepared for future payment increases, plus delaying principal repayment typically means paying more interest over the life of the loan. Like extended repayment, months spent in graduated repayment don't count toward loan forgiveness.

Before you choose to pursue an extended or graduated plan, be sure you're weighing all the pros and cons for your individual situation.

“If you're working toward IDR forgiveness and you're close, you may decide to keep paying even though it costs more in the short term,” Tate says. “If you truly can't afford the payment, then you need to explore forbearance, deferment, or extended and graduated plans — but you should understand what that costs you.”

Consider temporary forbearance

If you’re dealing with a sudden financial setback or need time to adjust your budget, requesting forbearance from your loan servicer may provide temporary relief.

Unlike switching repayment plans, however, forbearance doesn't solve the underlying affordability problem. It only pauses your required payments for a period of time.

Experts caution against relying on forbearance for extended periods of time.

“It's appropriate as a short bridge, a few weeks to a couple of months, while paperwork is processed or a temporary income disruption resolves,” Walter says. “It can become a mistake when borrowers are able to make payments but instead use [forbearance] as a long-term substitute”. That’s because time spent in forbearance doesn’t count toward forgiveness credit and interest generally continues to accrue.

Look at your entire budget — not just your loan payment

Figuring out what your new monthly payment amount is only half the battle. The next step is determining whether it realistically works alongside your rent or mortgage, groceries and other debts and financial obligations.

“Some might say that SAVE borrowers should feel fortunate that they haven't had to make payments for the last few years,” says Finetti. “But one thing all student loan borrowers know is that there is really no escaping the debt.”

For some borrowers, the new payment will create genuine financial hardship. For others, the biggest challenge may be what experts call “payment shock," which Walters describes as the psychological and budgeting adjustment that comes with going from little or no monthly payment to a much larger one. And in many cases, the two may overlap. In a recent Federal Reserve survey, 23% of U.S. adults with student loans said they had difficulty making their payments.

“A good share of what looks like an affordability crisis may actually be payment shock,” she says. “The way to tell the difference is by running the actual numbers.

Walter adds that if the payment fits within a reasonable share of your discretionary income after adjusting your budget, the challenge may be one of readjustment. But if the payment still doesn’t work even after cutting back on expenses, that’s a sign it’s time to revisit your repayment options or explore hardship programs.

If that’s the case, the goal is to avoid falling behind while you figure out your next move. Finetti recommends contacting your loan servicer for help understanding your options or considering a nonprofit credit counseling agency that can help you create a budget that incorporates your student loan payment.

The key, she says, is not to ignore the problem and hope it goes away. Borrowers who take action early have more options than those who wait until they’re already delinquent.