student-w-booksMillions of Americans (44 million, to be exact) are tackling student debt right now, one payment at a time.

Many have been dealing with monthly student loan payments for years, so long they’ve become a bill as normal as any other. Send in the monthly payment, check it off, onto the next one.

But even the most financially stable of people can find themselves struck by hard financial times and unforeseen circumstances, whether it’s unemployment, underemployment (although unemployment is on the decline, underemployment is still over 12%), medical bills, or emergency expenses.

Suddenly, routine payments feel oppressive and student loan debt becomes completely unmanageable.

Luckily, it is possible to reduce your monthly payment. While it’s wise to pay off debt as quickly as possible, it’s also not always the best option for your current circumstances.

If you have more pressing debt (read: debt with a higher interest rate) to attend to than your student loan debt, or simply can no longer afford your monthly payments as they are, consider switching to a different repayment plan. Paying less is always better than just not paying your student loans at all.

The Student Debt Challenge

Earlier in 2016, the White House announced the Student Debt Challenge, an initiative to educate people about their repayment plans and give those who are having difficulty repaying their loans more affordable options.

The challenge was created, in part, to bring down the high default rates on student loans, which hit almost 15% in 2010. Now, the default rate has been brought down to just over 11% thanks to more manageable repayment options for the 5 million Americans who have switched to one of the income-driven repayment plans, according to the White House.

Income-driven repayment plans are student loan repayment plans with payments that are calculated based on a percentage of your income. Sometimes, they can come all the way down to $0 in times of economic hardship. If you really can’t afford to make any student loan payments, consider other options such as forbearance or deferment.

These income-driven repayment plans also often allow for student debt to be completely forgiven after 20 years of on-time payments. For many public servants, teachers, nursing, non-profit, and government employees, their loans are forgiven after only 10 years of on-time payments.

It’s important to note that your loans cannot be in default for any of these plans, otherwise you do not qualify.

The three major income-driven repayment plans are: the Pay-As-You-Earn plan (PAYE), the Revised Pay-As-You-Earn plan (REPAYE), and income-based repayment (IBR). They have many similarities, but here are the key differences between the three.

Pay-As-You-Earn Plan

Eligibility: Stafford, Graduate PLUS loans, most direct loans, and some consolidation loans lent out after Oct. 1, 2011 are eligible. Your monthly payments under a regular 10-year term plan must be higher than what your payments would be under this plan.

Monthly payments: Your payments will be equal to 10% of your discretionary income. The maximum monthly payment is whatever your monthly payment would be under a 10-year repayment plan.

Loan forgiveness: Whatever is left of your balance after 20 years of eligible payments is completely forgiven. However, it is taxed as income, and only payments made on July 1, 2009 or later count toward the 20 years.

Revised Pay-As-You-Earn Plan

Eligibility: Any Stafford or Graduate PLUS loans, as well as all direct and consolidation loans that do not contain a Parent PLUS loan.

Monthly payments: Your monthly payments are set to 10% of your discretionary income. There is no maximum payment amount.

Loan forgiveness: Undergraduate loans are completely forgiven after 20 years of eligible payments. Graduate loans are forgiven after 25 years of eligible payments. Both amounts forgiven are taxed as income.

Income-Based Repayment Plan

Eligibility: All Stafford, Graduate PLUS, and Federal Family Education Loan Program loans are eligible. Additionally, all direct loan consolidation loans are eligible if they do not contain a Parent PLUS loan.

Monthly payments: Your monthly payment will be equal to 15% of your discretionary income. They will not exceed what your payments would be under a 10-year repayment plan.

Loan forgiveness: Your remaining balance after 25 years of eligible payments is completely forgiven. It is also taxed as income, and payments only count toward the 25 years if they were made on or after July 1, 2009.

Discretionary income under all of these plans is your gross income adjusted for base living expenses in your state. Basically, they take your gross income and subtract 150% of your state’s poverty level for your family size. The income left is your discretionary income, and that’s what they use to determine your monthly payments.

While discretionary income does help a little to adjust for variations in living expenses by state, these payment amounts are mostly based on your income rather than your cost of living. Any other major expenses or debts as well as incredibly high rent for people who live in places like New York City or San Francisco will not be taken into account when calculating your minimum monthly payments. Still, these options can be preferable to other repayment plans.

How much will I save?

Let’s take the average student loan-borrower who is experiencing rough financial times as an example.

The average monthly payment for someone with recent student debt is $351.

Let’s say this person is currently underemployed (only working part-time, or working in a very low-paying job that doesn’t make use of the skills they developed while in school). People who are underemployed typically make over minimum wage, but not by a large margin. We’ll say this person makes around $25,000 a year, which is around $13 per hour. 40% of recent graduates, actually make around or less than that.

The average poverty level for a single person in the United States is $11,770. Adjusted, that makes this person’s discretionary income (if they are single) around $14,000 a year.

With that income, if you switched to one of the income-driven repayment plans that charges 10% of discretionary income, they’d be paying about $116 per month. With a family, their payments would be even smaller.

By switching to an income-driven repayment plan, they just saved $235 a month for a grand total of $2,820 per year.

If you’re responsible with your payments on one of these income-driven repayment plans, you may eventually get your remaining debt forgiven. What a dream! But remember, student loan forgiveness programs aren’t always the best option, so make sure to do your research.

Have you followed any of these steps? What were your results? Share them below!

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