How To Change Your Student Loan Repayment Plan: Step-by-Step Guide

Thirty percent of all U.S. adults took on at least some debt to pay for their degree, and 20% of those college attendees still owe money on student loans, according to the Federal Reserve.

Educational debt can be a major burden. If you're in the process of repaying your loans, there may come a time when you want to change your student loan repayment plan because your current plan is no longer working for you.

The process for modifying your payment terms varies, depending on whether you have federal or private student loans. This guide will explain the steps you must take with each type of debt.

Why change your student loan repayment plan?

Student loans are typically repaid over many years. You may decide during this time that your current payoff approach is no longer working for you. If that's the case, you can take action.

“You can change your student loan repayment plan as often as it makes sense for your situation,” says Domenick D'Andrea, a financial adviser and co-founder of DanDarah Wealth Management.

Some of the most common reasons to change your payoff plan include:

• Reducing your monthly payments to get more wiggle room in your budget
• Paying off your loan faster so you can become debt-free sooner and save on interest
• Responding to temporary financial hardship
• Responding to a change in income, such as an increase or decrease in salary

How to change your federal student loan repayment plan

If you have federal student loans, it's easy to change your payoff plan. The first step is to choose which option is right for you. Your choices include:

• Standard Repayment Plan: This plan has fixed monthly payments over 10 years.
• Graduated Repayment Plan: This plan repays your loans over 10 years with payments that start smaller and increase every 2 years. 
• Extended Repayment Plan: This plan repays your loans over 25 years (if you have more than $30,000 in student loans).
• Income-driven repayment plans: These plans include Saving on a Valuable Education (SAVE), Pay as You Earn (PAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). They set payments at 5% to 20% of your discretionary income (depending on the plan) and qualify you for loan forgiveness after 10 to 25 years of eligible payments.

The Department of Education recommends using the loan simulator tool to help you decide which payment plan is right for you based on monthly costs and total costs over time.

Steps to change your plan

After you decide on a plan, you can move forward with changing your payment terms.

“For federal loans, you can request to change the loan repayment plan through StudentAid.gov or by contacting your servicer,” advises Jack Wang, a wealth adviser specializing in student loan repayment strategies with Innovative Advisory Group.

To apply for an income-driven plan, visit Federal Student Aid's Income-Driven Repayment (IDR) Plan Request page. You'll need the following:

• A verified Federal Student Aid (FSA) ID
• Your financial information
• Your personal information
• Your spouse's information, if you're married

Completing the application takes just 10 minutes for most borrowers. If you're interested in one of the other plans, contact your loan servicer to request the change.

Changing your repayment plan for private student loans

If you have private student loans, changing your plan is more complicated. You typically can't alter the terms of your payment arrangement on your existing loan, so you must apply for a new loan with the terms you want through student loan refinancing. You'll use the money from that loan to pay off your current debt.

“You have to fill out a new application and may have to provide additional documentation,” says D'Andrea.

If you're interested in refinancing to change your interest rate or repayment timeline:

• Shop around online and get quotes from multiple lenders.
• Make sure you understand the lender's income and credit score requirements. If you can't qualify on your own, consider adding a well-qualified cosigner to your application.
• Submit an application with the lender offering the desired new loan terms.

Remember, if you extend your repayment period, you'll reduce monthly payments but will pay more interest over time. Ideally, try to keep your timeline close to the same and look for a loan at a lower rate to reduce your monthly payment.

If you don't want to refinance, talk with your lender and ask if they'll allow you to make changes to your repayment terms.

Current student loan refinancing rates

Income-driven repayment plans for federal loans

If you have federal student loans and are interested in an income-driven repayment plan, you have four options:

• Saving on a Valuable Education (SAVE): This plan sets your payments at 5% of your discretionary income for undergraduate-only loans or a weighted average between 5% and 10% of your income if you have both undergraduate and graduate loans. Your repayment term is 10, 20, or 25 years, depending on your loan type and the amount you originally borrowed. After you complete your repayment term, any remaining balance can be forgiven. A federal court has issued an injunction preventing the implementation of parts of the SAVE Plan, and its future is uncertain.
• Income-Based Repayment (IBR): Payments are set at 10% of your discretionary income if you first borrowed on or after July 1, 2014, or 15% if you borrowed before that date. You make payments for 20 years (or 25 if you borrowed before July 2014), and then any remaining balance is forgiven.
• Pay as You Earn (PAYE): Payments equal 10% of your discretionary income, and you can have any remaining loan balance forgiven after 20 years of eligible payments.
• Income-Contingent Repayment (ICR): Payments are set at 20% of your discretionary income, and you have a 25-year repayment period. After that, you can have the rest of your loan balance forgiven.

You must recertify your income and family size each year on an income-driven repayment plan. If you have parent PLUS loans, you must consolidate your loans to become eligible for an income-driven plan, and can only sign up for the Income-Contingent plan.

“You could look into an income-driven repayment plan as a great way to lower your payment,” says D'Andrea.

Tips for managing changes to your repayment plan

Choosing the right payment plan is important. You want to make sure your monthly payments are affordable while also understanding your total borrowing costs over time.

You can use online loan calculators or the Department of Education's loan simulator to find the plan that's best for you.

If your payment changes because you switch plans, are on the Graduated Repayment Plan, or your income changes, you'll also need to adjust your budget to ensure you have enough available funds to make your full payment and cover your other essential costs.