Don’t Qualify for IDR Plans or PSLF? Refinancing Could Be the Answer

Ben Luthi

If you have a significant amount of federal student loan debt, you may be looking for anything that can help reduce your monthly payments or save you money on interest.

Income-driven repayment (IDR) plans and the Public Service Loan Forgiveness (PSLF) program can serve these functions, but these programs aren’t available to just anyone.

Here’s what you need to know about eligibility for PSLF, eligibility for IDR plans, and what your alternative options are if you can’t qualify.

How to qualify for PSLF

The Public Service Loan Forgiveness program is designed to help student loan borrowers who choose to work for certain employers get relief from their student debt. Specifically, you can apply if you work full-time for a U.S. federal, state, local, or tribal government organization or for an eligible not-for-profit company.

You’ll also need to pay your student loans under an income-driven repayment plan and make 120 qualifying payments. Only Direct Loans are eligible for the program, but you can consolidate loans from other federal loan programs into a Direct Consolidation Loan.

Once you make your 120 payments, your remaining loan balance is forgiven under the program.

So if you’re wondering if you can qualify for PSLF, the answer largely depends on your career choice. Also, keep in mind that it takes at least 10 years to actually receive forgiveness under the program. So if you anticipate changing employers and moving into the private sector, it might not make sense to start it.

Can I qualify for IDR?

The U.S. Department of Education offers four different income-driven repayment plans to current federal loan borrowers.

The Pay As You Earn (PAYE) and Income-Based Repayment (IBR) plans are the only IDR plans that have strict eligibility requirements. Both require you to show that you have financial need, which is measured by the following:

  • Your monthly payment under PAYE or IBR is less than your current payment under the 10-year Standard Repayment Plan.
  • Your federal student loan debt is higher than your annual discretionary income, or it represents a significant portion of your annual income.

The Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR) plans don’t have financial eligibility requirements. However, all four IDR plans are only available on certain loans:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate and professional students
  • Direct Consolidation Loans (loans that were consolidated from Parent PLUS Loans are only eligible for the ICR plan)
  • Federal Stafford Loans (if consolidated)
  • FFEL PLUS Loans made to graduate and professional students
  • FFEL Consolidation Loans (loans that were consolidated from Parent PLUS Loans are only eligible for the ICR plan)
  • Perkins Loans (if consolidated)

Don’t qualify for PSLF or IDR? Here’s an alternative

If you don’t qualify for PSLF or an IDR that will save you money — and that includes if you have private student loans that don’t qualify for these federal programs — refinancing your student loans may be a smart and effective alternative.

With student loan refinancing, you use a new loan from a private lender to pay off one or more existing loans. If you qualify, you may be able to take advantage of some excellent benefits:

  • You may be able to get a lower interest rate on the new loan than what you’re currently paying.
  • Repayment terms often range from five to 20 years, so you can have some flexibility with your monthly payment and how long you have to pay off the debt.
  • A lower monthly payment can make it easier to qualify for a mortgage loan because it reduces your debt-to-income ratio.
  • Refinancing allows you to choose your lender based on its features, customer satisfaction, and more.

Keep in mind, though, that not everyone qualifies for student loan refinancing. Unlike PSLF and IDR plans, private lenders run a credit check when you apply for refinancing. If your credit history is strong and you have a relatively high income, it’ll improve your chances of getting approved at a favorable rate.

However, if you can’t get approved based on your own credit and income situation (or you get approved, but at a higher rate than what you’re paying now), it might not make sense to move forward.

If this is the case for you, getting a creditworthy cosigner may be a solution. With this arrangement, your cosigner effectively guarantees to pay the debt if you can’t, so the lender will use both credit histories and income profiles to make a decision and potentially offer you lower rates.

Also, some lenders offer a cosigner release program, which allows you to remove the cosigner from your loan after you’ve made a certain number of consecutive monthly payments and met the lender’s credit requirements on your own.

Shop around to maximize your refinancing savings

If you’re considering refinancing your student loans, take the time to shop around and compare rates, fees, and other features from several lenders before applying.

Purefy’s Compare Rates tool can help simplify this process by giving you rate quotes from several top lenders in one place with one easy form. Simply provide a little information about yourself and your student loans, and Purefy will run a soft credit check — this won’t impact your credit score — to determine your eligibility.

Once you see your refinancing options and rate offers, you can quickly assess your choices and pick the one that matches your student loan goals.

The bottom line

Understanding how to qualify for PSLF and IDR plans can help you determine whether they can provide you with the assistance you need with paying off your student loans. If you don’t qualify, though, refinancing your loans can be a great way to save money or reduce your monthly payment to an affordable level.

Regardless of which path you’re considering, do some research and view rates from student loan refinancing lenders, and compare those terms with what you might get with PSLF — remember you have to wait at least 10 years to get forgiveness — and IDR plans. As you run the numbers, you’ll have a better chance of picking the best way to pay off your student loan debt.

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