Federal Student Loan Protections

Last Updated: August 7, 2021 by Melanie Hanson

Under some circumstances, refinancing student loans can help you get out of debt faster and ultimately save you thousands. Refinancing may have consequences, however, such as the loss of certain federal protections.

Federal Protections Lost in Refinancing

Federal borrowers who refinance with private lenders stand to lose access to many federal benefits, including student loan forgiveness and multiple repayment plan options that private lenders do not offer.

Among the benefits that private lenders do offer, federal programs generally have many more opportunities for borrowers to take part. For example, temporary suspension of payments, also called deferment or forbearance, is an option with federal student loans. Temporary relief related to COVID-19 automatically qualified over 35 million borrowers for loan forbearance.Many private lenders and loan servicers advertise deferment options, but in practice, options are very limited.

Other legal protections, such as the Servicemembers Civil Relief Act and Discharge Due to Bankruptcy benefit some federal borrowers would lose access to if they refinance.

Total Student Loan Dollars Under Federal Protection, Note some loans currently make use of more than one type of federal protection

Student Loan Forgiveness

Many types of student loan forgiveness exist, and over 3 million student borrowers are eligible for student loan forgiveness. While some programs have never been funded, public interest in the student loan debt crisis has prompted lawmakers to reexamine these programs and ease restrictions to allow more borrowers access to this type of debt relief.

Student Loan Forgiveness Programs
Public Service Loan Forgiveness PSLF is only available for federal loans and applies to 2.99 million borrowers.
Temporary Expanded Public Service Loan Forgiveness TEPSLF provides limited, additional conditions for loan forgiveness under the Consolidated Appropriations Act of 2018.
Teacher Loan Forgiveness 74% of federal student loan forgiveness program funds go to Teacher Loan Forgiveness, making it the most commonly approved type of student loan forgiveness.
Borrower Defense to Repayment Discharge BDPD is possible if a borrower’s school is guilty of legal violations or misconduct.
Closed School Discharge Debt forgiveness may be available if a borrower’s loans are for a school that is now closed.*
Total and Permanent Disability Discharge Debt forgiveness is possible if a borrower becomes totally and permanently disabled.
Discharge Due to Death If a borrower or student loan beneficiary passes away while a loan is still in repayment, the loan will most likely qualify for discharge of the remaining balance.

*Note: If you attended a school that is now closed, you may still be able to gain access to a copy of your academic records or transcript; contact the ED’s state licensing agency in the state where the closed school was located.

Federal Loan Repayment Plans

Unless they choose a different repayment plan, federal borrowers are automatically enrolled in the Standard Repayment Plan. This plan has a fixed rate that ensures a maximum 10-year loan term or up to 30 years for Consolidated Loans.

Similarly, the Graduated and Extended repayment plans ensure a 10-year term (up to 30 for Consolidated Loans) at a fixed rate. These plans are unique in that they start with small payments that grow over time. Ostensibly, this is to match a growing income though the borrower’s actual income has no impact on the size of payments.

Income-driven repayment plans set minimum payments to match a percentage of the borrower’s income. Federal loans retain access to multiple income-driven repayment plans designed to fit each borrower’s unique needs.

At least 47% of outstanding federal student debt is from loans on a payment plan other than the Standard. Income-driven repayment plans are the most heavily utilized. Most payment plans are only available for certain types of federal loans.

Average Debt Balance on Direct Loans by Payment Plan

Standard Repayment Plan

This is the repayment plan most federal borrowers use. All payments are the same fixed amount, with a term limit of 10 years. For Consolidation Loans, term limits are between 10 and 30 years.

All borrowers are eligible for this plan. The U.S. Department of Education (ED) Office of Federal Student Aid (OFSA) warns, however, that this plan is not a good option for borrowers seeking PSLF; this is because most forgiveness programs require a minimum of 10 year’s worth of payments.

Standard, Graduated, & Extended Repayment Plan Eligibility
Direct Loans, Subsidized and Unsubsidized
Stafford Loans, Subsidized and Unsubsidized
All PLUS Loans
All Consolidation Loans

Graduated Repayment Plan

While initial payments may be lower, ultimately this plan costs more than the Standard Repayment Plan. Initially lowered payments increase every two (2) years for up to 10 years. As with the standard plan, Consolidation Loans are eligible for term limits between 10 and 30 years.

Monthly payments cover accrued interest at minimum. Payments will never be more than three times greater than any other payment. All borrowers are eligible for this plan though OFSA warns that this plan generally does not qualify for PSLF.

Graduated Repayment Periods Per Debt Amount
up to $7,500 10 years
$7,500 – $10,000 12 years
$10,000 – $20,000 15 years
$20,000 – $40,000 20 years
$40,000 – $60,000 25 years
$60,000+ 30 years

Extended Repayment Plan

While initial payments may be lower than they are on the Graduated Plan, ultimately this plan costs more than the Standard Plan. Payments may be fixed or graduated with monthly payments increasing over time, with a term limit of 25 years.

To qualify for this plan, Direct Loan borrowers must have more than $30,000 in outstanding Direct Loan debt. Likewise, FFEL borrowers must have more than $30,000 in outstanding FFEL debt. This is not a qualifying repayment plan for PSLF.

Income-Driven Repayment Plans

Income-driven plans use a borrower’s income to determine an affordable monthly payment. Most plans determine monthly payments based on 10% to 20% of discretionary income.

“Discretionary income” refers to the difference between a borrower’s annual income and 100% to 150% of poverty guidelines. It is possible to have a monthly payment of $0.

Repayment periods are generally 20 to 25 years. Federal student loans that aren’t fully repaid at the end of the repayment period are forgiven.

Because required monthly payment amounts increase or decrease based on income and/or household changes from year to year, participating borrowers must recertify income and family size on an annual basis. Failure to complete recertification by the annual deadline retroactively disqualifies borrowers from this payment plan. Retroactive disqualification means any unpaid interest will be capitalized.

Revised Pay As You Earn Repayment Plan (REPAYE)

This repayment option is recommended for borrowers seeking PSLF.

Under this plan, 10% of your discretionary income goes toward student loan repayment for up to 20 years for undergraduate loans. If any loans included in the plan were for graduate or professional study, the repayment period is 25 years.

Borrowers may still be required to pay taxes on any forgiven debt. At the end of the repayment period, any remaining outstanding federal debt is forgiven.

Pay As You Earn Repayment Plan (PAYE)

As with the REPAYE Plan, 10% of discretionary income goes toward repayment for a period of 20 to 25 years. In order to qualify for this PAYE, however, required payments must be less than those of a 10-year Standard Repayment Plan.

Income-Based Repayment Plan (IBR)

This plan assumes a portion of your discretionary income based on whether you already had loan debt when you took out the loans on the IBR plan after July 1, 2014.

For people who were new borrowers on or after July 1, 2014, this plan puts 10% of discretionary income toward loan repayment for up to 20 years. For all other borrowers, the benchmark is 15% for up to 25 years.

Payments never exceed the 10-year Standard Repayment Plan amount.

Income-Contingent Repayment Plan (ICR) Plan

Monthly payments are based on one of two variables. Payments will either be based on 20% of discretionary income OR “what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.”[1]

The basis of payment is the lesser amount of these two (2) payment options for up to 25 years.

Income-Driven Repayment Plan Loan Eligibility
Loan Type REPAYE Plan PAYE Plan IBR Plan ICR Plan
Direct Subsidized
Direct Unsubsidized
Direct PLUS Grad
Direct Consolidation ✓* ✓* ✓*
Stafford Loans, Subsidized (FFEL) ✓† ✓† ✓†
Stafford Loans, Unsubsidized (FFEL) ✓† ✓† ✓†
FFEL PLUS Grad ✓† ✓† ✓†
FFEL Consolidated* ✓† ✓† ✓†
Perkins Loans ✓† ✓† ✓† ✓†
Direct PLUS Parent ✓†
FFEL PLUS Parent ✓†

*If and only if they did not repay any parent PLUS loans.
Only eligible if consolidated.

Income-Sensitive Repayment Plan

This plan is only available to low-income FFEL Program borrowers, including Subsidized and Unsubsidized Stafford Loans, FFEL PLUS Loans, and FFEL Consolidation Loans. Monthly payments increase or decrease based on annual income, and the maximum repayment period is 10 years. Eligible FFEL loans may be owned by the ED or by a private loan servicer.

Temporary Suspension of Payments

Temporary suspension of payments, also called deferment or forbearance, are generally unavailable to private borrowers. The current mass forbearance, for example, suspends federal student loan payments and interest until January 31, 2022.

In most cases, periods of deferment and forbearance are ineligible to fulfill student loan forgiveness requirements. Subsidized federal loans in deferment generally do not accrue interest. Most private lenders do not offer many opportunities to defer payments.

In-School Deferments are the most commonly utilized with 3.32 million loans currently deferred under this category. Assume loans in deferment or forbearance continue to accrue interest unless otherwise noted.

Bar Graph: Average Debt Balance on Deferred Loans, Military adn Cancer Treatment Deferments excluded due to insufficient data

Student Loan Deferment

Few deferments are automatic; borrowers must submit a deferment request through OFSA. Some deferments include a 6-month grace period.

Conditions for Deferment or Forbearance
Cancer Treatment Deferment Borrowers undergoing cancer treatment may be eligible for deferment. Payments are typically deferred for the entirety of the treatment as well as a six-month recovery period after treatment has ended.
Economic Hardship Deferment Up to three (3) years of deferment may be available to low-income borrowers, public assistance beneficiaries, and volunteers serving in the Peace Corps.
Graduate Fellowship Deferment Qualified borrowers enrolled in approved graduate fellowship programs may be eligible for deferment of payments.
In-School Deferment Borrowers who are enrolled at least half-time at an eligible college or career school qualify for deferment. Usually applied automatically, this is the type of determent most commonly utilized.
Military Service and Post-Active Duty Student Deferment Active military service in connection with any war, military operation, or national emergency qualifies borrowers for deferment.
Parent PLUS Borrower Deferment Parent borrowers whose benefiting child is enrolled at least half-time in an eligible college or career school may apply for deferment.
Rehabilitation Training Deferment Borrowers enrolled in approved rehabilitation training programs designed to provide vocational, mental health, or substance abuse rehabilitation treatment may qualify for this type of deferment.
Unemployment Deferment Up to three (3) years of deferment may be available to borrowers receiving unemployment benefits or those seeking and unable to find full-time employment.

Student Loan Forbearance

Loan servicers may approve a borrower’s application for a general or “discretionary” forbearance. This type of forbearance is limited to 12-month periods for up to 3 years. Eligible loans include Direct, FFEL, and Perkins Loans.

Reasons for General Forbearance include financial difficulties, medical expenses, change in employment, and any additional conditions deemed acceptable by loan servicer. Applicants may request to temporarily pause or diminish monthly payments.

In cases of mandatory forbearance, federal loan servicers are required to grant temporary suspension of payments; private lenders are never required to grant a forbearance.

Conditions for Mandatory Forbearance
AmeriCorps Service in a position for which the applicant has received a national service award qualifies borrowers for forbearance.
Medical or Dental Internship or Residency Certain borrowers may qualify for mandatory forbearance.
National Guard Duty If borrowers are not eligible for military deferment, they may be eligible for mandatory forbearance.
Student Loan Debt Burden When monthly payments exceed 20% or more of the borrower’s total monthly gross income, this is considered a debt burden.
Department of Defense Student Loan Repayment Program Under certain circumstances, mandatory forbearance is possible through the Department of Defense
Teacher Loan Forgiveness Borrowers seeking Teacher Loan Forgiveness may qualify for mandatory forbearance.

Other Benefits & Legal Protections

Debt relief efforts may include additonal legal protections not mentioned here.

  • Loan rehabilitation is available with federal loans, making it possible to have defaulted loans removed from your credit record.
  • Discharge Due to Bankruptcy may be available to borrowers who file Chapter 7 or Chapter 13 bankruptcy, apply for a subsequent discharge, and appear in bankruptcy court.
  • The Preservation of Consumers’ Claims and Defenses [“Holder in Due Course Rule”] protects consumers when their loans are sold to other lenders.
  • The Service Members Civil Relief Act inclues benefits for debts incurred prior to active duty service.
  • Other legal protections exist to help student borrowers avoid default.

Related reports include Student Loan Debt Statistics | Average Time to Repay Student Loans | Economic Effects of Student Loan Debt | Student Loan Refinancing

Sources

  1. U.S. Department of Education (ED) Office of Federal Student Aid (OFSA), Income-Driven Repayment Plans
  2. OFSA, Manage Loans
  3. OFSA, Federal Student Loan Portfolio
  4. U.S. Office of Personnel Management, Policy, Data, Oversight
  5. Yale Law School, FAQ Refinancing And Consolidating Federal Student Loans