How to Pay Your Student Loans With a Low Income

Graduating from college should feel like the start of an exciting new chapter, but for many young professionals, the burden of student loan debt overshadows the excitement. You might have expected your degree to open doors to a well-paying job, yet now you’re facing the harsh reality: your income doesn’t stretch far enough to cover both your living expenses and your student loan payments.

If you find yourself in this situation, you’re not alone. Millions of borrowers struggle to manage their student loans while earning far less than anticipated. Fortunately, you can take steps to ease the pressure and avoid falling behind.

It’s no wonder—after all, most student loan companies don’t broadcast their payment options. That leaves borrowers and their families in the dark, feeling as if there are no options.

From exploring income-driven repayment plans to carefully considering refinancing options, this guide will provide practical strategies for managing your student loans, even if your current paycheck seems too small to handle it all.

Step 1: Explore Income-Driven Repayment Plans (IDR)

If your federal student loan payments are unaffordable, income-driven repayment (IDR) plans can offer much-needed relief. These plans base your monthly payment on your income and family size, allowing you to make more manageable payments. If your income is low enough, your payment could be as little as $0 per month, and those $0 payments still count toward eventual loan forgiveness.

Here’s an overview of the main IDR plans currently available:

• Income-Contingent Repayment (ICR): ICR is the oldest of the IDR plans and calculates payments as either 20% of your discretionary income or a fixed payment over 12 years, whichever is lower. While ICR is generally less favorable than other plans, it can be helpful for certain borrowers, particularly Parent PLUS loan holders who consolidate to become eligible.
• Income-Based Repayment (IBR): IBR calculates payments as either 10% or 15% of your discretionary income, depending on when your loans were first disbursed. Newer borrowers (after July 1, 2014) benefit from a 10% payment cap and 20-year forgiveness period, while older loans are capped at 15% with forgiveness after 25 years.
• Pay As You Earn (PAYE): PAYE limits payments to 10% of your discretionary income and is available to borrowers who took out loans after October 2007. The forgiveness timeline is 20 years, making it one of the most favorable IDR plans if you qualify.
• Saving on a Valuable Education (SAVE): The SAVE plan, which replaced the REPAYE plan, is currently one of the most generous options. SAVE calculates payments as 10% of your discretionary income, but only on income above 225% of the federal poverty line—significantly lowering monthly payments compared to REPAYE. Additionally, SAVE eliminates the problem of unpaid interest accumulation, meaning any unpaid interest will not be added to your balance as long as you make your monthly payments, even if they are $0. Like REPAYE, SAVE offers forgiveness after 20 years for undergraduate and 25 years for graduate loans.

Current SAVE Plan Litigation: Though the SAVE plan offers substantial benefits, its implementation has faced legal challenges. Critics argue that the Biden Administration overstepped its executive authority by creating and expanding the SAVE plan without congressional approval. In October 2023, a group of Republican-led states sued to block the SAVE plan, claiming it unlawfully expands debt relief. In July 2024, the 8th Circuit Court of Appeals issued a temporary injunction that prevents implementation of the SAVE plan while the legal case is underway. If you’re considering SAVE, applying to another IDR Plan is advisable until SAVE becomes available again.

Why IDR Plans Are Essential: IDR plans offer a critical safety net for borrowers. Even if your monthly payments are reduced to $0, those payments still count toward your forgiveness timeline. This makes it easier to stay in good standing, avoid default, and progress toward long-term relief, even when your income is stretched thin.

Step 2: Look for Public Service Jobs

If you’re finding it challenging to keep up with your student loan payments, working in the public sector or for a nonprofit organization could offer a path to forgiveness. The Public Service Loan Forgiveness (PSLF) program is designed specifically for borrowers who work full-time for the government or qualifying 501(c)(3) nonprofit organizations. After making 120 qualifying payments (which equals ten years if done consecutively), the remaining balance on your federal student loans is forgiven.

Here’s how it works: To qualify, you must be on an income-driven repayment plan like the ones mentioned earlier. This means that even low or $0 payments can count toward the 120 payments needed for forgiveness. Additionally, the payments don’t need to be consecutive, allowing flexibility if you change jobs or experience interruptions in employment.

The PSLF program, when paired with an income-driven repayment plan, can be particularly effective because it allows you to keep payments affordable while working toward forgiveness. If your income remains low while working in a public service job, your payments might be minimal—or even zero. These payments still count toward your forgiveness goal.

One thing to remember is the importance of correctly documenting your employment and ensuring your payments qualify. The PSLF program has historically been plagued by issues related to application rejections due to paperwork errors or misunderstandings about qualifying employment. Be sure to submit a PSLF Form periodically and whenever you change jobs to ensure the Department of Education counts your time correctly.

Reforms to the PSLF program have made it more accessible and transparent in recent years, but it’s still crucial to stay on top of the requirements to avoid surprises down the road. Combining income-driven repayment with public service employment can be a powerful strategy to eliminate debt without overwhelming your finances.

Step 3: Check Your Employer Benefits

Many employers are beginning to recognize the burden that student loan debt places on their employees and offer assistance through student loan repayment programs as part of their benefits packages. While this isn’t a standard benefit, it’s becoming more common among larger companies and specific industries.

Employers may contribute a set amount directly toward your student loan balance each month or provide a lump-sum payment over time. This benefit can significantly reduce your repayment timeline and overall interest costs, especially if combined with other strategies like income-driven repayment or public service loan forgiveness. Some well-known companies, such as Starbucks and PwC, have rolled out comprehensive student loan repayment programs. Additionally, if you’re considering further education, some employers offer tuition assistance to pursue a degree relevant to your job.

It’s important to review the terms of any employer-sponsored repayment program carefully. Some programs require a particular tenure or have caps on the total assistance provided. Additionally, these benefits may be taxable, so factor in any potential tax liabilities when assessing the overall value.

If you’re in the job market, consider prioritizing employers that offer student loan assistance. This benefit could be a game-changer, allowing you to accelerate your debt payoff without significantly impacting your budget. For those who already have a job, it’s worth checking with HR to see if any student loan assistance programs are available or in the works.

Step 4: Be Cautious About Refinancing Your Loans

Refinancing student loans may seem attractive, particularly when private lenders advertise lower interest rates. However, it’s crucial to understand the risks, particularly regarding federal student loans.

When you refinance, you take out a new loan with a private lender to pay off your existing loans. Refinancing can be beneficial if you qualify for a lower interest rate, potentially lowering your monthly payments and reducing the total amount you’ll pay over the life of the loan. Refinancing is often the only way to improve terms like interest rates or repayment length for private student loans.

While refinancing can be beneficial for private loans, it’s a different story for federal loans. When you refinance federal student loans with a private lender, you permanently lose access to all federal loan benefits. This includes income-driven repayment plans, deferment and forbearance options, and forgiveness programs like Public Service Loan Forgiveness (PSLF).

These protections are especially valuable if you face uncertain financial circumstances. For example, federal loans allow you to adjust payments based on income and even temporarily pause payments during periods of economic hardship. Losing these options could put you at risk of default if your financial situation changes.

The Student Loan Refinancing Fine Print: Private lenders often highlight the benefits of lower interest rates without fully explaining the trade-offs. Before refinancing, carefully consider whether you’re likely to need federal loan benefits in the future. If you’re pursuing forgiveness under PSLF, relying on income-driven repayment, or are concerned about job stability, refinancing may not be worth the potential savings.

That said, if your income is stable, you don’t qualify for federal benefits, and your primary goal is to lower your interest rate, refinancing could still be a good option for private loans. Remember to shop around and compare offers from multiple lenders to get the best deal.

In short, while refinancing can be helpful, it’s not a one-size-fits-all solution. Weigh the benefits and risks carefully, especially when federal loans are involved, to avoid losing crucial protections that could save you from financial trouble down the line.

Step 5: Free Up Cash by Reassessing Your Budget

Finding extra money for student loan payments can feel impossible when you barely earn enough to cover your basic expenses. However, taking a hard look at your budget and making strategic cuts can free up cash that you can use to chip away at your loans.

Start by tracking your expenses for a month. Look for areas where you can cut back. Subscriptions, dining out, and non-essential shopping are common places where minor cuts can add up. While it may seem daunting to scale back, even a few dollars saved each month can make a difference when directed toward your loans.

If you have valuable items that are collecting dust, consider selling them through online marketplaces like Craigslist, eBay, or Facebook Marketplace. Hosting a yard sale can also help generate extra cash. Even though these strategies won’t solve the problem entirely, they can provide quick funds to address upcoming payments or reduce your loan balance.

If your budget is already tight, you should explore more significant lifestyle changes. Moving to a less expensive living situation can reduce housing costs, whether by downsizing or sharing a place with roommates. Additionally, cutting back on non-essential services like premium cable, frequent rideshares, or expensive hobbies can create additional breathing room.

Another option is to explore part-time or freelance work to bring in extra income. Side gigs like ridesharing, food delivery, or online freelancing can provide temporary relief while you work toward more sustainable long-term solutions.

Address Your Credit Card Debt: If you’re juggling student loan payments alongside high-interest credit card debt, consider consolidating or negotiating the credit card debt. In some cases, filing for bankruptcy could help eliminate credit card debt and free up funds to tackle your student loans. It’s a good idea to meet with a bankruptcy attorney who can explain your options in detail.

Ultimately, finding extra cash often involves making tough choices and prioritizing long-term financial health over short-term comfort. By being strategic and realistic about your budget, you can gradually improve your financial situation, allowing more room to stay current on your student loans.

Step 6: Plan Strategically for Private Loan Debt

Managing private student loans can be much more challenging than handling federal loans. Private loans lack the flexible repayment options, protections, and forgiveness programs that federal loans offer. If you’re struggling to make your private loan payments, you need a strategic approach to avoid default and its harsh consequences.

Understand the Risks of Nonpayment. Unlike federal loans, private student loans don’t have income-driven repayment plans or extensive forbearance options. Falling behind on these payments can quickly lead to serious financial consequences, including aggressive collection practices and potential lawsuits. If you default on a private loan, the lender can sue you and seek to garnish your wages or seize assets, depending on your state’s laws.

If you’re unable to keep up with payments, your first step should be to contact your lender. Some private lenders may be willing to offer temporary relief through forbearance, reduced payments, or a loan modification. These options are often limited, but negotiating directly with your lender can buy you time while you explore other solutions.

Saving for a Settlement. In some cases, if you’ve already fallen behind on your private loans, settling the debt might be a viable option. Settlements typically occur when your loan is seriously delinquent, and the lender is willing to accept a lump-sum payment for less than the total amount owed. However, to successfully negotiate a settlement, you’ll need to save enough cash to make a substantial offer.

Saving for a settlement requires planning and discipline. Set aside a small amount each month specifically for this purpose. Even if it takes time to build up, having a lump sum ready increases your bargaining power when the lender is open to negotiating. Remember that settlements usually become more feasible after your loans have been delinquent for a significant period, as lenders may prefer a reduced payment over continued default.

Legal Assistance and Strategic Defense. If you’re facing a lawsuit from a private lender, getting legal help should be your top priority. A student loan lawyer can guide you through the process, explain your options, and even help negotiate a settlement or defend you in court. Some defenses may be available, depending on the specifics of your loan, how the debt was handled, or procedural errors by the lender.

In the meantime, focus on protecting your essential assets and ensuring that your basic living expenses are covered. While the situation can feel overwhelming, having a strategic plan—saving for a settlement, seeking a loan modification, or preparing a defense—can help you regain control.

Remain Calm

Dealing with student loan debt when your income doesn’t match your expenses is a complex and stressful situation, but you can take steps to make it more manageable. From leveraging income-driven repayment plans to exploring public service jobs for forgiveness, there are options to help reduce the burden. Don’t overlook potential employer benefits or ways to free up extra cash by adjusting your budget.

However, it’s crucial to tread carefully when considering refinancing, especially when it involves federal loans. Losing federal loans’ protections and flexibility could worsen your situation in the long run. For private loans, having a strategic plan—whether it’s saving for a settlement or seeking legal guidance—can prevent severe consequences and give you more control over the situation.

The key is to remain proactive. Student loan debt doesn’t have to derail your financial future if you take steps to manage it effectively. Understanding your options and creating a plan tailored to your circumstances will give you the best chance at overcoming this challenge and moving toward financial stability.