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Debt Restructuring Options For Student Loan Borrowers

By Spodek Law Group | February 20, 2024

Debt Restructuring Options For Student Loan Borrowers

Student loan debt is a growing crisis in America. Over 44 million borrowers owe more than $1.5 trillion in student loan debt, with the average borrower owing over $30,000 [1]. As more borrowers struggle to keep up with payments, debt restructuring options are becoming increasingly important. Here are some of the main debt restructuring options available to federal and private student loan borrowers.

Federal Student Loan Programs

The federal government offers several repayment programs to help struggling borrowers manage their federal student loan debt:

  • Income-Driven Repayment (IDR) Plans – IDR plans like PAYE and REPAYE cap monthly payments at 10-20% of discretionary income and forgive any remaining balance after 20-25 years of payments [2]. These are the main federal debt restructuring programs.
  • Extended Repayment – Extends repayment term to 25 years to lower monthly payments [3].
  • Graduated Repayment – Payments start low and increase every 2 years. More affordable at first but payments can get high.

Pros of federal repayment programs:


  • Pay more interest over longer repayment term
  • Tax liability on forgiven loan amounts

These federal repayment programs are available for federal Direct Loans and FFEL Loans. Some Perkins Loans also qualify.

Federal Student Loan Forgiveness Programs

In addition to the above repayment programs, the federal government also offers student loan forgiveness programs that will forgive remaining student loan balances after meeting certain requirements:

  • Public Service Loan Forgiveness (PSLF) – Forgives federal student loan balances after 120 qualifying payments while working full-time for an eligible employer [4]. A popular but controversial program.
  • Teacher Loan Forgiveness – Up to $17,500 in loan forgiveness for teachers in low-income schools after 5 years.
  • Military Programs – Special payback and forgiveness options for military members.
Program Overview Eligibility
Income-Driven Repayment (IDR) Payment capped at 10-20% of discretionary income. Forgiveness after 20-25 years Federal student loans
Public Service Loan Forgiveness (PSLF) Forgiveness after 10 years of payments and public service employment Federal Direct Loans
Teacher Loan Forgiveness Up to $17,500 forgiveness after 5 years teaching in low-income school Federal and Perkins Loans

While these programs provide relief, borrowers report difficulties taking advantage of them [5]. The complex rules and paperwork make them hard to access for struggling borrowers.

Private Student Loan Options

For borrowers with private student loans, options are more limited but some relief may still be available:

  • Forbearance – Temporarily postpone payments for up to 12 months due to financial hardship. Interest still accrues.
  • Deferment – Pause payments for certain situations like unemployment or back to school. Interest often still accrues.
  • Modified repayment plans – Some lenders may offer extended repayment terms or interest rate reductions.

These options provide temporary relief from high payments but do not offer the deep long-term debt restructuring and forgiveness that federal loans offer.

For borrowers facing default, debt settlement may also be an option. The lender agrees to accept a discounted lump sum payment (often 30-50% of balance) as payment in full. This option comes with credit score implications and tax liabilities on the forgiven debt.

Getting Help

Navigating these student loan debt restructuring options is complex. These government resources and non-profits can provide guidance:

  • r/StudentLoans [6]
  • U.S. Department of Education [7]
  • Student Loan Borrower Assistance [8]
  • Student Debt Crisis [9]
  • American Consumer Credit Counseling [10]

They can help borrowers understand their options, manage loan servicers, and access relief programs. Consulting a student loan lawyer can also help build a customized debt repayment strategy.

The Bottom Line

Over 44 million Americans are struggling with $1.5 trillion in student loan debt. Thankfully federal and some private repayment programs exist to help borrowers manage this debt. Income-driven plans, extended terms, deferment and forbearance provide payment relief in the short term. Forgiveness programs like PSLF provide longer term debt restructuring but can be difficult to obtain. While not perfect, these programs remain the best options for most borrowers facing crushing student loan debt.

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