How to Repay Student Loans if you Live Paycheck to Paycheck

Between the rising tuition costs, inflation, and growing wealth inequality, it sure feels like the deck is stacked against student loan borrowers.

One recent study found that 64% of Americans now live paycheck to paycheck.

When facing these difficult financial circumstances, it is fair to wonder if your student loans will get repaid.

If there is any good news, it comes from these two facts:

  1. You are not alone.
  2. There are many resources to help struggling borrowers.

Letting Yourself off the Hook

Before I jump into the specific strategies available for borrowers living paycheck to paycheck, I’d like to share a quick personal thought.

I hear from readers of this site daily. In these emails, borrowers frequently beat themselves up for their borrowing decisions.

Don’t buy into this line of thinking.

You went to college to build a better life for yourself and your family. You work hard to put food on the table and a roof over your head.

There is plenty of blame to go around for the student loan crisis, but borrowers don’t deserve the criticism they receive from the wealthy and many in the media. Don’t get down on yourself because of the vilification of the student loan borrower.

Self-loathing will only make things more difficult. You may not have control over tuition prices or economic policy, but you control what happens between your ears. This mess isn’t your fault, and you have every right to take advantage of every resource available.

Resources for Federal Student Loan Borrowers

If repayment is a struggle, federal loans provide two essential forms of assistance: student loan forgiveness and income-driven repayment.

Income-driven repayment is an especially helpful resource if you live paycheck to paycheck. It is designed so that federal borrowers can always afford their student loan payments. If you make below 150% of the federal poverty level, your monthly payment is $0 per month. Most federal borrowers have to pay less than 10% of their income towards their federal loans.

Further Reading: How to Pick an Income-Driven Repayment Plan.

Public Service Loan Forgiveness gets most of the attention on the student loan forgiveness front, but there are numerous forgiveness options. For example, borrowers who make the minimum payment on an IDR plan for 20 years can have their remaining balance forgiven. It isn’t the fastest route to debt elimination, but it is a viable path for someone on a tight budget.

The Federal Student Loan Mistake to Avoid

Some people mistakenly think they can’t afford their loans, so they don’t even try. This can result in delinquency and eventually default.

Many borrowers don’t realize that a federal default is more expensive than enrollment in an income-driven repayment plan. If you are in default, the government can take 15% of your paycheck for your student loans. However, if you enroll in an IDR plan, the government may only charge 10% of your discretionary income.

In other words, IDR instead of default means bigger paychecks.

Going into default can also mean tax refund garnishment, additional fees, and destroying your credit score.

If you can’t afford your federal loans, IDR is cheaper than a default, and it is a path to student loan forgiveness.

Dealing with Private Lenders

Private student loan lenders are notoriously less forgiving than the federal government. Worse yet, converting private loans into federal loans is nearly impossible.

Still, ignoring your private loans and hoping they go away is usually a mistake.

In most cases, working with the lender and compelling them to help is often the best approach. Loan contracts usually don’t have provisions for reduced payments or borrower assistance. However, private lenders still have an incentive to help. They want to avoid borrower complaints to the Consumer Financial Protection Bureau. They also know that they will only collect pennies on the dollar if they have to sell the debt to a collector or if the borrower is successful in bankruptcy.

When you speak to your lender, be kind, be patient, but be firm. Feeding your kids or paying the electric bill is more important than getting the bank their money. These essentials are non-negotiable. Be willing to pay what you can afford, but don’t let it get in the way of necessities.

Sherpa Tip: The goal of a lender conversation should be to find a plan to eventually eliminate your debt. A three-month payment forbearance doesn’t help unless you are about to start a new job or get a big raise.

When you live paycheck to paycheck, it is easy to lose sight of the future and focus on getting through the month. However, the temporary solutions offered by private lenders may only make things worse.

Tips for Borrowers Living Paycheck to Paycheck

  • Emergency Fund First – Having an emergency fund might sound like it is a luxary, but it is a necessity. If you need your car to get to work, you need money set aside to fixe your car if something happens.
  • Every Little Bit Helps – If you have thousands of dollars of student debt, it might seem like paying a little extra is meaningless. However, even $10 per month can make a difference.
  • Avoid Scams and False Hope – Student loans impact millions, they are confusing, and they are stressful. It makes student loan borrowers a common target of scammers. Learn the what a scam looks like and how to avoid them.
  • Don’t Let Politicians off the Hook – Politics may be a game to the wealthy, but the failures of our government helped create the current student loan mess. Be vocal about changing things and most importantly, show up to vote for candidates who want to help.
  • Avoid Obsession – Ingorning your student loans is dangerous, but so is obsession. Take the time to learn the rules and make a plan, but don’t let your student debt fears consume your life. Don’t let your bills keep you up at night. Do what you can and spend the rest of your time focused on the things that really matter.



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