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Student Loan Modification: What It Is and How It Works

Complete Guide to Student Loan Modification
Rebecca Safier
Rebecca SafierUpdated December 3, 2024
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If you’re struggling to pay back your student loans, modifying your repayment terms could help. Some lenders are willing to change your terms to help you avoid delinquency on your debt. Unlike refinancing or consolidation, this student loan modification does not involve taking out a new loan. Instead, student loan modification means changing your current loan so you have more affordable monthly payments, a longer period of time to pay it off, or both.Learn more about student loan modification, the details of how it works, and who it’s best for.

What Is Student Loan Modification?

Student loan modification means making changes to the terms and conditions of your student loan. It could mean adjusting your monthly payment, changing your repayment terms, or even reducing your interest rate. Student loan modification programs are different from refinancing or consolidation, which involve replacing one or more of your existing loans with a new loan. Modification, on the other hand, simply means modifying the loan you already have. While you typically can’t modify the underlying terms and conditions of a federal student loan, you can apply for a variety of repayment plans, as well as request deferment or forbearance. If you have private student loans, your options will vary depending on your lender. Some private lenders are willing to make changes, especially if you’re experiencing financial hardship, but there’s no standard offering across the board. You’ll need to communicate with your lender to find out what, if anything, it’s willing to modify to help you keep up with payments.

How Does Student Loan Modification Work?

Student loan modification typically involves adjusting your monthly student loan payment, repayment terms, or interest rate to make your loan easier to repay. Let’s say, for example, that you owe $30,000 at a 7% interest rate. On a 10-year repayment term, your monthly payments would be $348. But if your lender is willing to add another five years to your repayment term, your monthly payment would go down to $270. If you can pay the loan off over 20 years, your monthly payment would be $233. Some lenders may also tack on past-due payments to the end of your repayment term, allowing you to catch up on any missed payments without falling into default. Another potential modification is the reduction of your interest rate. If a lender was willing to bring your 7.0% rate down to a 5.0% rate, your payments would go down from $348 to $318 on that initial 10-year repayment term. Finally, you might be able to postpone payments through deferment or forbearance. Some private lenders offer this student loan modification if you go back to school or lose your job. Your private loans will continue to accrue interest during this time, however. When you start making payments again, you could end up owing even more due to increased interest charges. Recommended: Average Time to Pay Off Student Loans: How Long Does It Take?

Which Loan Can Qualify for Student Loan Modification?

Qualifying for student loan modification is not guaranteed, especially if you have private student loans. Let’s take a closer look at how student loan modification programs work for private and federal student loans. 

Private Loans

Student loan modification may or may not be available for your private student loans. Your options will vary depending on your lender and what it offers to borrowers. That’s why it’s important to communicate with your lender and loan servicer if you’re struggling to pay your bills. Your lender may be willing to modify the terms of your loans to help you avoid delinquency and default. Many private lenders also offer deferment and forbearance options for borrowers who meet certain criteria, such as going back to school or experiencing financial difficulty. Deferment means letting you pause payments on your student loans for up to three years, and forbearance means you can stop making payments or reduce your monthly payments for up to 12 months.Note that through both these programs, you can postpone payments temporarily. The interest will continue to accrue on your student debt during this time. 

Federal Loans

Federal student loans are eligible for a number of repayment plans and other programs. For example, you can apply for an income-driven repayment (IDR) plan to adjust your monthly payment and extend your loan terms. The four income-driven plans are:Private student loans are not eligible for any federal repayment options, including IDR plans. Depending on your income and family size, all four IDR plans may offer a lower monthly payment compared with the Standard Repayment Plan.All IDR plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Forgiveness may come after 20 or 25 years under any of the IDR plans, but forgiveness may come earlier for eligible SAVE Plan enrollees who had original principal balances of $12,000 or less.You might also consider applying for federal loan consolidation, which involves replacing one or more of your existing federal loans with a Direct Consolidation Loan. This is a type of direct loan that combines two or more federal education loans into a single loan. Federal loans are also eligible for deferment, forbearance, forgiveness programs, and loan discharge in special circumstances.Note: The Department of Education’s Federal Student Aid site posted in October 2024: “A federal court issued an injunction preventing the U.S. Department of Education (ED) from implementing parts of the Saving on a Valuable Education (SAVE) Plan and other IDR plans, including—for example—SAVE’s monthly payment formula and loan forgiveness under the SAVE, PAYE, and ICR Plans.”

Student Loan Modification Options

Student loan modification could come in a variety of forms: 
  • Adjust your monthly payments. A lender might offer to reduce payments to make them more affordable. 
  • Extend your repayment terms. This often goes hand in hand with lowering monthly payments. By tacking on additional time to your repayment term, you can pay less each month. 
  • Reduce your interest rate. A lower interest rate could make your monthly payment more affordable. 
  • Postpone payments temporarily. This break could give you the breathing room you need to get back on your feet. 
  • Tack on past-due payments to the end of your term. A lender might let you make up missed payments at the end of your repayment term rather than putting your loan into default. 

What Information Do I Need for a Loan Modification?

If you’re pursuing loan modification for your private student loans, a lender might ask for proof that you’re experiencing financial hardship. Here are some documents you may need to provide to qualify: 
  • Proof of income including payments 
  • Recent bank statements
  • Tax returns
  • Hardship letter explaining why you need a student loan modification 
Your approval for student loan modification will be up to the discretion of your lender. 

Alternatives to Student Loan Modification

Since student loan modification is far from guaranteed, it could be worth pursuing other options to make your education debt more manageable. Here are some options that could help. 

Consolidation

If you have federal student loans, you could consider applying for a Direct Consolidation Loan. Federal loan consolidation can be helpful if you’re juggling multiple student loans and want to simplify repayment. By consolidating your loans, you’ll only have to make one monthly payment. Plus, you can choose new repayment terms up to 30 years. Loan consolidation won’t lower your interest rate, but it could help you more easily keep track of your loan payments. 

Refinancing

Should the market conditions be favorable for you, another option is refinancing student loans. When you refinance, you replace one or more of your existing loans with a new one.  There’s no cost to refinance student loans, but there is a potential disadvantage of refinancing federal student loans — doing so turns them private and thus ineligible for federal programs. If you want to retain access to federal repayment plans and forgiveness programs, it wouldn’t make sense to refinance federal loans with a private lender. Learning about how refinancing your student loans works, along with pros and cons, can help you make the right decision for your situation. 

Forgiveness

Depending on your profession, you could qualify to have part or all of your student loans forgiven. The government offers a few forgiveness programs for federal student loans, including Public Service Loan Forgiveness and Teacher Loan Forgiveness. Some states, colleges, and private organizations also offer student loan repayment assistance programs. Plus, some employers now offer a student loan matching benefit to help employees pay off their loans sooner. It’s worth exploring your options for loan forgiveness to see if you can get any of your student debt paid off for you. 

Deferral

You may be able to pause payments on federal student loans and many private student loans with a deferral or forbearance. Some qualifying circumstances include enrolling in an approved program or proving that your financial circumstances make it difficult to pay back your student loans. Pausing payments could offer the relief you need while helping you avoid delinquency or default. However, interest charges will continue to accrue on most student loan types with the exception of Direct subsidized loans, so be careful not to pause payments for longer than you have to. 

Check Out Lantern's Student Loan Refinancing Options 

If you have strong credit — or can apply with a cosigner who does — it could be worth investigating refinancing. Not only might refinancing ease your interest charges, but it also lets you restructure your debt with new terms and an adjusted monthly payment. At the same time, remember that refinancing federal loans means forfeiting access to federal repayment plans and other benefits. Make sure to read over the pros and cons of refinancing student loans before you apply. If you’re interested in moving forward or simply checking your rates with no commitment, Lantern by SoFi can help you explore student loan refinance options.

Frequently Asked Questions

Do I qualify for student loan modification?
What are acceptable hardship situations for student loans?
What are the benefits of student loan modification?
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About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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