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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Jan 17, 2013

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For many students across the country, repaying student loans is a difficult hurdle to overcome.

But there are several ways to manage student loan payments: some easier than others. Student loan payments can be reduced in several ways including, but not limited to, the Income-Based Repayment plan, consolidation loans, and bankruptcy absolution.

Income-Based Repayment plan

The Income-Based Repayment (IBR) plan is a federal plan designed to reduce monthly payments on federal student loans.

In order to qualify for IBR, a borrower must prove a “partial financial hardship.”

Under the IBR plan, monthly payments will be 15 percent of the borrower’s discretionary income. The required monthly payments are reduced and impacted by income and family size and are adjusted yearly for fluctuations.

For public service employees, after 10 years of making on-time payments, the remaining balance will be forgiven by the government. For all other borrowers, the balance will be forgiven after 25 years of on-time payments.

The IBR plan offers a manageable solution for borrowers of federal student loans, but there is a clause which holds the borrowers accountable for any debt that is absolved after the 25-year period — meaning those who receive forgiveness may see some rather large tax consequences.

Consolidation Loans

For borrowers with multiple loans, the option to consolidate payments into a single monthly bill can significantly reduce one’s repayment troubles.

In order to reduce the monthly payment, consolidation loans usually extend the repayment period that existed on the previous loan. For example, instead of paying $800 a month for five years, a consolidation loan would group all of the student loans together, reducing the total monthly payment to $350, but extending the repayment period to 15 years.

But be careful when trying to merge loans. A good consolidation loans is one that captures a low interest rate. Sometimes when borrowers with poor credit try to consolidate their loans, a higher interest rate is offered, which would make the total repayment amount higher.

The type of student loan that a borrower is hoping to consolidate also impacts the outcome of a consolidation loan. The federal Perkins loan loses its exclusive cancellation benefits when consolidated.


The final option for reducing student loan payments is a road taken by less debtors — bankruptcy.

Consumers who win a bankruptcy claim are absolved of their debts, or their debts are restructured. It can assist a person who is financially unable to repay their debts, but it destroys the person’s credit history and lending capabilities for years to come.  

According to a recent study, student loan debts can be absolved in bankruptcy, but very few do.

In Jason Iuliano’s study, “An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard,” he found that almost all student loan debtors who file for bankruptcy fail to discharge their student loan debts. This is because they work to absolve all other forms of debt, which typically includes credit cards and personal loans.

Since the prevailing media coverage is that this type of loan absolution is nearly impossible, only .01 percent of the population with educational debt even tries to discharge their student loans.

Gary Armstrong, shareholder of the Armstrong Kellett Bartholow P.C. law firm, said that bankruptcy cases can clear student debts, but it depends on the judge handling the case.

“If a judge is accommodating to a person who doesn’t know what they are doing, then there is a fair chance in that court for someone to do it by themselves,” Armstrong told

Although Iuliano’s study does show that some debtors could have resolved their loans in bankruptcy, students are still required to prove that their loans cause “undue hardship” on their lives.

Bankruptcy should be the final option for student loan borrowers who are overwhelmed with their payments. Other solutions such as the IBR plan and consolidation loans should be considered before bankruptcy.