Paying $0 Per Month On Your Student Loans

Michael Lux Blog, Student Loans 5 Comments

The idea of getting a bill for zero dollars from your student loan servicer may seem like a scam or too good to be true.  Fortunately, due to the existence of repayment plans that charge borrowers what they can afford rather than what they owe, a $0 bill is a real thing.

While there are some downsides that go with a zero dollar payment, it is still a great option for many.

How do I get a $0 payment?

The biggest limitation with a zero dollar payment is that it is only available on federal student loans.  If you have private loans, it isn’t an option.

The next big limitation is that not everyone will qualify for a $0 payment.  To get payments based upon how much you can afford, borrowers need to sign up for an income driven repayment plan.  The income driven repayment plans, such as IBR, PAYE, and REPAYE, require payments of 10 to 15% of a borrowers discretionary income.  If the government formula determines that you do not have any discretionary income, your payment will be $0 per month.

Payments on income driven repayment plans are calculated on a yearly basis.  As income goes up or down, monthly payments will adjust accordingly.

Is a $0 Payment the same as a Forbearance or Deferment?

No.  Forbearances or deferments do not usually last a year.  There are also limits on deferments and forbearances where no such limits exist for borrowers making zero dollar payments on an income driven repayment plan.

Perhaps more importantly, $0 payments can count towards student loan forgiveness.  All borrowers on income-driven repayment plans are able to have their loans forgiven after 20-25 years, depending upon the repayment plan selected.  Best of all, eligible borrowers who are working in public service can have their zero dollar payments count towards the 120 required payments for public service loan forgiveness.

What is the downside of a zero dollar payment?

It isn’t all good news for borrowers who qualify for a $0 payment.  Even though they won’t be expected to pay anything each month, the student loan interest does not disappear.  That means the loan balance will actually increase with each passing month.

Borrowers in this situation should all understand capitalized interest.  This is when the extra interest gets added to a borrowers account.  When this happens the borrower starts paying interest on the extra interest.  This can drive the balance up very quickly.  Thus, borrowers will want to be careful to avoid unnecessary capitalization of their interest… so don’t miss any income certification deadlines!

Do I need to mail a zero dollar check or have my lender withdraw $0 from my bank account?

While borrowers have $0 payments, there is no need to send in a check or complete any additional paperwork each month.  For the student loans without a required payment, borrowers just need to remember to certify their income before the lender imposed deadline.

  • sarra1833

    I know I’m late to this article but I am on the zero a month plan. Been for 5 years now. Can I pay off some of the cheaper loans (have one for 11 dollars, a few for 1000 but the rest are 5k, 13k, etc etc. I owe as of now 62k and it won’t get lower). So if I pay some off will that kill my ibr and they will put me on standard?

    • When you are on an income-driven repayment plan, there is nothing wrong with paying extra. You won’t lose your repayment plan. It is just based upon your income, not how much you pay towards your loans.

    • sarra1833

      Thank you very much. I’ll be working on paying what amounts I can. At least I can whittle some off so when I have to pay taxes on millions in 20 years it won’t be that bad. I don’t know how I’ll do that. They tax the forgiven loans like income. I make 20k a year and don’t see making much more in 20 years. So it’s just another way they screw the poor.

      Yanno, I’m so sorry I dared try to get out of low wage life. If devry would have said initially that the loans would never cover full tuition I would have waited. Now I will be in debt for ever for literally nothing. Not even transcripts to prove I got all A’s and one B. It’s so depressing.

      No degree.
      Future taxes on whatever my loans will be in 20 years, lets realistically say 750k,called by the irs as “income” that I’ll never see except in typed format, and still making low wage.
      Only in the USA can every single citizen go to college and many of them go into huge debt for nothing in return. It needs reforming so so badly.
      Sorry to write upsetting things. I figure if maybe another reader sees this and is in the same boat, at least they’ll know they’re not the only one.

  • Dan hamilton

    I am on zero stloan payment but MOHELA just ignores that . Fed loan told me they shouldnt. Now they ( Mohela)are threatening to garnish my income ?
    Any thoughts ?