Savanna Hoffman
Student loan debt is a significant financial burden for many, and failing to make payments can have serious consequences. These include damage to your credit score and the possibility of legal action being taken against you or your co-signer. However, if you are struggling to make your student loan payments, there are options available to help, such as loan deferment, forbearance, or modified repayment plans. In the case of federal student loans, you may be able to lower your monthly payments through income-driven repayment plans, which may even reduce your monthly payments to $0. Additionally, the Australian Government has recently announced a 20% reduction in student loan debt for those with outstanding balances as of June 1, 2025.
| Characteristics | Values |
|---|---|
| Consequences of not paying student loan | Lender or servicer will report missed payments to credit reporting companies, hurting your credit score |
| Lender or servicer may attempt to collect debt directly or through a collection agency | |
| Lender or servicer may take legal action or garnish wages or withhold tax refund | |
| Co-signer's credit will be harmed, and they may be called upon to make payments | |
| Options to reduce monthly payments | Contact servicer to learn about deferment, forbearance, or affordable repayment plans |
| Income-Driven Repayment (IDR) plans use income and family size to calculate payments and offer loan forgiveness after a certain period | |
| Direct Consolidation Loans allow combining multiple federal loans into one loan with a lower interest rate | |
| Student loan debt relief | The U.S. Department of Education offers federal loan debt relief programs |
| Beware of debt relief companies that charge fees for accessing these programs | |
| Student loan debt reduction | The Australian Government will reduce outstanding HELP and other student loan debts by 20% as of 1 June 2025 |
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What You'll Learn
Student loan deferment and forbearance
If you're struggling to pay off your student loan debt, you may want to consider deferment or forbearance. Both options can help you pause your student loan payments when you can't afford them, but they have important differences that you should understand before making a decision.
Student Loan Deferment
Deferment allows qualified borrowers to pause their student loan repayment for up to three years, although the length of deferment can vary depending on the situation. In some cases, deferment can also suspend interest accrual. For example, if you have federal subsidized loans, the Department of Education will pay your interest during the deferment period. Deferment is generally a better option if you have subsidized federal student loans or Perkins loans and are facing unemployment or significant financial hardship. To apply for deferment, you'll need to complete and submit a form that fits your specific situation to your student loan servicer.
Student Loan Forbearance
Student loan forbearance also allows you to pause monthly payments, typically for up to 12 months. You can reapply for forbearance if you continue to experience financial hardship after this period. Forbearance has broader eligibility criteria and no limit to the number of times you can apply. However, your loans will continue to accrue interest during the forbearance period. Forbearance is generally a better option if you don't qualify for deferment and your financial challenge is temporary. The application process for forbearance involves submitting a standard form to your student loan servicer.
While deferment and forbearance can provide temporary relief, they are not ideal long-term solutions. If you don't anticipate your financial situation improving, consider enrolling in an income-driven repayment plan or exploring refinancing options to lower your monthly payments or interest rate.
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Loan repayment plans
If you are struggling to repay your student loan, you must contact your loan servicer to understand your options. Not paying your student loan can have serious consequences, such as a negative impact on your credit rating and your ability to take out credit in the future.
There are a few options available to those struggling to repay their student loans. These include loan deferment, where payments are postponed, and forbearance, where payments are suspended or reduced. However, it is important to note that in both cases, the interest on the loan will continue to accrue.
Another option is to consolidate your loans. If you are having trouble keeping track of and paying multiple federal student loans, you may be able to combine them into one loan with a lower interest rate. This is known as a Direct Consolidation Loan.
Starting next summer, borrowers will have two new repayment plans to choose from. The first is a standard repayment program, where fixed payments are made over a term based on the loan amount. The larger the loan, the longer the term, typically ranging from 10 years for loans under $25,000 to 25 years for loans over $100,000.
The second option is the Repayment Assistance Program (RAP), which is similar to existing income-driven repayment (IDR) plans. RAP ties payment size to income levels and household size, with payments ranging from 1% to 10% of the borrower's adjusted gross income over a term of up to 30 years. After this period, any remaining debt is forgiven.
Those currently enrolled in an IDR plan will need to decide between sticking with Income-Based Repayment (IBR) or switching to RAP. Under IBR, borrowers pay 10% of their discretionary income towards their balance for 20 years, after which any remaining balance is forgiven. For loans taken out before July 1, 2014, borrowers pay 15% of their income over 25 years. RAP tends to have lower monthly payments for low- and moderate-income borrowers, but the longer repayment term means that borrowers may pay more over the life of the loan.
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Loan forgiveness
If you are struggling to repay your student loan, there are several options to consider. Firstly, it is important to contact your loan servicer to discuss your options and prevent any default on your loan, which can have serious financial consequences. You may be able to combine multiple federal student loans into one loan with a lower interest rate, or you can look into loan deferment or forbearance options, which temporarily pause or reduce your loan payments, respectively.
Another option to consider is loan forgiveness. Loan forgiveness programs are designed to provide relief to borrowers struggling with student loan debt. Here are some key points to note about loan forgiveness:
- Public Service Loan Forgiveness (PSLF): PSLF offers loan forgiveness for qualifying federal student loans after 120 qualifying payments (equivalent to 10 years) while working for a qualifying public service employer. This includes government jobs at the federal, state, local, or tribal level, as well as certain non-profit organizations. To qualify, you must work for a qualifying employer and make consistent loan payments during this period.
- Income-Driven Repayment (IDR) Plans: These plans cap your monthly payments based on your income and family size. If your income is low enough, your payment could be as low as $0 per month. After 20 or 25 years of repayment, the remaining balance on your loans may be forgiven. The Department of Education (ED) has announced updates to bring borrowers closer to forgiveness under IDR plans, including counting certain deferment and forbearance periods toward loan forgiveness.
- Loan Consolidation: Borrowers with certain types of loans, such as FFELP loans held by commercial lenders or Perkins loans not held by ED, can consolidate their loans into Direct Loans to benefit from the IDR adjustment. By consolidating by the specified deadline (June 30, 2024, for certain cases), borrowers can take advantage of the one-time IDR account adjustment and potentially qualify for loan forgiveness.
It is important to carefully review the requirements and eligibility criteria for any loan forgiveness program. Additionally, beware of scams; loan forgiveness does not require any fees, and you should not pay anyone who promises to get you loan forgiveness.
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Debt relief scams
If you are struggling to repay your student loan, you should contact your loan servicer to discuss your options. Not paying your student loan can have serious consequences, such as a damaged credit rating, which will impact your ability to secure loans in the future.
While there are legitimate debt relief services that can help you manage your debt, there are also many scams that target people with significant debt. These scams often charge a large upfront fee, promising to negotiate with creditors to settle or reduce repayment obligations. However, they often fail to provide any service at all, leaving people in an even worse financial situation.
To avoid debt relief scams, it is recommended to look into debt management companies rather than debt settlement programs, as the latter can be risky and may end up costing you more money. Legitimate groups will work with you to create a debt management plan before asking for payment. It is important to understand how the plan works and how it will impact your credit. Additionally, be cautious of any company that charges a fee before settling or reducing your debt, as this is prohibited by the FTC's Telemarketing Sales Rule.
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Loan delinquency and default
Understanding the timeline of delinquency and default is crucial. For federal student loans, a missed repayment enters delinquency status immediately. After 90 days of delinquency, the late payment is reported to the three major national credit bureaus, negatively impacting the borrower's credit score. If the delinquency continues, the loan enters default status at 270 days past due. Once in default, borrowers face wage garnishment and other collection actions by the US Department of Education.
The consequences of loan delinquency and default extend beyond immediate financial repercussions. A delinquent loan can lead to a significant decline in an individual's credit score, impacting their ability to access credit, obtain loans in the future, or secure certain purchases such as a car or a house. A low credit score can also affect other areas of life, such as renting an apartment or obtaining insurance. Additionally, defaulting on a loan can result in wage garnishment, where a portion of the borrower's income is withheld to repay the loan.
To address loan delinquency and avoid default, borrowers should take proactive measures. Contacting the loan servicer is the first step. Discussing the situation and exploring available options can help borrowers get their payments back on track. Options such as loan deferment or forbearance can provide temporary relief by postponing or reducing payments, although interest may continue to accrue. Loan consolidation is another option, combining multiple loan debts into one large loan, offering new opportunities for income-based or extended payment plans. For those struggling with federal student loans, the Federal Student Aid Ombudsman Group can provide assistance and guidance.
It is important to note that loan delinquency and default are not uncommon. As of April 2025, approximately 31% of federal student loan borrowers were 90 days or more past due on their payments. While defaulting on a loan has serious consequences, there are ways to recover. Loan rehabilitation programs can help borrowers get their loans out of default status and remove the record of default from their credit history. Seeking assistance and taking proactive steps to address loan delinquency and default can help borrowers mitigate the negative impact on their financial well-being.
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Frequently asked questions
First, take a deep breath and remind yourself that you're not alone and you have options. Contact your loan servicer, explain your situation, and try to arrange an affordable payment schedule.
If you have federal student loans, look into income-driven repayment plans that adjust your monthly payment based on your income and family size. You can also consider loan consolidation, which combines multiple loans into one loan with a potentially longer repayment period and lower monthly payments.
Private student loans are not eligible for federal consolidation programs. However, you may be able to refinance your loans with a private lender, such as a bank, which could result in a new repayment schedule and interest rate.
Yes, you can consider deferment or forbearance, which can temporarily reduce or postpone your monthly payments. You can also explore loan forgiveness programs, especially if you work in public service or for a non-profit organization.
Defaulting on your student loans can have serious consequences, including wage garnishment, tax refund garnishment, lawsuits, and damage to your credit score. It's important to take action and explore the options mentioned above to avoid these negative financial impacts.
