Lana Oconnell
Student loan repayment can be stressful, and failing to pay can have serious consequences. If you can't pay your student loans, it's best to contact your loan servicer to discuss your options. Federal student loan holders can apply for a direct consolidation loan, which combines multiple loans into one loan with a single lender and monthly payment. Private student loan holders are not eligible for this type of loan. If you have federal loans, you may qualify for a repayment plan or loan forgiveness. Failing to pay your student loans can result in late fees, a damaged credit score, wage garnishment, and lawsuits. It's important to take action and explore relief options to avoid these negative financial impacts.
| Characteristics | Values |
|---|---|
| Consequences of not paying student debt | Credit score drop, late fees, wage garnishment, loss of eligibility for future aid, potential lawsuits, hurting your credit rating and your ability to buy a car or house or get a credit card |
| Options to consider if you can't pay your student loans | Contact your loan servicer, change your repayment plan, look into loan forgiveness, loan consolidation, deferment or forbearance, direct consolidation loan |
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What You'll Learn
Contact your loan servicer
If you can't pay your student loans, the best thing to do is contact your loan servicer to discuss your options. Ignoring the problem will only make things worse, and you may lose options for payment if you wait too long. Once your student loan is in default, you may lose some of your options, so be proactive.
Your loan servicer will report your late payment to the three major credit bureaus, which can hurt your credit score. If your payment is 270 days late or more, your loan is considered to be in default. The timeline for repaying private student loans differs from federal student loans. Private student loans generally use the following payment timeline:
- As soon as you graduate, payment is usually due, but some private loan lenders offer grace periods.
- When your payment is one day late, your lender marks your account as delinquent and may report it to credit bureaus, which can decrease your credit score.
- When your payment is 90 days late, the lender considers you in default and may hire a collections agency or sue you in court to collect the debt.
If you have private student loans, you need to contact your private lender or private student loan servicer. They can answer your questions or help you determine what option is best for you.
If you can't reach your student loan servicer, your loans may have been transferred, you may have the wrong contact information, or you might be the victim of a scam. To find the correct contact information, check recent bills or email communications, which should contain the name of your loan servicer and may include a customer service phone number. You can also log into your Federal Student Aid account and click the "My Loan Servicers" section on your dashboard to find a list of each servicer and their contact information. You can also use your FSA ID to search for your loan in the National Student Loan Data System (NSLDS) database, which lists the current loan balance and loan servicer details for all federal student loans owned by the U.S. Department of Education.
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Change your repayment plan
If you're struggling to pay off your student loan, you can change your repayment plan. This option is available for both federal and private student loans. Changing your repayment plan is always free. You can choose a different repayment plan as often as you need to. However, paying less each month will likely mean paying more overall, as more interest can add up on your loans over time.
To change your repayment plan, you can start by contacting your loan servicer—the company that manages your federal loans on behalf of the government. You can also reach out to your lender to discuss your options. They can help you restructure your debt to reduce payments, either by taking advantage of current interest rates or lengthening the loan.
You can also use Federal Student Aid's Loan Simulator to see how much you might save on different plans. If you want to consolidate your student loans or select an income-driven repayment plan, you will need to submit an application. Switching payment plans can take time, so it's important to be patient during the process.
It's important to note that if you have federal student loans, you can apply for a direct consolidation loan, which consolidates your loans into one loan from a single lender and results in one monthly payment. Private student loan holders are not eligible for this option. However, if you have a mix of private and federal loans, the federal loans will still be eligible for consolidation.
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Loan consolidation
If you are struggling to pay off your student debt, loan consolidation could be an option. Loan consolidation is when you take out a new loan to pay off multiple existing loans or debts. This means you will only have to make one monthly payment, rather than several.
Federal student loan holders can apply for a direct consolidation loan, which consolidates multiple federal student loans into one loan with a fixed interest rate. This interest rate is a weighted average of the various interest rates on your previous loans, rounded up to the nearest one-eighth of one percent. You can consolidate most federal education loans through StudentLoans.gov, but private student loans cannot be included in this consolidation. However, private student loans can be consolidated through some private lenders. It is important to note that you cannot consolidate both federal and private loans through the federal program.
There are several benefits to loan consolidation. Firstly, it can simplify your finances by reducing multiple monthly payments from different lenders to a single payment to one lender. This can make it easier to manage your debt and ensure you don't miss any payments. Consolidation can also give you more time to pay off your loans, as the repayment period can be extended up to 30 years. As a result, your new monthly payment could be lower than your current payments.
However, there are also some potential drawbacks to loan consolidation. One of the main disadvantages is that you may end up paying more in interest over the life of the loan. Additionally, you may lose certain benefits associated with your previous loans, such as interest rate discounts and cancellation benefits. It is important to carefully consider the pros and cons of loan consolidation before making any decisions and to seek advice from a financial professional if needed.
If you are considering loan consolidation, it is important to have a sufficient credit score for a lender to approve your application. You should also consider whether your new loan will be considered a student loan or a personal loan, as this can impact any interest tax benefits you may be eligible for. Additionally, you should find out if there are any service fees associated with refinancing your student loans and whether you will lose any discounts you previously had with your loan originator.
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Loan deferment
If you are struggling to keep up with student loan payments, loan deferment is one option to consider. Loan deferment is a temporary pause on your student loan payments for specific situations, such as active military service or reenrollment in school. You can apply for a deferment with your loan servicer, but you must continue to make payments until you are notified that your deferment has been approved.
The terms of deferment vary depending on the type of loan. For federal loans, the U.S. Department of Education has published a list of reasons that qualify someone for a deferment. If you have a subsidized federal loan, you do not have to pay interest on the loan during the deferment period. However, if you have an unsubsidized loan, you are responsible for the interest, and it will be added to your loan balance if you do not pay it during the deferral period.
Private student loans may or may not have a deferment option, and the rules vary among lenders. If you are considering deferring private student loan payments, contact your loan servicer as early as possible to explore this option. The terms and fees associated with postponing these payments are based on your contract and applicable laws, and they may not be as favourable as the terms of deferment for federal loans.
It is important to remember that not taking action on your student loan payments can negatively affect your financial life and could lead to default. Therefore, if you are struggling to make payments, it is best to contact your loan servicer to discuss your options, which may include loan consolidation, deferment, or forbearance.
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Forbearance
If you're struggling to keep up with student loan payments, forbearance is one of several options that could help. Forbearance is a temporary postponement or reduction of your student loan payments because you are experiencing financial difficulty. It's important to note that forbearance is different for federal and private student loans.
Federal Student Loans
For federal student loans, your loan servicer can grant forbearance for up to 12 months at a time. You usually need to apply for forbearance over the phone and continue making payments until your request is approved. During forbearance, interest will accrue on your loans, and you can choose to pay the interest or have it added to your loan balance when the forbearance period ends. However, for Direct Loans, interest will not be added to your principal balance.
Private Student Loans
Private student loan forbearance varies and is generally more limited than federal forbearance. The terms and fees associated with postponing private student loan payments depend on your contract and applicable laws, and they may differ for each loan servicer. As with federal loans, interest will accrue during forbearance, and you are responsible for paying it.
Before applying for forbearance, it's essential to understand the potential impact on your interest accrual and loan balance. Additionally, consider exploring other options, such as changing your repayment plan, loan consolidation, deferment, or loan forgiveness. Contacting your loan servicer early to discuss your options is crucial to making an informed decision.
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Frequently asked questions
Contact your loan servicer to discuss your options. You can change your repayment plan, look into loan forgiveness, loan consolidation, deferment, or forbearance.
Federal student loan holders can apply for a direct consolidation loan, which consolidates multiple loans into one loan from a single lender with one monthly payment. This can lower your monthly payment, but you may pay more in interest over time.
Deferment and forbearance are options to pause or reduce your monthly payments. With deferment, payments are postponed, but interest continues to accrue. With forbearance, payments may be suspended or reduced, but interest also continues to accrue.
There can be serious legal and financial consequences. Your lender may take legal action, garnish your wages, or withhold tax refunds. Your credit score may also be negatively impacted, making it harder to secure loans or credit in the future.
Yes, you can consider finding a second source of income or reducing your expenses. You can also contact professionals and organizations that specialize in student loan debt management for guidance and resources.
