Douglas Olsen
Student loans can be a stressful and overwhelming burden, especially if you don't earn enough to keep up with the payments. It is important to remember that you are not alone in this situation and that there are options available to help manage your debt. The first step is to contact your loan servicer and discuss your alternatives, such as changing your repayment plan, exploring loan forgiveness, or considering loan consolidation, deferment, or forbearance. While it may be tempting to ignore your student loan obligations, defaulting on federal loans can lead to serious consequences, including wage garnishment, withheld federal payments, and tax refund issues. Therefore, it is crucial to stay engaged with your loan servicer and work together to find a manageable solution.
| Characteristics | Values |
|---|---|
| Emotional impact | Panic, stress, and suicidal thoughts |
| Reasons | Low income, poor financial decisions, unexpected expenses, economic hardship, unemployment |
| Consequences | Damaged credit score, wage garnishment, withheld federal payments and tax refunds, inability to purchase/sell assets, lawsuits, collection charges and fees |
| Actions | Create a budget, contact the loan servicer, change the repayment plan, explore loan forgiveness, loan consolidation, deferment, or forbearance, apply for scholarships or grants, request additional federal student loans, research private or alternative loans, consider part-time work |
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What You'll Learn
Contact your loan servicer to discuss options
If you are struggling to repay your student loan, it is important to contact your loan servicer as soon as possible to discuss your options. Not paying your student loan can have serious consequences, including a negative impact on your credit score and the risk of default.
When you contact your loan servicer, you can discuss options such as loan deferment or forbearance. Loan deferment allows you to postpone your payments, although interest may continue to accrue. With forbearance, your payments may be suspended or reduced, but interest will still accrue. These options can provide temporary relief and prevent your loan from going into default.
Additionally, you can explore affordable repayment plans. For federal student loans, income-driven repayment plans are available, which tie your monthly payment to a percentage of your income. This can lower your monthly payment, making it more manageable based on your current income. You may also be able to extend the repayment period, giving you more time to pay off your loan.
It is important to be proactive and communicate your situation to your loan servicer. They may be able to provide you with specific options or guidance based on your circumstances. Visit their website or give them a call to understand the choices available to you. Remember, the consequences of missed payments can be severe, so taking action early is crucial.
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Apply for loan deferment or forbearance
If you are unable to make your student loan payments, you can apply for loan deferment or forbearance. Both options can help you avoid defaulting on your student loan. However, neither is a good long-term solution, and you should continue to make payments until you receive confirmation that your application has been approved.
Deferment
If you have subsidized federal student loans or Perkins loans, and you're unemployed or facing significant financial hardship, deferment may be the right choice for you. Types of deferment include cancer treatment, economic hardship, graduate fellowship, in-school, military service, parent PLUS borrowers, rehabilitation training, and unemployment. To apply, complete the specific form for the type of deferment you need and provide documentation showing your eligibility.
Forbearance
If you don't qualify for deferment and your financial challenge is temporary, forbearance may be a better option. Forbearance is also an option for those who don't qualify for deferment and are facing temporary financial difficulty or a change in employment. For private student loans, call your lender and explain your situation. They may provide temporary relief, such as allowing you to make interest-only payments or reducing your interest rate.
It's important to note that forbearance always increases the amount you owe, as does deferment if you have unsubsidized loans. Additionally, income-driven repayment, deferment, and forbearance are no longer options once federal student loans default.
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Request a modified repayment plan
If you don't make enough money to pay off your student loans, there are a few options to consider. Firstly, it is essential to understand the difference between federal and private student loans. For federal student loans, there are standard options to lower your monthly payments, such as enrolling in a payment plan based on your income or extending the repayment period. You can also explore Income-Driven Repayment (IDR) plans, which can lower your monthly payments to as little as $0, as they are tied to a percentage of your income. Additionally, you can postpone your payments through deferment or forbearance options.
On the other hand, private student loans do not have standard options for lowering monthly payments. Each lender has its own policies, and some may offer modified repayment plans similar to federal programs, such as graduated repayment. It is crucial to contact your loan servicer or visit their website to understand your options and avoid serious consequences, such as negative credit score impacts or debt collection procedures.
If you are considering a modified repayment plan, here are some detailed steps to guide you through the process:
- Contact your loan servicer: Reach out to your loan servicer by phone or visit their website to understand your options. They can guide you through the available repayment plans and any eligibility criteria.
- Explore Income-Driven Repayment (IDR) plans: IDR plans, such as Income-Based Repayment (IBR), offer flexible repayment options tied to your income. You can sign up for or switch to an IDR plan by contacting your loan servicer or applying online at studentaid.gov. When signing up for an IDR plan, you will need to provide information about your income and family size.
- Provide income information: To support your application for a modified repayment plan, you may be required to provide proof of income. If you have recently filed your taxes, you can link your IRS tax information to your application. Alternatively, if your income has decreased since your last tax filing, you can submit recent pay stubs or other relevant documents.
- Understand the implications: Before finalizing any changes to your repayment plan, it is crucial to understand the implications of your decision. Utilize resources such as the Department of Education's Loan Simulator Tool to ensure you comprehend the financial commitments and potential long-term effects of switching repayment plans.
- Consider other options: If a modified repayment plan is not feasible or does not provide sufficient relief, explore other options such as deferment or forbearance, which can postpone your payments. Additionally, if you have Perkins Loans or Direct Loans, look into specific payment plan options or the possibility of consolidating your loans to access better repayment terms.
Remember, the key is to take proactive steps and maintain open communication with your loan servicer to find a solution that works for your financial situation.
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Take out additional loans
Taking out additional loans is an option if you don't make enough to pay your existing student loans. However, it is essential to carefully consider your options before taking on more debt. Here are some things to keep in mind:
Types of Additional Loans
- Federal Student Loans: You may be able to request additional federal student loans through your school's financial aid office. These loans typically provide benefits not available with private loans, such as income-driven repayment plans and lower interest rates.
- Private or Alternative Loans: If you have exhausted federal loan options, you can consider private loans from banks or credit unions. However, these loans usually require a cosigner and may have higher fees and interest rates.
- PLUS Loans: You or your parents may be eligible for Parent PLUS Loans or Direct PLUS Loans, depending on your circumstances. These loans can cover up to the full cost of attendance, including living expenses.
Things to Consider
- Only Borrow What You Need: When applying for additional loans, be sure to calculate your expenses carefully and only borrow what is necessary. Remember that you will have to pay fees and interest on the amount you borrow.
- Explore Other Options First: Before taking on more debt, consider other alternatives such as part-time work, payment plans offered by your school, or applying for scholarships or grants.
- Understand the Terms and Conditions: Make sure you fully understand the terms and conditions of any additional loans you consider. Know the repayment options, interest rates, and any potential consequences of defaulting on the loans.
- Seek Financial Advice: Speak to a financial advisor or a trusted adult to help you navigate your options and make informed decisions about taking on additional debt.
Remember, while taking out additional loans can provide temporary relief, it is important to carefully assess your financial situation and explore all alternatives before increasing your debt burden.
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Consider bankruptcy
Bankruptcy is often considered a last resort option due to its potential negative impact on your credit score and the costs and time involved in filing. However, if you are struggling with debt and student loans, consulting an experienced bankruptcy attorney can help you explore your options. Filing for bankruptcy will automatically pause collections and payments on your student loans and other debts until the case concludes or a judge orders a resumption.
To discharge your student loans through bankruptcy, you must take specific steps within the bankruptcy case. This involves filing a petition for an adversary proceeding and demonstrating undue hardship. The Department of Justice (DOJ) and the court will consider factors such as your present and future ability to pay, including maintaining a minimal standard of living, and your good-faith efforts to repay the loans before filing for bankruptcy.
There are two types of bankruptcy cases to consider: Chapter 7 and Chapter 13. Chapter 7 bankruptcy involves requesting the judge to cancel all your debt, but you must meet income requirements to qualify. On the other hand, Chapter 13 bankruptcy allows you to reorganize and lower your debt without income restrictions. However, you must adhere to a repayment plan set by the bankruptcy court for 3 to 5 years before the remainder of your debts can be cancelled.
It is important to note that student loan borrowers have faced challenges due to inconsistent information and support from loan companies. Some companies have been accused of making false statements about bankruptcy protections or collecting on debts discharged by a bankruptcy judge. Therefore, it is crucial to understand your rights and options by seeking professional legal advice.
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Frequently asked questions
Contact your loan servicer to discuss your options. You may be able to defer your federal loans for up to three years, or you may be eligible for forbearance, which can postpone or reduce your payments for up to 12 months.
During the deferment period, you may not be responsible for paying the interest that accrues on certain types of loans. However, during forbearance, you are responsible for paying the interest that accrues on all types of federal student loans.
Defaulting on student loans will not get you out of them. Instead, it will add more interest and collection fees. The government could garnish your wages, withhold federal payments and tax refunds, and you could even be sued.
Income-Driven Repayment plans can lower your monthly payment, possibly as low as $0, because your payment amount is tied to 10%–15% of your income.
Some alternatives to student loans include scholarships, private or alternative loans, tuition payment plans, and Direct PLUS Loans.
