Douglas Olsen
Student loan repayment can be stressful, and there may be serious consequences if you stop paying. If you can't pay your student loans, it's best to contact your loan servicer to discuss your options. Depending on the type of loan, you may be able to reduce your monthly payments by enrolling in a different repayment plan, such as an Income-Driven Repayment plan, or by consolidating your loans. You could also consider requesting loan deferment or forbearance, which would allow you to temporarily postpone or reduce your payments, although interest may continue to accrue. It's important to understand the potential consequences of not paying your student loans, which could include damaging your credit score, wage garnishment, or legal action.
| Characteristics | Values |
|---|---|
| Consequences of not paying student loans | Lender or servicer may take legal action, garnish wages, withhold tax refunds, or report missed payments to credit reporting companies, damaging credit score and ability to take out credit in the future |
| Options to manage unaffordable student loan payments | Contact loan servicer to discuss options, including deferment, forbearance, loan consolidation, or modified repayment plans; combine multiple federal loans into one loan with a lower interest rate; or, for federal loans, enroll in an income-driven repayment plan |
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What You'll Learn
Contact your loan servicer to discuss options
If you're struggling to make payments on your student loans, the first step is to contact your loan servicer. This is the company that handles your loan payments and is a valuable resource for information about your specific loan and repayment options. They can discuss various options with you to help alleviate the burden of repayment.
Your loan servicer can explain the various repayment plans available to you and help you choose the one that best suits your financial situation. Income-driven repayment plans, for example, set your monthly payments based on your income and family size, and can often result in a lower monthly payment. They can also provide information about loan consolidation, which can simplify your payments and may provide additional benefits.
If you're facing temporary financial difficulties, your loan servicer may allow you to postpone your payments through deferment or forbearance. During deferment, you may not be required to pay interest on certain types of federal student loans, whereas forbearance often requires you to continue paying the interest. Both options can provide temporary relief, but it's important to understand that interest may still accrue, increasing the total amount you owe.
In some cases, you may be eligible for a temporary suspension of payments, known as a student loan repayment pause. This could be due to a national emergency or other specific circumstances. It's important to note that during a repayment pause, interest may be waived or set to 0%, but you also have the option to continue making payments. Doing so can help you pay off your loan faster and reduce the total amount of interest you pay over the life of the loan.
Your loan servicer can also assist you if you're experiencing long-term financial difficulties. They may offer loan forgiveness, discharge, or cancellation options, which can reduce or eliminate your loan balance. These options are often available for certain professions, such as public service or teaching, or in cases of permanent disability. It's important to understand that these options may have specific requirements and tax implications, so be sure to discuss them in detail with your loan servicer.
Remember, it's always best to stay in communication with your loan servicer and keep them informed about your situation. They are there to help you navigate the repayment process and find solutions that work for you. By discussing your options early on, you can avoid potential consequences of missed payments, such as late fees, damage to your credit score, or even defaulting on your loan.
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Apply for loan deferment or forbearance
If you are unable to make payments on your student loans, you can apply for loan deferment or forbearance. Both programs are available for most federal loans, including Stafford, PLUS, and Perkins loans. However, private lenders are not obligated to offer either option, so you must contact your private lender directly to understand their specific requirements.
Loan deferment allows qualified borrowers to pause student loan repayment for up to three years. In some cases, it can also suspend interest accrual during the deferment period. Deferment is often granted in specific circumstances, such as unemployment, economic hardship, returning to school, military deployment, or serving in the Peace Corps.
If you do not qualify for deferment, you can apply for forbearance. Forbearance allows you to temporarily reduce or discontinue your student loan payments for up to 12 months. Unlike deferment, forbearance does not suspend interest accrual, and your loans will continue to accrue interest during the forbearance period. There are two types of forbearance: mandatory and discretionary. Mandatory forbearance may be granted if your monthly loan payment is 20% or more of your gross monthly income, or if you are serving in specific positions, such as a medical residency or national service. Discretionary forbearance is granted at the lender's discretion and is often based on financial hardship or illness.
It is important to note that you must continue making payments on your student loans until you are officially notified that your request for deferment or forbearance has been approved. Stopping payments before approval may result in delinquency or default. Additionally, if you are already in default on your student loans (i.e., you have not made a payment in 270 days), you are not eligible for either deferment or forbearance.
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Restructure your debt
If you're struggling to pay off your student loans, you may be able to restructure your debt. Restructuring your student loans can result in lower or more manageable monthly payments. There are several options for restructuring your debt, including consolidation, refinancing, and income-based repayment plans.
Consolidation
Consolidation is a way to combine multiple loans into one, giving you a single payment to manage each month. This can be a good option if you have multiple federal or private student loans and want to simplify your payments.
Refinancing
Refinancing your student loans involves taking out a new loan with a private lender to pay off your existing loans. This can be a good option if you have private student loans, as private loans are not eligible for federal consolidation, IDR plans, deferment, or forbearance. To qualify for refinancing, you typically need good credit. Applying for refinancing will result in a hard credit pull, which can slightly damage your credit score.
Income-Driven Repayment (IDR) Plans
If you have federal student loans, you may be eligible for an IDR plan. IDR plans tie your monthly payment to a percentage of your income, which can result in lower monthly payments and free up cash for other essential expenses. You can apply for an IDR plan through the Federal Student Aid office website, and you may be able to choose from multiple repayment plan options. However, keep in mind that choosing an IDR plan may result in a longer loan term, which could lead to higher cumulative interest costs over time.
Income-Based Repayment Plans
If your student loans are issued or guaranteed by the U.S. Department of Education, you may be eligible for an income-based repayment plan. This option allows your monthly payment to be based on your income, which can provide relief if your income has decreased or you are facing financial hardship.
Loan Forgiveness Programs
There are also loan forgiveness programs available that can reduce or eliminate your student loan debt. These programs typically require you to work in an underserved occupation, such as teaching or public interest work. Additionally, there are disability-based forgiveness programs if you qualify due to a medical or mental health issue.
It's important to carefully consider your financial situation and goals before choosing a debt restructuring option. Contact your loan servicer to discuss your specific options and determine which approach is best suited to your needs.
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Combine multiple federal loans
One way to deal with multiple federal student loans is to consolidate them into a single, new federal loan. This can simplify your payments, lower your monthly bill, and extend your repayment term. However, it's important to note that consolidation may also increase the total interest you pay over the life of the loan. Here are some key things to know about consolidating federal student loans:
Understanding Consolidation
Consolidation combines multiple federal student loans into one new loan with a fixed interest rate. This interest rate is a weighted average of the interest rates on your original loans, rounded up to the nearest one-eighth of one percent. Consolidation can be done through StudentLoans.gov for federal loans and private lenders for private student loans. However, federal and private loans cannot be combined through the federal program.
Benefits of Consolidation
Consolidation can offer several benefits, including:
- Simplified payments: Instead of managing multiple loans with different servicers, you'll make one payment to a single servicer.
- Lower monthly payments: Consolidation can reduce your monthly payment amount, making it more manageable.
- Extended repayment term: Consolidation may lengthen the time you have to repay your loans, reducing the financial burden.
Potential Drawbacks
There are also some potential drawbacks to consider:
- Increased total interest: While monthly payments may decrease, the extended repayment period can result in paying more interest over the life of the loan.
- Loss of benefits: Consolidation may cause you to lose certain benefits associated with your original loans, such as interest rate reductions or special repayment options.
- Impact on creditworthiness: Your credit score may be affected, depending on the terms of the new loan.
Steps to Consolidate
To consolidate your federal student loans:
- Understand your current loan situation: Gather information about your federal and private loans, including loan servicers, statement balances, interest rates, and monthly payments.
- Contact your loan servicer: Reach out to your loan servicer for free help and guidance on consolidation. Avoid student loan scams that charge for assistance.
- Use the Direct Consolidation Loan Application: Log in and follow the steps to calculate your weighted interest rate and understand the impact of consolidation on your monthly payments and repayment period.
- Make a decision: Review the information and decide if consolidation is the right choice for your financial situation.
- Proceed with consolidation: If you decide to consolidate, continue with the application process on StudentLoans.gov. Remember that consolidation is irreversible.
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Explore loan forgiveness
There are several loan forgiveness programs available, and you may be eligible for one or more of them. Here are some of the options:
Public Service Loan Forgiveness (PSLF)
This program is available to full-time employees of the government or qualifying non-profit organizations. PSLF offers loan forgiveness after 10 years of qualifying payments. To benefit from PSLF, you need to repay your federal student loans under an IDR plan or a standard 10-year plan. Federal Direct Loans can be forgiven through PSLF. Public sector professionals such as doctors, nurses, first responders, teachers, firefighters, police officers, and other emergency service employees are eligible for PSLF.
Income-Driven Repayment (IDR) Plan
The federal government offers several IDR plans, which allow you to cap your loan payments at a percentage of your monthly discretionary income. Your monthly payment amount under the various IDR plans is calculated based on factors such as your family size and income. IDR plans offer forgiveness on your remaining loan balance after 20 or 25 years of repayment, depending on the plan.
Teacher Loan Forgiveness
If you teach full time for five complete and consecutive academic years in certain elementary or secondary schools or educational service agencies that serve low-income families, you may be eligible for forgiveness of up to $17,500.
Total and Permanent Disability (TPD) Discharge
If you have a disability that severely limits your ability to work now and in the future, you may qualify for a TPD discharge. This can be a physical or mental disability. With a TPD discharge, you don't have to repay your federal student loans.
AmeriCorps Service
Completing a term of national service in an approved AmeriCorps program (AmeriCorps VISTA, AmeriCorps NCCC, or AmeriCorps State and National) makes you eligible for the Segal AmeriCorps Education Award, which can be used to repay qualified student loans.
It's important to note that these programs generally only apply to federal student loans, and private student loans are typically not eligible for forgiveness. Additionally, each program has specific requirements and conditions, so be sure to review the details of each program to determine your eligibility and the steps needed to apply.
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Frequently asked questions
Not paying your student loans can have serious consequences, including:
- Hurting your credit rating and your ability to buy a car or house, or get a credit card.
- Your lender may take legal action against you or your co-signer, or garnish your wages.
- Your loan could go into default, and your lender may attempt to collect on your debt directly or through a collection agency.
If you are struggling to make your student loan payments, the best thing to do is to contact your loan servicer to discuss your options. You may be able to restructure your debt to reduce payments by taking advantage of current interest rates or lengthening the loan. You could also look into loan deferment, forbearance, or forgiveness.
Loan deferment is the process of temporarily postponing your student loan payments. During this time, the interest money you owe will continue to accrue. Depending on the type of loan, the federal government may pay the interest on your loans during deferment.
Forbearance is when your payments are suspended or reduced, but the interest you owe continues to accrue.
Loan consolidation is when you combine multiple federal student loans into one loan at a lower interest rate.
