5 options to consider if you can’t pay your student loans

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In a Nutshell

Student loan repayment can be stressful, but you have some options if you’re having a tough time.

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Bills are piling up, and you’re waiting for your next paycheck to arrive. You need to pay your rent, buy food and keep the electricity on.

At this point, your student loan payments are probably the last thing on your mind.

While it may be tempting to avoid student loan repayment altogether, it’s important to continue managing your student loans – even if you can’t pay them right now – in order to avoid defaulting on them. Because defaulting on federal loans can have some serious consequences.

“Federal loans enter a default status after nine months of missed payments, and the government can pursue borrowers to the grave,” says Heather Jarvis, a student-loan expert. Jarvis shares some possible consequences: “They could garnish wages, seize federal benefits and intercept tax refunds.”

You may also end up owing collection charges and fees if you default on your federal student loans.

If you find yourself unable to pay your student loans because times are tough, here are some options to consider.

  1. Contact your loan servicer
  2. Change your repayment plan
  3. Look into consolidation
  4. Consider deferment or forbearance
  5. Look into loan forgiveness

1. Contact your loan servicer

Instead of letting your federal or private loans fall by the wayside, consider contacting your loan servicer immediately if you can’t make your student loan payments.

Your loan servicer can discuss options with you and help you stay in good standing with your loans, so you can take steps to avoid student loan default.

2. Change your repayment plan

If you’re struggling to keep up with your federal student loans, another thing you may want to do is change your repayment plan.

Most federal student loans are eligible for income-driven plans, which cap your monthly payments at 10 to 20 percent of your discretionary income.

Types of repayment plans

Federal loans have a few repayment plans. Let’s take a look at some of the different options available.

Standard, graduated and extended repayment plans

  • A standard repayment plan has a fixed monthly payment.
  • A graduated repayment plan begins your payments with a lower amount and they gradually get higher.
  • An extended payment plan lets you choose — your payments either can be fixed or graduated.

The repayment term periods for standard and graduated payment plans are up to 10 years for individual loans or up to 30 years if your loans are consolidated. For extended repayment plans, it’s up to 25 years.

Income-driven repayment plans

There also are some pay-as-you-earn repayment plans (also known as the REPAYE and PAYE plans), but these generally end up costing more than the standard 10-year repayment plan.

  • The REPAYE Plan (or Revised Pay As You Earn Repayment Plan)
    • This plan caps your monthly payments at 10 percent of your discretionary income (if you’re married, that includes your spouse’s income and student loan debt).
    • It requires you to “recertify” each year, at which time your payments will be recalculated based on your updated income information and family size.
    • You can use this plan if you have a qualifying loan, including a direct subsidized loan, direct unsubsidized loan, Direct PLUS loan (made to a student) or direct consolidation loan that does not include PLUS loans (made to a parent).
    • If you’re still paying off your loan after 20 to 25 years, the rest of your balance is eligible for forgiveness. (Just keep in mind that you may need to pay income tax on the forgiven amount.)
  • The PAYE Plan (or Pay As You Earn Repayment Plan)
    • This plan is similar to the REPAYE Plan in that your monthly loan payments top out at 10 percent of your discretionary income.
    • You’ll also have to recertify each year with this plan, and your spouse’s income, along with their student loan debt, will affect your payments.
    • The same loans that qualify for REPAYE qualify for PAYE, but your debt must also be considered high in comparison to your income.
    • Any balance left on your PAYE Plan after 20 years may be forgiven, which differs from the 20–25 years on your REPAYE Plan (though you’ll still likely have to pay income tax on that amount).
    • To qualify for PAYE, you have to have been a new borrower on or after October 1, 2007, and have had your loans disbursed on or after October 1, 2011.

Repayment plans vary by loan and each plan comes with specific guidelines, so visit the U.S. Department of Education website to learn more details.

Before you change your repayment plan

If you’re considering applying to an income-based repayment plan, it’s important to calculate your potential payments using the official repayment estimator before switching. In some cases, your payments could be larger than what they would be under a 10-year standard repayment plan.

Choosing an income-driven plan can help lower your payments and make them more manageable. You’ll likely pay more interest over time under these plans – however, they could be a lifesaver if you’re having trouble making payments.

3. Look into consolidation

If you’re struggling to keep up with multiple monthly payments, you may want to consider consolidation. Federal student loan holders can apply for a direct consolidation loan, which consolidates your loans into one loan from a single lender and one monthly payment.

There’s no application fee, and most federal student loans are eligible for consolidation. Private student loan holders aren’t eligible for a direct consolidation loan. However, if you have a mixture of private and federal loans, the federal loans will still be eligible for consolidation, and total student loan debt, including private student loans, will affect how long you have to repay your direct consolidation loan.

As consolidation can offer you up to 30 years to pay off your loans, your new monthly payment could be lower than your current payments. The downside? You’ll likely pay more in interest over the life of the loan and you may lose certain benefits, such as interest rate discounts and cancellation benefits. Because of this, it’s important to weigh the costs and benefits before you consolidate.

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4. Consider deferment or forbearance

If you’re unable to repay your student loans because you’re experiencing economic hardship or are having difficulty finding work, you may be able to defer your federal loans for up to three years.

If you don’t qualify for deferment, you may be eligible for forbearance, which can postpone or reduce your payments for up to 12 months. For instances of medical expenses and financial hardship, your lender decides whether to approve you for general forbearance. In other cases, you may be eligible for mandatory forbearance if you meet certain eligibility requirements.

Borrowers must request deferment and forbearance — and they must continue to make payments until they’re approved.  During forbearance you are responsible for paying the interest that accrues on all types of federal student loans. However, you may not be responsible for paying the interest that accrues on certain types of loans during the deferment period, so make sure you understand how your specific situation works.

5. Look into loan forgiveness

Another option you may want to consider is loan forgiveness.

Through the Public Service Loan Forgiveness Program, federal student loan borrowers who work in public service at a qualifying nonprofit or government agency may have their loans forgiven after 10 years of qualifying monthly payments.

Borrowers on an income-driven plan can qualify for loan forgiveness on their remaining loan balance if they make qualifying monthly payments for 20 to 25 years.

Bottom line

Student loan repayment can be stressful, but if you’re having a tough time, there are options for help.

If you can’t pay your student loans right now, the best thing to do is contact your loan servicer to discuss your options. Not taking action can negatively impact your financial life and could lead to default.