If you stop making payments on a student loan, your loan can become delinquent. You could be charged fees, start getting collection calls, and lose repayment options. Fall far enough behind on your payments, and your loan may go into default, meaning you’ll owe the entire past due amount right away.
Once in default, your servicer might be able to garnish your wages — that is, take money directly out of your paycheck to repay your outstanding balance. While you can’t be fired or disciplined for wage garnishment, it is certainly not an ideal scenario.
Fortunately, even if you’re struggling to afford payments, you may be able to avoid student loan delinquency and default. Don’t wait to act. Some of the best options may only be available while you’re still current with your payments.
Changing Federal Repayment Plans May Lower Your Monthly Payments
If you’re repaying one or more federal student loans, you may be able to change your repayment plan to make your monthly payments more affordable. Lowering your monthly payments will increase your overall cost of borrowing because more interest will accrue, but it could be your best option for avoiding missed payments.
If you didn’t already choose an alternative repayment plan, your federal student loans may be on the Standard Repayment Plan, which has a 10-year term. However, you can change to a different plan for free.
The Graduated Repayment Plan also has a 10-year term (unless you’ve consolidated your federal loans), but your payments will be smaller at first and then increase every two years.
The Extended Repayment Plan has a 25-year term and can have either fixed or graduated payments. The longer term can lower your monthly payments, but you must have more than $30,000 in federal student loans to qualify.
You may also be eligible for a plan based on your income. These five plans — four are considered “income-driven,” while an additional one is considered “income-sensitive” — base your monthly payment amount on your discretionary income, which depends on your income, family size, where you live, and the federal poverty guidelines.
With an income-driven plan, your payments could range from 10 to 20 percent of your discretionary income and could be as low as $0 a month. Depending on the plan, the remainder of your loan’s balance will be forgiven after 20 or 25 years.
You can see your estimated payment amounts with each repayment plan on StudentLoans.gov.
Ask Your Private Loan Servicer for Assistance
Private student loans aren’t eligible for federal repayment plans, but you may still have options. Contact your loan servicer right away if you think you’re going to have trouble making payments.
Some lenders offer borrowers assistance in repaying their loans, such as a temporary monthly payment or interest rate reduction. While this isn’t a permanent solution, it could offer relief while you rebalance your budget and figure out how to make full payments in the future.
If you think you will likely default on a private student loan, let your servicer know and ask if there are any alternative options. Although they’re not required to do this, private lenders might work with you to arrange an alternative repayment plan that makes your monthly payments more affordable.
Apply for Student Loan Deferment or Forbearance
You may be able to temporarily stop making payments on your student loans by placing them into forbearance or deferment. In either case, you won’t have to worry about late payment fees, hurting your credit, or defaulting on your loans.
Deferment is generally for people who can’t afford payments because of another commitment, such as returning to school, starting a rehabilitation training program, or being an active-duty military member. Forbearance is generally for people who are experiencing a financial hardship, such as a medical emergency or lost job.
In addition to the eligibility requirements, one of the most significant differences between deferment and forbearance is that the federal government will pay for the interest that accrues on subsidized federal student loans that are placed in deferment. You will have to repay the interest that accrues on all other types of federal student loans and private student loans during forbearance or deferment. The interest gets added to your loan’s principal balance once you start to repay your loans again, which can make your payments more expensive in the future.
Consider Loan Consolidation or Refinancing
You may be able to consolidate (i.e., combine) multiple federal student loans with a Direct Consolidation Loan. Consolidating is free and can make managing your monthly payments easier. You’ll have fewer payments to deal with each month, and you can even consolidate loans that are currently managed by different servicers. You may also be able to lower your monthly payments by increasing your repayment term.
A Direct Consolidation Loan is only an option if you have federal student loans, and even then there are cons to consider. For instance, if you’ve been making payments that count toward Public Service Student Loan Forgiveness on one of your loans, those payments won’t carry over to your consolidated loan. However, you can pick and choose which loans you want to consolidate, so you could leave that one out.
Refinancing your student loans is a different option that works with both federal and private student loans. Refinancing is essentially replacing one or more student loans with a new student loan. You may be able to lower your monthly payment amount if you qualify for a new loan with a lower interest rate or longer term than you currently have on your loans.
The rates and terms of your new student loan can vary depending on the lender and your creditworthiness. If you can’t qualify for refinancing on your own, you may be able to apply with a creditworthy cosigner. The cosigner will then be responsible for repaying the loan if you’re unable to make payments.
Compare student loan refinancing companies and offers to see if refinancing could save you money or lower your monthly payments.
If you’re having trouble affording your student loan payments, you might not want to refinance federal student loans. Once refinanced, your federal student loans will be replaced by a private student loan that isn’t eligible for federal repayment, deferment, forbearance, or rehabilitation programs.
A Proactive Approach Is Best
While making full, on-time payments is the best way to avoid late payments, collection fees, and defaulting, that isn’t always a realistic option for borrowers. When you’re feeling overwhelmed, it can be tempting to ignore growing debts. After all, your lender can’t take your degree away.
However, an active approach is always better than ignoring the situation. If you default on your student loans, you may lose your ability to change repayment plans or qualify for additional student loans, have trouble getting a copy of your academic transcript, have your wages garnished, or even have part of your tax refund taken to repay your loan.
Don’t let neglect hurt your financial situation. Research your options and work with your loan servicers to stay current. Even if you have to temporarily stop making payments, at least doing so won’t hurt your credit. You might even be able to get on an affordable federal repayment plan that drastically lowers your monthly payments and leads to loan forgiveness later.
Louis DeNicola is a personal finance writer who contributes to Student Loan Hero. He covers a variety of personal finance topics and especially likes writing about credit and loans.