What to Do When You Can’t Pay Your Student Loan Debt

Student Loan Debt

Finding your holidays over, and they want the money back?

It’s an awful feeling to face if one cannot afford how to pay off student loan debt. After completing your studies, finding hard to pay off your first bill with no clues! Similarly, with your up and down forbearance and deferment status with time, and trying for a repayment plan doesn’t work for you.

Neglecting and defaulting isn’t the ultimate answer. “If you look for help, there is always help if you believe for yourself.” and getting help with your financial expert is one.

Get ready to crack some best options below in tackling your debt.

Life-saviStudent Loan Debtng options for making loan payments

Applying these options below, no students will ever have to give up again to bring solutions to their lives.

1. Connect to Your Financial Loan Servicer/Lender

Most students make the wrong move. Before getting federal/private loans, always talk about all the plans and consequences with your financial aid servicer or lender, especially when you can’t make the payments.

Contacting and discussing with them will not only bring variable options but also frame you in a good standing position to avoid defaulting your student loans.

2. Filing for FAFSA

A student should never miss this option before getting any loan joining schools. File out for Free Application for Federal Student Aid (FAFSA) application that is for every year. Keep up with the latest deadlines and updates.

It could aid you in determining financial aid eligibility. The awards “Gift Aid” are taken as free money. It will qualify you for aids such as  grants and scholarships

3. Modifying of Repayment Plans

When you’re facing hardship making up federal loans, smart-look for ways in which you can bring beneficial modifications of repayment plans.

Federal student loans in the majority are eligible for income-driven plans, which cap your income on a monthly basis payment of 10% to 20%. 

Types of Repayment Plans

There are various repayment plans under federal loans. The options available are as follows.

Standard, graduated and extended repayment plans <H3>

  • It has a fixed payment on monthly basis
  • Graduated repayment plans start with less payment rate and higher gradually.
  • The extended type of repayment plan gives two options- payments on a fixed rate or graduated payment.

 The repayment period for standard and graduated payment plans, the repayment period is 10 years for single loans or 30 years if consolidated. It is 25 years for extended repayment plans.

Income-Driven Repayment Plans

There are plans like PAYE and REPAYE but it charges high in comparison to the 10-year repayment plan.

REPAYE Plan (Revised Pay As You Earn Repayment Plan)

It will cap 10% of your discretionary income on a monthly basis. Plus, being a married person, your spouse would also be a part of it)

  • On the basis of your pay and family size, recertification and time of payment per year are required.
  • Exercise this loan if you have a qualifying loan, with a direct subsidized loan, direct unsubsidized loan, Direct PLUS loan, direct consolidation loan that doesn’t consider PLUS loans.
  • Loan forgiveness is acceptable if you’re still paying loans for a time duration of  20-25 years( but do pay income tax on the amount).

PAYE Plan (Pay As You Earn Repayment Plan) Plan

REPAYE plan shares similarities with the PAYE plan, having 10% of your discretionary income.

Recertification is needed each year. It adds an effect on your spouse’s income if you’re married.

The same loans eligible for REPAYE qualify for PAYE, but high debt is taken into consideration when compared with your income.

Also, loan forgiveness for the REPAYE plan is 20-25 years (payment on income tax is considered), but for PAYE plan is 20 years.

Every loan plan has various conditions, so search the U.S. Department of Education website for facts.

Consider Deferment or Forbearance

Want to freeze your debt for some time? But how? Deferment is the ideal solution.

By providing evidence that you’re unable to make payments because of a poor budget, it will postpone payments for some time, for up to 3 years. However, it’ll start accruing interest rates on your loan debt, prolonging the repayment period. Not a perfect idea, yet it’s worth it.

The best part is that, if deferral eligibility fails, you may again be eligible for forbearance. It’ll extend or reduce your payment period to 12 months. Also, meeting eligibility requirements will qualify you for mandatory forbearance on other factors.

During forbearance, payment of interest rates on all the types of federal loans depends on you. But, borrowers should always ask for deferment or forbearance.

Consolidate Your Loans

Keeping up with multiple loan payments, consolidation is the best way to refer. A direct consolidation loan is applicable for federal student loan holders, consolidating your loans into a single loan from a single lender and single payment per month.

No application fee charges and most federal student loans allow for direct consolidation unlike for private student loan holders.

But, having a combined federal and private loans, consolidation remains eligible for federal loans and student loan debt and affects how long you take to repay it. Consolidation offers you up to 30 years, lowering your new payments.

But, interest rates over your long loan period will be high. Losing other benefits like interest rates discount and cancellation is another. So, estimating the cost before consolidating is important.

Refinance Your Student Loans

To refinance student loans means taking out one loan to clear another loan. People can apply this option if you bear high loan debts, you can get a new loan with a lower cost of interest rates.

Often the best tactic to apply when having private student loans. But remember, federal student loan rates are low, so it doesn’t support refinancing loans under it.

Seeking Student Loan Forgiveness

A loan forgiveness program for students is another option you can take into consideration.

The Public Service Loan Forgiveness Program offers borrowers working in public sectors at a non-profit or government agency, forgiveness on loans is approved after 10 years of regular clearing each month. 

And loan borrowers under the income-driven plan can have their remaining loans forgiven, after 20-25 years of making regular payments per month.

Learn Financial Skills Beforehand Taking Loans

Not being able to clean your loan debt not only hurt your credit status but risk your income.

Miserably, students give up making solutions with their student loans, knowing they can’t meet it. According to the Department of Education data, over 11% of student loans are in the law-breaker lists.

Be super proactive in avoiding such situations.

Always ask, understand, take tips from your financial aid advisor or lender. Organize all the options and build your eligible steps.

It might not be an easy start, but defending yourself is much cooler from such bursting situations and outcomes that will take years of hardship to cover.

And hey! having a loan debt never means quitting plans, there are always possible options.

The pro-action is to consult your lender/manager, scrutinize options to come the way out of it. Not taking action can contradict impacts on your financial health, your physical and mental stability as well.