Listen, it happens. Despite the best-laid schemes of mice and college students, finding a post-graduation job where you earned enough to pay down the Mount Everest of student loan debt to your name was bound to be a long shot.
Take a deep breath. Remind yourself that you are not the first person who has been in this situation before.
Countless people have come before you and, unfortunately, countless more will follow. That it is not quite literally the end of the world and that you will make it. It’s a long, rocky path ahead of you to financial solvency, but you can make it.
Now, let’s do something about it.
Request Loan Forgiveness or Discharge
If you have federal student loans, you may be eligible for loan forgiveness or discharge, under which you will no longer be required to make any payments for all or a portion of your loan. Forgiveness applies to circumstances where your current job provides a valuable service.
The Public Service Loan Forgiveness Program applies when you work for a government organization or some types of non-profit organizations and you make 120 “qualifying monthly payments.”
If you have been a full-time elementary or middle school teacher, or a teacher in a “low-income school” for five academic years, you may qualify to have up to $17,500 of your Direct Loan or Federal Stafford Loan forgiven under the Teacher Loan Forgiveness program.
If you have a Federal Perkins Loan, you can request forgiveness under the Federal Perkins Loan Cancellation program if you were a full-time teacher at a “low-income” school, a special education teacher, or a teacher in a number of fields of expertise with a shortage of teachers.
Other professions are eligible too, such as nurses, firefighters, law enforcement officers, and volunteers with AmeriCorps VISTA and the Peace Corps. The amount that will be canceled or forgiven can vary depending on the profession, but it ranges from 50% to 100%.
Discharge refers to other circumstances where repayment is no longer required. For example, if the school you’re currently attending closes and you can’t complete your studies or if the school closes within 120 days of your withdrawal, you can request to have your loan discharged.
Additionally, if you become totally and permanently disabled, you can request a discharge for certain federal loan types, including Direct Loans and Perkins Loans.
Finally, if you die, your federal student loans are discharged once a death certificate is provided to the loan servicer.
Change Your Repayment Plan
Yes, the financial institution that services your private student loans wants its money back. But they are more inclined to help you be in a situation where you can repay the loan than you think. Especially when the alternative is a long and expensive legal proceeding to collect on someone who may not have any money to give.
If you have federal loans, you can change your repayment plan at any time and at no cost. Under the standard plan, you pay your loan over 10 years, but you can extend that to up to 25 years. By extending the term of the loan, you may be able to lower your monthly payments.
Other repayment plans take your (and your spouse’s if you’re married) income into consideration to determine how much you can pay. Check out the Federal Student Aid website for more information on repayment plans.
If you have private student loans, your options are a bit more limited. Repayment plans are typically locked in once the loan agreement is signed and executed. This is because, by law, private lenders aren’t allowed to change the terms of a loan after the fact.
However, your lender may have assistance programs that can help you repay. These may include deferment or forbearance programs, which we’ll discuss below.
Request a Deferment or Forbearance
Under deferment or forbearance, you are allowed to stop making payments on your student loan or reduce the amount you must pay temporarily. With a deferment, you are not responsible for paying any interest that accrues during the deferment period.
With forbearance, on the other hand, you are responsible for the interest accrued while you are on forbearance. In some instances, you are not required to pay that money as it accrues; however, once the forbearance is over, the interest is added to the principal balance (a process called capitalization) and interest is accrued on the new, increased balance.
If you have a federal loan, there are a lot of ways you can request a deferment or forbearance. For example, if you are studying at least half-time in an eligible college or career school, you are granted deferment automatically.
Also, if you are unemployed, experiencing economic hardship, serving in the Peace Corps, or on active military duty, you may request a deferment as well.
If none of these reasons apply to you, forbearance may be a solution. According to the Federal Student Aid website, you can request a general forbearance if you can’t make your monthly payments because of financial difficulties, medical expenses, a change in employment, or other reasons.
Your situation will be evaluated by your loan servicer who will decide whether you qualify or not. On the other hand, a mandatory forbearance may be granted under other circumstances; for example, if your monthly payment amounts to 20% or more of your monthly income. Depending on the type of deferment or forbearance, there may be a limit of three years or it may last until the situation ends.
If your loans are private, your deferment or forbearance payments will depend on your lender. Many lenders will grant a deferment if you return to school, go to graduate school, or if you’re in an internship, a fellowship, or a residency program.
Some lenders also allow you to access forbearance through a good faith payment. Speak with your loan servicer to find out if they can help you postpone payment while you figure out a way to get additional income.
Consolidate Multiple Loans
If you have several loans with more than one lender, consolidating your loans is a good option. When you consolidate loans, you take out a new loan for the total amount of your current loans and pay them off.
This way, you don’t have to make multiple payments to different lenders, which can help you manage your payments more successfully. For federal loans, you should look into a Direct Consolidation Loan which will let you combine all your loans into a single loan with a single servicer. This is good for a lot of reasons.
First, consolidating your loans gives you access to longer repayment periods, which can reduce your monthly payment. Also, you can change your loan interest rates from variable to fixed, which could mean savings in the long run.
Additionally, if your current loans are from the Federal Family Education (FFEL) Program or the Perkins Loan Program, consolidating could turn them into a Direct Loan, which would give you access to loan forgiveness programs and other income-based repayment plans.
Keep in mind, however, that, since consolidation means replacing current loans with a single new one, any benefits you may have had under your old loan may be lost.
Private loans and federal loans cannot be consolidated together into a Direct Consolidation Loan, but they can be consolidated into a single loan with a private lender.
However, this is generally discouraged because consolidating federal loans into a private loan means losing all the repayment and forgiveness options the Department of Education makes available through federal loans. Consolidating private loans, on the other hand, is a good idea if your credit score has gone up since you took out the current loans because you might be able to get a better interest rate. This is also the case with refinancing, as we’ll see next.
Refinance Your Student Loan
Similar to consolidation, refinancing your student loan involves taking out a new loan for the same amount you still owe on the current loan and paying off the current loan with the money disbursed. As we mentioned above, you can’t change the repayment plan of a private student loan after the fact.
Refinancing, however, is a way to change the terms of your student loan debt, which can mean extending the length of the repayment term or lowering the interest rate to reduce your monthly payments.
It is possible to refinance federal student loans, but it is not recommended. Federal loans can’t be used to refinance other federal loans, so your only option is to refinance through private loans. When you use a private student loan to pay off a federal student loan, you lose all the protections the Department of Education gives you. That means you will no longer be able to change your repayment plan, request deferment or forbearance, or have your debt forgiven.