You have finally conquered college and survived four years of intense studying to earn your degree. Graduation is a freeing experience—until you get your first student loan bill. Unfortunately, student loans go into immediate repayment the day you graduate, whether you secured your dream job or not. Currently, many graduates are facing the reality that they just cannot afford their monthly student loan payments. It can be a grueling time of crisis when you can't afford to pay your monthly student loan debt, but there are options available that will keep you financially afloat.
Don't Go Into DefaultDon't make the assumption that because you can't afford your student loan you should stop paying it. Defaulting on your loan is one of the worse things you can do, and it will make paying off your loan even harder. Attorney, Daniel Gamez, of Gamez Law Firm says, Once a federal student loan goes into default, borrowers face potential wage garnishments of up to 15% of their wages.
Remember, bankruptcy is not an option. Declaring bankruptcy will not get rid of your student loan, and it will put you in a horrible financial situation that will affect your job choices, housing choices, and credit score for the next seven to ten years. (For more, see The 6 Worst Student Loan Mistakes You Can Make.)
Consider Deferment or ForbearanceIf you cannot afford to pay anything towards your student loan, you might still be eligible for deferment or forbearance. For deferment, you are not required to pay any payments for the time you are granted deferment. The government will even pay the interest on subsidized loans. However, if you have an unsubsidized loan or a PLUS loan, you will still be responsible for paying back the accruing interest. Therefore, it is best to request deferment for subsidized loans first before you defer your other loans.
Deferment is available to the following individuals:
Forbearance is another option available to individuals who cannot make their monthly payment. Forbearance is either discretionary (up to the approval of the lender) or mandatory for the following individuals:
Remember that deferment and forbearance do not happen automatically. Do not think that your student loan will be placed into these statuses if you stop paying. You must contact your lender and be approved first. It is important that you do not stop paying your monthly payments until you are told to do so.
Look at Income-driven PlansAnother option for graduates are special income-driven plans granted through the lender. There are three programs to look into:
All three of these plans have eligibility requirements, but if you are qualified, your monthly student loan payments can be reduced to as much as 10% of your discretionary income. Most of these plans will also never cost you more than the ten-year Standard Repayment Plan amount.
There Are Options for Private Student LoansPrivate student loans do not qualify for forgiveness programs or income-driven plans. There is a lot less flexibility when it comes to private student loans, but there are still options. Some private lenders will offer extensions and unemployment protection, which grants you a temporary pause on your repayment. It is best to call the lender immediately if you know you are going to be late on a payment or miss a payment.
It is also a good idea to consolidate your private student loans into one loan with a lower interest rate. This will reduce your overall monthly payments, and it can also help prevent missed payments if you are having trouble juggling multiple loans. Many times, a private loan comes with a variable interest rate, so it is smart to get it consolidated into a fixed-interest rate, which will protect your monthly loan costs in the future. Do not consolidate your subsidized or unsubsidized student loans if you wish to apply for government payment or forgiveness programs.
Finally, another option available for private student loans is negotiation. Attorney, Daniel Gamez says, I have learned that lenders tend to treat private student loan debt like any other unsecured debt (like credit card debt). This is a good thing because it usually means that the lenders will consider settling for less than due if it means they will get paid back something, even if at a discount and over time. Gamez continues to say that most creditors would prefer to settle with you than to settle in court. (For more, see 5 Surprise Changes To The Student Loan Program.)
You May Qualify for Loan Forgiveness and CancelationIn special circumstances, your student loan can be forgiven or canceled completely. A loan can be canceled or forgiven for one of the following situations:
If you have defaulted on your loan, it is best to have a talk with the lender. Ask about rehabilitation programs to see if there is one available for your situation. In some cases, the lender might still be willing to work with you, as long as you follow their requirements. No matter what your financial situation is, it is best not to ignore your loans. Try to bring yourself back into good standing regardless of if you have missed one payment or have defaulted a year's worth of payments.
The Bottom LineOne of the smartest things you can do after you graduate college is to take care of your student loans. Your loans will not go away, no matter how many payments you miss or if you file for bankruptcy, so it is best to keep them in good standing. Get help at the first moment of financial hardship to keep your loans from being deferred. (For more, read Top Government Tax Breaks For College Graduates.)
