I Can't Afford My Student Loan Payments
Those who obtain a college degree, a trade license, or technical certification have a better chance of earning higher salaries throughout their lifetime. Unfortunately, higher education is expensive. Most of us need to use financial aid, scholarships, or loans in order to pay for higher education.
In this topic, you will learn about the consequences of not paying your student loan as scheduled and explore your options for changing your payment status to find relief.
The consequences of not making scheduled loan payments can be very serious. If you find that you are not able to make your payments, it is very important to notify your loan servicer(s) immediately. The loan servicer may be your school, financial institution, state education loan guarantor, or the federal government.
If you stop making payments with out notifying the loan servicer, the lender(s) can take action against you to recover your debt. These collection activities can increase the cost of your loan. If you stop making loan payments without notifying lenders of your situation, they may:
- notify credit reporting agencies. This can affect your credit negatively and make it difficult for you to finance a car or home in the future.
- declare you ineligible for more federal student aid.
- garnish your wages so that you pay before you receive your paycheck. This can be embarrassing as well as cause financial difficulty.
- withhold your state and federal income tax refunds and apply it toward the loan amount.
- take you to court where a judgment can prevent you from purchasing or selling your assets unless you pay in full.
So, if you’re having trouble with loan payments, don’t wait! Contact your loan servicer immediately. Let them know that you are willing to pay your loan but that you are in a difficult financial situation at this time. Ask them what options you have for your particular circumstances.
Let’s explore the options that you may be eligible for, if you are unable to make your payments due to a change in your life situation.
Change your repayment plan: You may find it possible to continue your payments if you change your plan to one of the following:
- Standard Repayment Plan – This is the shortest term plan of fixed monthly payments of at least $50 with up to 10 years to repay in full.
- Graduated Repayment Plan – This plan provides short-term relief through low, interest-only monthly payments that increase gradually to standard principal and interest payments.
- Extended Repayment – This plan lowers monthly payments over a longer period of time and has a predictable payment schedule. However, the interest you are paying on the loan will increase due to the length of the loan term.
- Income-Sensitive or Income-Contingent Payment Plans - In these plans, your monthly payments are determined based on your adjusted gross Income, family size, and the amount of your Direct Loans or FFEL Loans. You must sign a form that permits the Internal Revenue Service to provide information about your income to the U.S. Department of Education to participate in these plans.
Consolidate Loans: You may have several loans for different school years, or for attendance at different schools. You can consolidate these loans and choose a payment plan to reduce your monthly payments.
Request a deferment: This is a temporary postponement of loan payments granted for situations such as returning to school, unemployment, disability, or military service. During a deferment period, your loan balance will not increase if you qualify and apply for federal interest subsidies, because the government will be making interest payments on your behalf.
Request a forbearance: This is a temporary postponement or reduction of payments for a period that you and the lender, or holder of your loan, agree on while you work through your financial difficulty. If your loan is in forbearance, your loan balance will increase by the amount of unpaid accrued interest.
Loan rehabilitation program: If you are In default status, you may qualify for a Loan Rehabilitation Program. Under the loan rehabilitation program, you and the lender (or the Department of Education if you have a defaulted Direct Loan) agree on a reasonable and affordable payment plan for nine payments over a ten-month period. You must sign a rehabilitation agreement specifying your payments and responsibilities. A loan is not considered rehabilitated until you have voluntarily made the agreed-upon payments on time and a lender has purchased the loan. From the date of the rehabilitation, you will most likely be eligible for deferment or forbearance, or the other repayment options.
Under this program, the amount you owe will probably increase due to outstanding interest on the current principal balance when your loan is rehabilitated. You may also have to pay collection costs. Rehabilitating your loan removes the default status at completion of the process. National credit bureaus will be notified when the loan is no longer considered in a default status, however the delinquencies reported before the loan defaulted will not be removed from your credit report.
Contact your school directly to establish rehabilitation for Perkins loan as schools often contract with companies to service Perkins Loans. It takes 12 consecutive loan payments to rehabilitate a Perkins loan. If you have a FFEL loan, a participating lender must agree to purchase the defaulted loan and assume servicing it after completion of the scheduled rehabilitation payments.
For more detailed information about repaying student loans, go to: http://www.ombudsman.ed.gov/resources/faqs/paymentissues_faq.html.
If you get a default notice that you believe is incorrect, contact your loan servicing agency immediately to see if you can correct the error. Errors may occur if the loan servicer does not receive documentation showing that you were enrolled at least half time in an eligible secondary program. If this is the case, gather attendance records from each school you have attended. Ask the loan servicer to check the last date of attendance to see if it matches your documentation. If not, submit your documentation to the loan servicer for correction.
Errors can also occur during a deferment or forbearance. Keep a file of all documentation verifying the start and end dates of your deferment or forbearance. Contact your loan servicer to confirm the start and end dates of any deferments and forbearances that applied to your loan account. If the loan servicer’s information is not correct, submit documentation with the correct information.
Make sure you review your monthly loan statements, mistakes do occur. It is possible that you made a payment that was not credited to your account. Ask your loan servicer for a statement that shows all payments made on your student loan account and check your bank records to be sure you are up-to-date. You can usually check your loan account status on the web.
There are situations that may enable you to have your loan canceled or discharged, under the Loan Forgiveness for Public Service Employees Program based on the College Cost Reduction and Access Act of 2007. Requesting discharge or cancellation can be a long and complicated process, but may be worthwhile if you are in one of the situations described below.
Total and permanent disability (TPD): Student loans may be discharged if the Department of Education considers you to have a Total and Permanent Disability. This means that you are unable to work and earn money because of an injury or illness that is expected to continue indefinitely, or result in death.
You will need to submit copies of a TPD application form. A M.D. or D.O., authorized to practice in the United States, must describe and certify your disability status on the application. The loan holder and guaranty agency and the Department of Education reviews the applications. If you receive final TPD approval, the Department of Education can also review your eligibility for refund of payments made after the date of disability. For more information about applying for TPD go to: http://www.ombudsman.ed.gov/resources/comparisonofchanges.html.
School closure: If you were enrolled in a course of study that you could not complete because your school closed, you may be eligible for discharge of a federal student loan. However If you complete all of the coursework but did not receive a diploma or certificate you are not eligible for the discharge. Also, you are not eligible for the discharge if you are completing a comparable educational program at another school.
Ability to benefit: If a school admits you, based on your ability to benefit from the training without appropriately testing you to measure that ability, or you failed the test, you may be eligible for this discharge. You may also be eligible if you did not meet the physical or legal requirements of your state to enroll in the program or work in the career, for which you were training. This does not apply to your ability to obtain a job once you graduate or receive a certificate, as the Department of Education does not endorse the school's educational programs or guarantee that the school will deliver the services
Forged signature: If you can show that someone forged your signature on the loan application, promissory note, or authorization for electronic funds transfer, you may qualify for a loan discharge.
School owes you a refund: If your school failed to pay a tuition refund required under federal law, you may qualify for a discharge of the amount of the unpaid refund on a FFEL or Direct Loan.
Death: Your federal student loan debt will be discharged on your death. Your estate will not owe any money on your loan.
Child and family services cancellation: You may be eligible to receive a child or family services cancellation if you are solely "providing or supervising the provision of services to high-risk children who are from low-income communities and the families of these children" (Section 674.56(b) of the Perkins regulation).
Teacher loan forgiveness/teacher loan cancellation: If you have been teaching full-time for at least five consecutive, complete school years in an elementary or secondary school designated as a low-income school, you may be eligible for loan forgiveness through the Federal Family Education Loan (FFEL)/Federal Direct Loan Teacher Loan Forgiveness program. The program is designed to encourage individuals to enter and continue in the teaching profession and will forgive up to a combined total of $5,000 of subsidized and unsubsidized Federal Family Education Loans (FFEL) or Federal Direct Loans. This program is only available if:
- October 1, 1998;
- you are not in default on the loan for which you are requesting forgiveness;
- you did not receive a benefit for the same teaching service through the AmeriCorps Program
- you completed one of your five years of qualifying teaching service after the 1997-1998 academic year
- you took the loan before the end of your fifth year of qualifying teaching.
You can access the teacher loan forgiveness application at: http://studentaid.ed.gov/PORTALSWebApp/students/english/cancelstaff.jsp?tab=repaying
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In order to be eligible for Federal Perkins Loan teaching cancellation, you must be teaching full-time at a low-income school, as determined by your State's education agency. The low-income designation is based on statistics gathered about the population of each elementary and secondary school in your State.
Loan Forgiveness for Public Service Employees: This program was created through the College Cost Reduction and Access Act of 2007. This program is intended for employees in certain public service fields who have made at least 120 monthly payments on federal student loans. For information about qualifying go to http://www.ombudsman.ed.gov/cancellation.html