I Can’t Afford My Student Loan Payments. What Do I Do?

When student loan payments become unaffordable, various options are available to help manage federal and private student loans. This article outlines the primary avenues for addressing unaffordable student loan payments.

Understanding Federal Loan Repayment Options

Federal student loans offer several programs designed to assist borrowers facing financial difficulty. These options can significantly alter monthly payment obligations or temporarily pause payments. A primary avenue for relief is Income-Driven Repayment (IDR) plans, which adjust monthly payments based on a borrower’s income and family size. These plans include Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE, now SAVE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). Payments under IDR plans can be as low as $0 per month, depending on income and household size, and any remaining loan balance may be forgiven after 20 or 25 years of qualifying payments.

IDR plans calculate payments as a percentage of your discretionary income, defined as the difference between your Adjusted Gross Income (AGI) and a multiple of the federal poverty guidelines for your family size. Annual recalculations based on updated income and family size ensure that payments remain aligned with a borrower’s financial capacity.

Beyond IDR plans, federal loan borrowers may consider deferment or forbearance to temporarily suspend payments. Deferment allows a pause in payments under specific circumstances, such as enrollment in school at least half-time, unemployment, or economic hardship. During deferment, interest does not accrue on subsidized federal loans, meaning the loan balance will not increase during that period. However, interest continues to accrue on unsubsidized loans during deferment, which will be added to the principal balance if not paid.

Forbearance also provides a temporary pause or reduction in payments but differs from deferment primarily in how interest is handled. Interest accrues on all loan types during forbearance, potentially increasing the total amount repaid over the life of the loan. Forbearance can be granted for reasons such as financial difficulties, medical expenses, or changes in employment, and is available when a borrower does not qualify for deferment. It is generally granted at the loan servicer’s discretion for a limited time.

Applying for Federal Repayment Adjustments

To apply for federal repayment adjustments like Income-Driven Repayment (IDR), deferment, or forbearance, gather necessary documents. This includes recent tax returns, current pay stubs or other proof of income, and details regarding household size. For married borrowers, income and loan information for both spouses may be required, depending on the chosen IDR plan and tax filing status.

Once information is collected, borrowers can begin the application process through their federal loan servicer’s website or directly on StudentAid.gov. StudentAid.gov offers an online portal for applying for new IDR plans or recertifying existing ones, and forms for deferment and forbearance are also available there or on the loan servicer’s website.

The application process involves navigating the online portal, inputting your financial data, and uploading supporting documentation. After submission, continue making payments until official approval is received. Check the status of your application through your loan servicer’s online account or by contacting them directly.

Exploring Federal Loan Forgiveness and Discharge

Federal student loan programs also offer avenues for complete debt cancellation through forgiveness or discharge. Public Service Loan Forgiveness (PSLF) is a significant program for those working in qualifying public service jobs. To be eligible for PSLF, borrowers must be employed full-time by a government organization or a qualifying non-profit, have Direct Loans, make 120 qualifying monthly payments, and be enrolled in a qualifying repayment plan, such as an IDR plan.

Income-Driven Repayment (IDR) plans can lead to forgiveness of any remaining loan balance after a specified period of payments, typically 20 or 25 years, depending on the IDR plan and whether the loans were for undergraduate or graduate study. The forgiven amount may be considered taxable income by the Internal Revenue Service (IRS) in the year it is forgiven.

Beyond these primary forgiveness programs, several discharge options exist for federal student loans under specific circumstances. Total and Permanent Disability (TPD) discharge is available to borrowers who are unable to engage in any substantial gainful activity due to a physical or mental impairment that is expected to result in death, last for a continuous period of at least 60 months, or has lasted for at least 60 months. Borrower Defense to Repayment discharge can be pursued by borrowers who were misled by their school or if the school engaged in other misconduct in violation of certain state laws.

Closed School Discharge applies if a borrower’s school closed while they were enrolled or shortly after they withdrew, and they did not complete their program at another school. In the event of a borrower’s death, federal student loans are eligible for discharge upon presentation of a death certificate.

Managing Private Student Loans

Private student loans offer fewer standardized repayment assistance options compared to federal loans. When facing difficulty affording private loan payments, contact the loan servicer or lender immediately. Open communication can lead to solutions.

One option is refinancing, which involves taking out a new loan to pay off existing private student loans. Refinancing can secure a lower interest rate or different payment terms, which reduces monthly payments or the total cost of the loan. However, refinancing federal loans into a private loan results in the loss of all federal benefits, such as access to income-driven repayment plans and federal forgiveness programs.

Some private lenders offer loan modifications, which alter the original terms of the loan agreement. These may include changes to the interest rate, loan term, or payment structure. Private lenders may also provide temporary hardship options, such as short-term forbearance or deferment. Borrowers should inquire about the terms of any temporary relief, including whether interest will continue to accrue during the pause in payments.