If you are struggling to afford your student loan payments, you’re likely not alone. Whether you are dealing with unexpected expenses or job loss, or simply aren’t making enough to cover monthly payments, there are options.
If you can’t afford your student loan payments, the most important step is to take action as soon as possible to avoid further financial consequences. Understanding your options is key to making informed decisions about the best way to handle your loan payments.
First, Assess Your Current Financial Situation
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Before making decisions about how to manage your student loan payments, you need to determine your financial circumstances. Specifically, you need to figure out exactly where your money is going each month.
Start by breaking your expenses into essential and non-essential categories.
- Essential expenses include rent or mortgage payments, utilities, health and car insurance, and groceries.
- Non-essential include things like streaming subscriptions, dining out, and other purchases related to entertainment or hobbies.
Look for areas where you can reduce non-essential spending, even temporarily. Could cutting out a few expenses free up funds to put toward your loan payments? Even if the freed-up funds cover only part payments, that still helps ease the overall burden of debt.
Next, Review Your Student Loan Details
Many students end up with multiple student loans by the time they graduate. Create a spreadsheet listing all your federal and private student loans. Against each loan, write down the type of loan, interest rate and whether it is fixed or variable, balance owed, and repayment plan. Also, write down the name and contact details of the loan servicer or lender for each loan.
Having all the information in one place makes it easier to decide how to deal with each loan. For example, if your federal student loans are on a standard plan but you’re struggling to afford the payments, switching to an income-driven repayment plan could offer immediate relief.
Federal and private student loans have different loan payment relief options. We discuss both below.
Then, Explore Federal Student Loan Payment Relief Options
All students are automatically enrolled in the Standard Repayment Plan when they leave school. This plan divides the payments into 120 equal installments over a period of 10 years. The federal government has several programs in place designed to help borrowers struggling with loan payments under this plan. Some repayment programs are designed to lower monthly payments, others to offer temporary relief or even forgiveness down the line.
These are some of the options available for federal student loans.
1. Income-Driven Repayment Plans
Income-driven repayment (IDR) plans adjust your monthly payment amount based on your income and family size, ensuring payments remain manageable. If your earnings are low, you could qualify for significantly reduced payments, as low as $0 in some cases.
Each plan has different eligibility requirements and payment structures, so make sure to understand these details and work with your loan servicer to find the best fit for you.
Main features of each IDR plan:
- Saving on a Valuable Education (SAVE) Plan: Caps payments at 10% of your discretionary income.
- Pay As You Earn (PAYE) Plan: Caps payments at 10% of your discretionary income – only available for loans issued on or after October 1, 2007.
- Income-Based Repayment (IBR) Plan: Payments are limited to either 10% or 15% of your discretionary income but never more than the payments under the 10-year Standard Repayment Plan.
- Income-Contingent Repayment (ICR) Plan: Sets payments at the lesser of 20% of your discretionary income or the amount you’d pay on a fixed plan over 12 years, adjusted based on your income.
These plans may also provide forgiveness after 20-25 years of qualifying payments, depending on the specific plan you choose.
Income-Driven Repayment plans offer two significant benefits – lower monthly payments and flexibility. These plans lower payments to fit your budget and the payments adjust annually if your circumstances change. An additional benefit is the potential for forgiveness on any remaining balance after the repayment period.
The downsides are you’ll take longer to pay off your student loan debt and you’ll pay more in accrued interest over the longer loan term.
IDR plans are ideal if your current income isn’t sufficient to cover your standard loan payments. Contact your loan servicer to determine which is the best plan for you.
2. Forbearance and Deferment
The federal government also offers forbearance and deferment options that allow you to suspend payments temporarily during financial hardships. These options are helpful if you’re experiencing a temporary rough patch and expect your situation to improve in the near future. For example, deferment or forbearance could help if you’ve lost your job unexpectedly and need some time to get back on your feet. They also help if you’re on active duty in the military, navigating parental leave, or experiencing other unexpected difficulties.
During the deferment period:
- subsidized loans don’t accrue interest.
- unsubsidized loans continue to accrue interest.
With forbearance, payments are paused or reduced for up to 12 months. Interest typically continues to accrue on both types of loans, subsidized and unsubsidized. Forbearance is often used during unemployment, medical emergencies, or other unexpected difficulties.
While these options can offer immediate relief, they’re not long-term solutions and should not be used as such. Interest can add up quickly, increasing your overall loan balance considerably over the long term.
3. Federal Student Loan Consolidation
If managing multiple loans is becoming a burden, federal loan consolidation may be an option. This process combines all of your loans into a single Direct Consolidation Loan, simplifying your repayment process.
The benefits of loan consolidation are a single monthly payment instead of multiple and access to IDR plans and forgiveness programs for previously ineligible loans.
However, consolidation may increase the overall interest paid over time, so it’s important to weigh the pros and cons before proceeding.
4. Explore Refinancing Options
If you can’t afford your student loan payments, refinancing can offer relief, but it comes with distinct risks and benefits.
Refinancing involves replacing your current loan or loans with a new one with different terms. That means you can choose a longer loan term, which helps to lower your monthly payment, making them more affordable. If you qualify, you could also get a lower interest rate on the refinanced loan.
However, the federal government does not offer refinancing. The only way to refinance is through private lenders. When you refinance federal student loans, they get converted into private loans and you lose the federal benefits and protections associated with the original loan.
If you think you may need federal protections sometime in the future, it’s best not to refinance your federal student loans.
Private Student Loan Payment Relief Options
Unlike federal student loans, which have standard relief options, private student loans vary from one lender to another. Each lender sets their own terms and conditions. With private student loans, the first and most important thing to do is contact your lender as soon as you realize you can’t afford your next payments. Don’t wait until the last minute or until after the due date.
If you have good credit and stable income, refinancing your private loans may be a good option. You can choose a longer loan term on the refinanced loan, which helps lower the monthly payments, making them more affordable. Good credit and stable income could qualify you for lower interest rates on the refinanced loan, which could save you money over the life of the loan.
In addition to looking at payment relief options, you always explore ways to boost your income.
Tips to Boost Your Income Potential
When money is tight and loan payments seem impossible, finding ways to boost your income can offer breathing room in your budget.
- Look for part time jobs the offer flexible hourly roles that can fit around your current schedule. Even working a few extra shifts each month can help cover loan payments.
- Tap into your skills to explore freelance opportunities. Writing, graphic design, tutoring, or social media management are in great demand. Use freelancing platforms to connect with clients looking for service providers.
- Offer babysitting, pet-sitting or other in-demand services around your neighborhood. These types of services allow you to work around your schedule.
As long as you are dealing with student loans, stay committed to boosting your earnings and cutting back on unnecessary expenses to make those loan payments more affordable.
Although student loan relief options do help, in most cases they extend the loan term and increase the amount of interest accrued. Your goal should be to try and pay off your debt as soon as possible with the least interest. Even small, consistent efforts add up over time. Think of every dollar earned and every dollar saved as steps closer to becoming debt-free.
If you are feeling like you can’t afford your student loan payments, there are actionable steps to ease the pressure. Assessing your finances, exploring available relief options, and taking measures to boost your income are three things you can do to stay on top of your payments.
For more information on financing your college education, read more informative articles and use the virtual tools available on the College Raptor website.
