Student loan debt is a daunting burden for millions of Americans. If you’re struggling to make payments, you may be at risk of defaulting on your loans — which can quickly send you into a financial tailspin that takes years to recover from.
Fortunately, you may be able to avoid default, even if you can’t pay your student loans. Here's what to do if you can't afford your payments.
If you can’t pay your federal loans
If you’ve fallen behind on your federal student loans and can’t pay, you aren’t without options. Consider the following ways to get help:
1. Contact your loan servicer
Contacting your loan servicer to discuss your options should be your first step if you can’t pay your federal student loans. They can work with you to proactively find a solution before you miss a payment or your loan defaults, but you’ll need to call them to get the ball rolling.
You can find your federal student loan servicer by logging in to your StudentAid.gov account and visiting the “My Aid” page.
2. Consider deferment or forbearance
After contacting your loan servicer and discussing your financial hardship, they may give you the option of loan deferment or forbearance. Both of these options can temporarily pause your loan payments, giving you time to figure out how to afford them.
- Deferment: You might qualify for federal deferment if you’re dealing with economic hardship, unemployment, or you’re on active-duty military service, among other circumstances. Interest will continue to accrue during deferment, unless you have Direct Subsidized Loans or Perkins Loans. In those instances, the government will cover interest costs during qualifying deferment periods.
- Forbearance: You may qualify for forbearance if you’re serving in AmeriCorps, working through a medical internship or residency, working as a teacher, or if your student loan payments are high relative to your income. Interest accrues on all federal loan types during forbearance.
3. Change your repayment plan
With federal student loans, you may have multiple repayment plans to choose from, including income-driven repayment (IDR). These plans set your payments at a percentage of your income, and some borrowers may qualify for $0 monthly payments. After making the required payments for 20 or 25 years under IDR, any remaining loan balance can be forgiven.
These IDR plans include:
- Saving on a Valuable Education (SAVE) plan
- Pay As You Earn (PAYE) Repayment plan
- Income-Based Repayment (IBR) plan
- Income-Contingent Repayment (ICR) plan
Other options include Graduated Repayment, which sets your monthly payment lower at first before gradually increasing every two years. Borrowers with over $30,000 in debt could also use the Extended Repayment plan, which gives you 25 years to repay your loans with fixed or graduated payments.
Note that extending your repayment period often means you'll pay more in interest over the life of your loan. But by changing your plan, you could lower your monthly payments and make them more manageable.
4. Explore consolidation or refinancing
If you and your loan servicer haven’t been able to find a solution to your repayment hardship, thinking about federal student loan consolidation can be a good next step.
To federally consolidate your debt, you must apply for a Direct Consolidation Loan. It's important to note that this won't reduce your interest rate, since it averages the rates on your current loans. However, consolidating your federal loans can combine them into one account, making it easier to manage. It can also extend your repayment period up to 30 years, lowering your monthly payments.
If lowering your rate is important, look into refinancing student loans. This involves taking out a new loan with private lender that can offer a better rate, then using those proceeds to pay off your existing debt.
But before refinancing federal student loans, consider the pros and cons carefully. Doing so will forfeit your federal repayment protections, like income-driven repayment plans and loan forgiveness programs.
Check Out: How To Consolidate Student Loans
5. Look into loan forgiveness
Lastly, exploring student loan forgiveness programs could be the right option for you, especially if you work in public service. Although loan forgiveness is harder to qualify for than other options, it's a noteworthy opportunity for eligible borrowers. Several federal loan forgiveness programs exist, including Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness.
Additionally, you could qualify for a type of loan forgiveness known as discharge under certain circumstances, such as if your school unexpectedly shuts down or you become totally and permanently disabled.
If you can’t pay your private loans
While federal student loans offer several ways to manage your debt during financial hardship, private student loans typically come with fewer options. However, that doesn't mean you're out of luck. Here are two potential solutions to consider:
1. Contact your servicer as soon as possible
If you can’t afford your private student loan payments, contact your lender or loan servicer as soon as possible — ideally, before you ever miss a payment. This way, you can work with them to find a solution. While exact policies vary, private lenders may be willing to temporarily pause your payments, reduce your payments for a short while, or offer a specialized repayment plan to help you catch up on missed payments.
Keep in mind that private lenders don’t offer the same loan protections as federal loans do, and they’ll generally be less forgiving of your missed payments.
2. Refinance your private student loans
Refinancing your loans can be a great option for getting back on track if your loan servicer doesn’t offer you helpful repayment options. Doing so could lower your interest rate and make your monthly loan payments more affordable.
However, you typically need excellent credit and a reliable income to qualify for the best refinancing rates. If you can't meet those requirements, adding a well-qualified cosigner to your application could help.
If you’re wondering how to refinance, start by comparing interest rates and loan terms from multiple different lenders.
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What happens if I don’t pay my student loans?
It may be tempting to stop paying your student loans, but if you miss enough payments, your loan could go into default.
The consequences you’ll face for defaulting on your loan will vary depending on whether they’re federal or private loans, but could include damage to your credit, wage garnishment, and even lawsuits. Here’s how going into default works for both federal and private student loans.
Federal student loan default
Defaulting on your federal student loans can happen in a couple of different ways, depending on which type of federal loans you have:
- Direct Loans or Federal Family Education Loans: Default will generally occur if you don’t make your scheduled payments for 270 days.
- Perkins Loans: If you miss even one scheduled loan payment, your loan can go into default.
Important:
Defaulted borrowers can sign up for the temporary Fresh Start program before Aug. 31, 2024. This can get you out of default quickly and remove the negative record from your credit report.
After the Fresh Start program ends, you’ll still have the option to rehabilitate your loan. Loan rehabilitation involves signing an agreement with your loan holder stating that you will make on-time loan payments for a set time frame. If you hold up your end of the agreement, your loan will be released from default.
Private student loan default
Defaulting on private student loans can happen much quicker than with federal student loans. That’s because private lenders often consider your loan in default after you have missed your scheduled payments for just 90 days, but the timeline for defaulting varies by lender.
Like federal loans, the consequences of defaulting on a private loan can be severe. They include serious damage to your credit score, collection attempts, and, if you don’t pay the debt, a possible lawsuit. You can avoid this by working with your lender to create a plan for repayment, which could include loan rehabilitation or even negotiating a settlement.
Student loan payment FAQ
Do you still have questions about the consequences of not paying your student loans? Here are answers to some of the most common queries:
Is it illegal to not pay student loans?
Not paying your student loans is considered a civil offense and is generally not considered illegal, but it does come with serious consequences, including wage garnishment, damaged credit, and potential lawsuits.
Can they take your house if you don’t pay your student loans?
Although exceedingly rare, losing your home due to unpaid student loans can happen. That said, it's more likely that the government will garnish your wages and tax refunds before placing a lien on large assets such as a house.
Do student loans go away when you die?
When you die, your federal student loan balance will be discharged. However, if you have private student loans, they could still be the responsibility of your estate. Some private lenders will agree to discharge your loans in the event of a death, but policies vary.
What is an economic hardship deferment for student loans?
An economic hardship deferment allows you to pause your student loan payments if you can’t afford them due to financial hardship. If eligible, you’ll be able to defer your federal loan payments for up to three years.
What happens to my credit score if I can’t pay my student loans?
Missing student loan payments will negatively impact your credit, often in significant ways. In fact, late payments and loan defaults can stay on your report for up to seven years.
