Can’t Pay Student Loans? Here are Your Options
If you cannot repay your student loans, you have five options to consider. You can change your repayment plan, consolidate or refinance, defer payments, put loans into forbearance, or try to discharge or settle your debt.
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Note about changes due to COVID-19:
There have been changes to the federal student loan program as a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that passed in Congress on March 27, 2020, to help those affected by the Coronavirus.
Until December 31, 2022, borrowers have the option to suspend payments without penalty, if needed. Payments made on federal student loans during this time will first apply to unpaid interest accrued before March 13, 2020, then directly towards the principal balance. In addition, no interest will accrue during this time—effectively setting the rate at 0%.
If you are pursuing Public Service Loan Forgiveness or forgiveness through an income-driven repayment plan, skipped payments will still count towards the monthly payments required to be eligible. The same is true for borrowers working to meet student loan rehabilitation requirements.
Lastly, the government will not garnish tax refunds or money from other federal benefits of borrowers who are behind on student loan payments during this time.
If you’re struggling with student loan repayment, you may feel hopeless. Defaulting on your loans has serious consequences, so you’ll want to explore all your options to help you stay on track with your student loan payments.
Fortunately, there are a number of ways you can make student loan repayment more affordable and manageable.
This guide will cover what you should consider when you’re struggling with student loan payments. Once you’ve reviewed your options, you can work with your student loan servicer to choose the path that’s best for you.
On this page:
- 5 Options to Consider When You Can’t Pay Student Loans
- What Happens if You Don’t Pay Your Student Loans?
- Other Tips for What You Can Do if You Can’t Pay Your Student Loans
5 Options to Consider When You Can’t Pay Student Loans
1) Consider Changing Your Repayment Plan
Income-Driven Repayment Plans
Income-driven repayment plans are an option for federal student loans only. These plans include:
- Pay As You Earn (PAYE)
- Revised Pay As You Earn (REPAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
When you choose one of these plans, your monthly payment is capped based on a percentage of your discretionary income. You won’t pay more than you can afford due to this cap on your payment.
You can learn more in our Income-Driven Repayment Plans Guide.
Extend Your Repayment Term
Extending your repayment term or choosing graduated repayment can also help you to reduce the monthly payment cost of federal student loans. If you opt for graduated repayment, payments go up as income does.
Extending your repayment term can also lower monthly payments by giving you more time to pay back what you owe.
If you have private student loans, you can ask your loan servicers about options for extending your repayment plan. Or you could refinance into a new loan with a longer repayment timeline. We’ll explain that below.
2) Consider Consolidating or Refinancing Your Loans to a Longer Repayment Term
If you change the amount of time you have to repay your loan, you can make monthly payments more affordable. After all, repaying what you owe over 20 years instead of 10 will cost less each month.
You’ll pay more interest in total, though, due to the longer amount of time interest has to accrue.
You can gain access to repayment terms as long as 30 years by taking out a Direct Consolidation Loan to replace your federal student loans. Our guide to Direct Consolidation Loans can help you better understand how loan consolidation works.
It’s also possible to extend the repayment period on both federal and private student loans by refinancing your loan with a private lender.
However, this may not be an option if you’re struggling to make payments, because you may not have the required income and credit score to qualify for a refinance loan. You can learn more about this option in our Refinancing Student Loans Guide.
3) Consider Student Loan Deferment
Deferment is another option as well. It allows you to pause your payments temporarily until your financial situation improves. All federal student loans allow loan deferment under certain circumstances.
If you qualify for federal student loan deferment, the federal government will pay interest on your Direct Subsidized Loans while you’re in deferment—but you’ll continue accruing interest on all unsubsidized loans.
Not all private lenders provide student loan deferment, so you would need to check with your lender to see if this is an option. Either way, you will not get subsidized interest on private loans while in deferment.
4) Consider Student Loan Forbearance
Forbearance also allows you to temporarily pause your student loan payments. Forbearance, unlike deferment, is more readily available among private lenders. And for federal student loans, you don’t have to meet specific qualifying requirements for forbearance, as you do for deferment.
Unfortunately, when you put federal student loans into forbearance, you do not get subsidized interest—even on Direct Subsidized Loans. Of course, interest also continues to accrue on both private student loans and unsubsidized federal loans as well.
You can learn more about this option in our Student Loan Forbearance Guide.
5) Long Shot: Discharge, Forgiveness, or Debt Settlement
As a last-ditch effort, you could try getting your student loans discharged or forgiven, or you could try settling your debt.
One final option is to try to settle your student loan debt for less than what you owe, or to try to get your student loans discharged in bankruptcy.
Unfortunately, as our guide to how student loans work in bankruptcy explains, it is difficult to get loans discharged because you must prove student loan repayment is and always will be an undue burden and a financial hardship.
However, student loans can be discharged in a very limited number of situations.
As our guide to student loan cancellation or discharge explains, this can happen if you experience total or permanent disability, if the primary student loan borrower dies, or if the school you attended was fraudulent and the government orders loan discharge.
Student Loan Forgiveness could help you to get at least some of your loan balance forgiven, too. But typically you are required to make at least 120 monthly payments and sometimes many more to become eligible.
These repayment requirements may not help if you need relief immediately. You can read more in our Student Loan Forgiveness Programs Guide.
Debt settlement is another option and involves agreeing to pay the lender less than what is owed in exchange for the remaining balance of the debt being forgiven.
What Happens if You Don’t Pay Your Student Loans
If you do not pay your student loans, you may face late or missed payment penalties, delinquency, and even default.
Your loan will enter delinquency as soon as you miss a payment, and it will remain there until you make up for missed payments or negotiate with your lender to enter deferment or forbearance.
Here’s how it works:
- You miss one month’s payment: the lender reports to the three credit reporting agencies that you are late. This can reduce your credit score by several points.
- You miss two months of payments: the lender reports your delinquency to the credit bureaus, again causing your credit score to drop.
- You miss three or more months of payments: the lender continues to report your delinquency to the credit bureaus. At this point, you may also face an official default on your student loans, meaning you could face wage garnishment.
- If you continue to avoid your student loan payments after serious delinquency has set in, your account could be transferred to a collections agency. When this happens, you will not only have a delinquency on your credit report, but also a collections account that remains there for several years.
Missing student loan payments can make it difficult to get other credit, like auto loans and mortgages, in the future. Lenders will view you as a high-risk borrower and they will either charge you more for new accounts or decline your application altogether.
- Damage to your credit score
- Wage garnishment
- Seizure of your tax refunds
- Liens being placed on your property
- Loss of your professional license
- Higher interest rates on future loans
If your loans are in default, you do have options for rehabilitating them and getting back on track. You can learn more in our guide to how student loan rehabilitation works.
Other Tips for What You Can Do If You’re Struggling to Pay Your Student Loans
In addition to exploring all of the resources and repayment options mentioned above, there are also other options you can consider if you can’t pay your student loans.
- Make a budget. If you can’t keep up with student debt payments, you may need to better manage cash flow. Set up strict budgets for your necessities and look for areas to trim expenses until you can consistently keep up with student loan payments.
- Find a side gig. Taking on a side gig is an excellent way to increase income and broaden your professional experience. Consider these ways to earn a side-stream of income, and dedicate that money exclusively to your student loan payments.
Finally, you can also turn to the following resources for more help:
Author: Christy Rakoczy