What To Do About Those Student Loan Debts You Can’t Afford

How much student loan debt are you carrying? If you’re carrying a big load of student loan debt and can’t afford your payments, you do have options.

Get your loan deferred

A deferment won’t do anything to clear your student loan debt but it would give you a timeout during which you would not have to make payments. If your loan was subsidized, you would not accrue any interest during deferment. Unfortunately, if your loan was not subsidized, interest will continue to accrue. It’s also important to understand that any interest not paid during a deferment is “capitalized,” which means it will be added to your balance and you will eventually pay interest on it.

How you might qualify for a deferment

There are several ways you could qualify for a deferment. You could go on to grad school or a career school, be unemployed, suffer on economic hardship (such as joining the Peace Corps) or join the military. Click here for a complete explanation of student loan deferment eligibilities.

Apply for a forbearance

If you’re not eligible for a deferment, you might be able to get forbearance. This would allow you to skip payments for up to a year. However, interest will accrue on both unsubsidized and subsidized loans and will be capitalized. To be eligible for forbearance, you must be ill or be able to show financial hardship. There are also mandatory forbearances you could apply for if you are doing a dental or medical internship, serving in a national service position or performing a teaching service (click here to read more about forbearance eligibilities).

Income-based Repayment (IBR)

An Income-Based Repayment is one where, if you qualify, your monthly payments would be capped at 15% of your discretionary income. If you’re a recent graduate there is the new Pay As You Earn (PAYE) program, which caps payments at 10% of discretionary income. If you’re unemployed your payments could be as low as zero dollars. Plus, after 10, 20 or 25 years, your balances may be forgiven. With an IBR, if you have a subsidized loan, the government will pay up to three consecutive years of interest that is accrued but not repaid. Conversely, if your loan was unsubsidized interest will accrue.

Income-Contingent Repayment (ICR)

This program pegs monthly payments to your income, family size and the amount of debt you owe. If you have a remaining balance after 25 years, it will be forgiven.

A blessing or a curse?

Forbearance or deferment can be either a blessing or a curse. It may feel like a blessing if you can’t make your payments. But either of these could end up being a curse. While either could mean a short-term reprieve they provide no long-term relief. In fact, one person recently described forbearance and deferment as if you were putting a Band-Aid on a stab wound.

Even a bankruptcy can’t help

You could file for a chapter 7 bankruptcy and get most of your unsecured debts dismissed. But not even a bankruptcy will erase student loan debt. It is one of several types of debts that can’t be erased by a bankruptcy that includes child support and alimony, back taxes and loans obtained through fraud.

How we could help

We can’t help with student loan debts but may be able to help by settling your other unsecured debts – such as credit card debts, personal lines of credit and medical bills – which would free up money you could use to pay on your student loan debt. Contact us today to learn more about debt settlement and whether or not this could work for you.