What to do if you can’t afford your student loans
After college, real life hits. You may or may not be able to translate your degrees into a high paying job, and even if you do, sometimes unexpected challenges arise. You may become unemployed or suffer economic hardship such as those that accompanied the COVID-19 pandemic. Even if you are currently receiving state or federal aid or unemployment benefits, it will eventually expire and you will have to plan for the future. If economic uncertainty or job loss has affected your ability to make your student loan payments, it can add a level of stress that you may not have anticipated or know how to handle.
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If you are faced with an inability to make student loan payments, first of all, don’t panic. Keep a cool head, take your situation seriously and consider one of the following options, or speak with a financial advisor to help you make a plan.
Reduce costs in your life
The first and most obvious place to start is to cut your living costs to free up the money you need to pay off your loans. Student Loan Hero recommends evaluating current expenses and asking the following questions: Do you need this service or item? Can you find it cheaper from another provider or service, and does it really add value to your life? Also, try negotiating the cost of some bills or switching to different plans with the provider for services like cell phone service, cable TV or streaming entertainment services etc.
See: 9 Ways Student Debt Affects All Aspects of American Lives
Look for new sources of income
Depending on your situation, a lack of money can be resolved by taking additional work elsewhere. Consider self-employment like driving for a rideshare service, offering your skills in the form of advice, or even getting a second part-time job. Alternatively, look for things in your home that you could sell immediately.
Read: What It Would Really Mean To Write Off Student Loan Debt
Edit payment plans
Just because you’ve chosen a type of payment plan doesn’t mean you’re tied to it. There are many types of loan repayment plans, from phased plans to pay-as-you-go plans that might be better suited. In addition, you may be able to extend the term of your loan, from 10 to 25 years for example, which can reduce your monthly payment.
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Request an adjournment or an abstention
Find out if you qualify for deferral or forbearance. Deferment is when you can defer paying the principal and interest on your loan due to certain circumstances ranging from underemployment, enrollment in school, or military service. Withholding is also a form of postponing your payments, but usually for a limited period, usually with a maximum of 12 months. Your loan department will have specific requirements for qualification.
Refinance to get a better rate
Another option is to refinance your loan to lower the interest rate, which can result in lower monthly payments. There is a caveat here, however. When you refinance a federal loan, it becomes a private loan, which removes your income forgiveness and repayment plan options on the federal loan. So check out a loan refinance calculator to see if it’s worth it first.
More: 30 Ways To Get Yourself Out Of Debt
Whatever strategy or combination of these you use, your goal should be to keep your loan from going into collection. This usually only happens after you’ve left your loans unpaid for somewhere between 270 and 360 days, putting your loan in default. Not only will your entire loan balance become due immediately, but you will also likely have to pay high fees, your paycheck can be foreclosed and your credit will take a hit.
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Last updated: August 26, 2021
This article originally appeared on GOBankingRates.com: What to do if you can’t pay your student loans