Options for When You Can’t Manage Your Monthly Student Loan Payment

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Sometimes, no matter how you balance your budget, your current student loan payment just isn’t feasible. The good news is most students have several options available to them that can reduce or even temporarily eliminate their monthly payment. Whether your student loans are federal, private, or a mix of both, remedies are out there.

Direct Consolidation Loans

Federal student loans are eligible for a Direct Consolidation Loan. Private loans, however, are not. If all or a majority of your monthly student loan payments are federal, you can lower your monthly payment to a more manageable size by consolidating them into a Direct Consolidation Loan. The extended repayment period can be as long as 30 years, compared to a standard 10 year repayment plan. This will lower your monthly payment, but remember that by extending the life of your loan you’ll pay more in interest over the long term.

You also won’t be able to save money on your interest rate, because these days a Direct Consolidation Loan uses a weighted average of your old individual loans’ interest rates to determine the new interest rate. Once you are on a Direct Consolidation Loan, though, you can apply for the income-driven repayment plans that are discussed below.

Income-Driven Repayment Plans

There are several income-driven repayment plan options, although again this is an option only available to federal student loans. Such repayment plan options for private loans are virtually unheard of. However, depending upon when you first took out student loans and what your monthly income is, your income-based monthly payment under one of the available plans could be as low as $0 a month.

Under these plans, your monthly payment is capped at either 10 or 15% of your discretionary monthly income. And if you’re working in a qualifying government or non-profit sector job that qualifies for the Public Service Loan Forgiveness Program (“PSLF”), the great news is that even $0 monthly payments under one of the plans will count as a qualifying payment under PSLF. If you aren’t making payments under PSLF, you’ll still qualify for loan forgiveness after 20 or 25 years of making income-driven repayments, depending upon your program. The best way to inquire about your options for income-driven repayment plans is to contact your student loan servicer and ask which plans you can qualify for and what your monthly payment would look like under each plan. If you’re married, make sure to mention that to your servicer and ask how your spouse’s income affects the calculation of your monthly payment under the different plans.

Private Refinancing

If your loans are private, or a mix of federal and private, options still exist to lower your monthly payments. The usual option for private loans is to refinance with another lender that offers a lower interest rate, an extended loan term, or a combination of both. This may lower the amount of your monthly payment as soon as you refinance, which can change your payment by as soon as the next month. Alternatively, you could make a high monthly payment, and save more over the life of the loan.

It’s also possible to ask your current student loan lender to simply lower your rate. Much like negotiating with a private utilities company, the threat of losing your business if you go elsewhere can convince some lenders to simply drop their interest rate, which in turn brings your monthly payment amount down. If a lowered interest rate isn’t going to bring your monthly payment down to a feasible amount, you’ll likely have to refinance to a longer loan term. This could be done with your current lender or a new lender. And federal student loans can also be refinanced into private loans, often at better interest rates. However, be aware that you’ll lose potential federal loan benefits such as deferment during times of hardship and potential loan forgiveness and make sure that the money you’ll save by refinancing is worth the risk of not having those programs available to you in the future.

Hardship Deferral

Another option that is generally only available to federal loans although it’s worth asking your private lenders if they offer a version of it is hardship deferral. If you can’t make your monthly federal student loan payment and you can document a qualifying reason why, then it’s possible to have your payments deferred until your situation improves. Some of the underlying situations that may qualify a borrower for hardship deferral are disability, chronic illness, or loss of employment. And of course, enrolling back in school half-time or more will also be a basis for deferral of federal loans.

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