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- Loan forbearance and deferment can suspend student loan payments temporarily.
- Negotiating a new repayment plan can reduce a monthly student loan payment.
- Review the Income-Based Repayment program if your loans are federal.
Options if You Cannot Afford Your Monthly Student Loan Payments.
If you cannot afford to repay your student loan, whether it be a private student loan or a federal student loan, you have two types of options — temporary payment suspension, and changing the loan’s repayment terms. This article discusses both, and contains links to Bills.com resources with more detailed information. In general, borrowers of federal student loans have more options than borrowers of private student loans. Before reading further, stop and review your student loan documents to learn if your loan is federal or private. If your loans are Stafford, Perkins, Plus, or another type of Federal Family Education Loan (FFEL) Program loan, then it is a federal loan. If the loan documents do not mention these programs, it is probably a private loan.
Postponing Student Loan Payments: Deferment & Forbearance
Deferment postpones student loan repayment for a designated period. Interest may or may not accrue. Deferment is available for federal student loans and some private student loans. Sallie Mae, a major private student lender, lists the following reasons for granting a deferment:
- Economic hardship
- Military deployment
- Enrollment in school
- National service
- Similar situations
In general, a deferment is not granted if the loan is in default. Therefore, if you know you cannot afford your loan payment and qualify for a deferment, apply for a deferment immediately and before the payments are late.
Forbearance allows the borrower to stop making payments for a set period of time, and up to a year. Interest continues to accrue when a loan is in forbearance. In general, forbearance are easier to obtain than deferments or cancellations. Borrowers in default can, in some circumstances, obtain a forbearance.
If you experience a temporary financial setback and are unable to pay your student loan, contact a customer service representative at your student loan servicer, which is the company you make payments to, and discuss your hardship. Ask about deferment first, then forbearance. See the Bills.com resources Private Student Loan Default and Federal Student Loan Default to learn more.
Student Loan Consolidation & Other Payment Options
A student loan consolidation can combine several student loans into one, and lengthen the term of the loan. Doing so can make the monthly payment amount less. However, lengthening the term will increase the overall cost of the loan, assuming similar interest rates. See the Bills.com resource Student Loan Consolidation to learn more about consolidating student loans, federal and private.
Student Loan & Collections
You may be curious what a student loan servicer can do if you stop making payments and do not agree to repayment terms. If the student loan debt is federal, Congress gave the the Dept. of Education the right to garnish wages or withhold a tax return without a hearing. See Repaying Student Loans Held by the U.S. Department of Education and Common Disputes Involving Defaulted Student Loans to learn more about the rules surrounding collections on federal student loans. If the student loan is private, the lender must use the court system to collect the debt, like any other private creditor.
See the Bills.com resource Advice on How to Stop Garnishment on Student Loans to learn more about garnishment and offset.
Federal Student Loan Payment Rates & Terms
|Loan Interest Rates by Disbursement Dates|
|Loan Type||July 1, 2011 and June 30, 2012 (Direct Loans only)||July 1, 2006 and June 30, 2011||July 1, 1998 and June 30, 2006|
|Direct and FFEL Subsidized Loans (Undergraduate Students)||Fixed at 3.4%||7/1/2006- 6/30/2008: Fixed at 6.8% 7/1/2008- 6/30/2009: Fixed at 6.0% 7/1/2009- 6/30/2010: Fixed at 5.6% 7/1/2010- 6/30/2011 Fixed at 4.5%||The interest rate is variable (adjusted annually on July 1st) and will not exceed 8.25%. Between 7/1/2011 and 6/30/2012, loans in repayment or forbearance have an interest rate of 2.36%, and loans in an in-school, grace, or deferment period have a lower rate of 1.76%.|
|Direct and FFEL Subsidized Loans (Graduate Students) Direct and FFEL Unsubsidized Loans||Fixed at 6.8%||Fixed at 6.8%|
|Direct PLUS Loans (Parent, Graduate and Professional Students)||Fixed at 7.9%||Fixed at 7.9%||The interest rate is variable (adjusted annually on July 1st) and will not exceed 9.0%. Between 7/1/2011 and 6/30/2012, the interest rate is 3.16%.|
|FFEL PLUS Loans (Parent, Graduate and Professional Students)||Not Applicable||Fixed at 8.5%|
Source: Dept. of Education Interest Rates For Stafford and Plus Loans Effective July 1, 2011