What to Do if You Can’t Afford Your Student Loan Payments

Struggling to afford your student loan payments can feel overwhelming, but failing to address the problem can lead to serious financial consequences. If you can’t afford student loan payments, it’s important to immediately inquire with your student loan servicer about your options to avoid defaulting on your debt.

Key Takeaways

• Missing student loan payments can severely impact your credit score and eventually result in your wages being garnished.
• Refinancing your student loans can lower your monthly payments, but it will likely exempt you from certain federal benefits and protections.
• Developing healthy financial habits now can help mitigate future financial difficulties.

Understanding the Consequences of Missing Payments

Failing to repay your student loan debt can have some serious consequences, including delinquency or default. Your federal student loans are considered delinquent on the first day after you miss a payment, and they’ll remain so until you either repay the past due amount (plus any applicable fees) or successfully apply for deferment or forbearance. If you qualify for either, you’ll be able to put off student loan payments for a certain period, but interest may still accrue (depending on the type of loan).

If your federal student debt is delinquent for 90 days or more, it’ll be reported to the major credit bureaus, which can hurt your credit score and make it harder to borrow money in the future. If your loan remains delinquent for too long, it may go into default. Defaulting can carry more serious financial consequences, including wage garnishment, withholding of your tax refund, collection fees, and even legal action.

Note

The delinquency timeline for private student loans can vary between lenders—it could be as little as 30 days. Additionally, private lenders have fewer options for recourse in the event of a default, though these efforts may also include taking you to court.

Exploring Financial Solutions

Fortunately, you have a couple of options to avoid becoming delinquent or defaulting on your loans. If you have both federal and private loans, then one possibility is to refinance your student loans, which can potentially earn you a lower interest rate. However, private loans don’t carry the same benefits and protections that federal student loans do, which include:

• Deferment or forbearance options when you face financial hardship
• No interest accruing on subsidized loans during periods of deferment
• Access to income-driven repayment (IDR) plans that forgive the remaining balance after a certain period
• Access to several student loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF)

Important

The future of current IDR plans is up in the air following a federal court injunction stopping the U.S. Department of Education from implementing the Saving on a Valuable Education (SAVE) plan and parts of other plans.

Alternatively, if you have multiple federal student loans, you could consolidate them into a single direct consolidation loan (hopefully at a lower interest rate). You cannot consolidate private student loans in this way.

You could also negotiate a lump-sum payment with the Department of Education for less than the amount you owe, otherwise known as a settlement and compromise. One of the main benefits of this option is that you could have collection fees and a portion of your interest waived. However, it might be tricky to get the Education Department to agree to this kind of arrangement, and there may be tax consequences as well.

Lastly, you can simply contact your student loan servicer or lender to discuss deferment and forbearance options, or inquire about switching to a more affordable repayment plan.

Long-Term Financial Strategies

Once you’ve figured out the right financial solution to make your student loan payments more affordable, it’s worth developing better long-term financial habits to help avoid the risk of delinquency in the future. For example, using zero-based budgeting (ZBB) or the 50/30/20 rule can ensure your finances are organized and that every dollar is properly accounted for.

It’s also a smart idea to set up an emergency fund using a high-yield savings account. Not only will this help you prepare for a rainy day, but you’ll also earn interest along the way.

The Bottom Line

If you can’t afford your student loan payments, you still have options. Whether you apply for forbearance or deferment or reach out to your loan servicer for assistance, there are many ways to avoid delinquency and default. By implementing a budgeting strategy that works for you and building an emergency savings fund, you can ensure you’ll have no problems making your student loan payments in the future.