Your Options When You Can't Repay Student Loans
Student Loan Repay Options
There are several options that are available to you when you cannot make the payments on your student loans. These options include:
- Delaying payments on your loans through forbearance or deferment programs,
- Getting your loan canceled and eliminating all payments,
- Discharging your loan through bankruptcy proceedings,
- Getting on a income-sensitive or income-based repayment schedule, or
- Consolidating your loans into one loan.
Student Loan Deferments
Deferments allow you to stop making payments for a certain period of time if you can show that you qualify. For instance, you may be able to get a deferment if you can show economic hardship, are returning to school, are unemployed, or looking for a job.
Depending on your type of loan, the deferment will not only allow you to stop making payments on the principal, but it will also stop interest from accruing on the unpaid balance. For other types of loans, you are only allowed to defer the principal of the loan, meaning that interest on your loan will continue to increase during the time you are not making payments.
You will often be able to defer your student loans if you meet one of the conditions described below and are not currently in default. You may even be able to qualify for a deferment when you are in default in a "retroactive deferment."
Student Loan Forbearances
A loan forbearance can generally be thought of as your loan holder allowing you to stop making payments for a set period of time. However, you should keep in mind that interest will continue to accrue during a forbearance so your loan balance will be higher when you come out of the forbearance. Generally, forbearances are easier to obtain than deferments because they are not linked to the type of student loans you have and they are not covered by the laws and rules that apply to deferments and cancellations of student loans.
You may be able to obtain a forbearance for a variety of reasons. For example, if you have suffered from poor health or unforeseen personal problems, you may be able to get a forbearance. Also, if you foresee that you will not be able to pay back your student loans within the period for repayment, or your monthly payments are more than 20% of your income each month, you may be able to get a forbearance. Loan forbearances are generally granted for up to one year at a time and you may be able to get a forbearance even if you have defaulted on your student loans.
Bankruptcy and Student Loan Discharge
Discharging student loans through bankruptcy is almost impossible to accomplish under the current law. Your student loans can only be discharged through bankruptcy if you can show that the burden of repaying your student loan would impose a severe hardship on you. Courts consider a number of factors such as your age, health condition, income, expenses, and the length that your income problems are likely to persist.
Cancellation of Student Loans
Just like a deferment, you will have to show that you fall into a specific situation depending upon what types of loans you have. Also, cancellation does not always take care of an entire loan and you may only end up getting a portion of your loan cancelled.
Conditions for Deferments on or Cancellations of Student Loans
Here are the conditions that may allow you to defer or cancel your student loans. Keep in mind that some of the conditions may only qualify you for loan cancellation, others for both deferment and cancellation, and others for only deferment.
- The borrower has died.
- The borrower is suffering from a permanent total disability.
- The borrower is suffering from a temporary total disability.
- The borrower is enrolled in a rehabilitation program for his or her disability.
- The borrower is unemployed.
- Economic hardship.
- The borrower is currently enrolled in school.
- The borrower enters uniformed service.
- The borrower is teaching a needy population.
- The borrower is serving a needy population.
- The borrower is performing community service.
- The borrower is working in the health-care field.
- The borrower is working in law enforcement.
- The borrower went to a trade school.
- The borrower was a victim of identity theft.
- The borrower left school but never got a refund.