Even if you don’t have a job or can’t afford your student loan payments, there are many steps that can be taken to make your debt more manageable.
The Student Debt Trap
Falling into the trap of ignoring your student loans is easy. You figure you can’t make a payment anyway, so why bother. Lenders start calling and they start to get persistent. You ignore the calls. Letters arrive in the mail, stress starts to mount. Procrastination becomes an issue. This is going to be a stressful call, I’ll answer next time…
The Problem with Ignoring Your Student Loans
Lenders are not going to go away, nor are they going to forget about you. Slipping through the cracks might sound like a nice dream, but it doesn’t happen.
These companies are experts about squeezing every penny they can out of you. Each day your debt accumulates interest. When you don’t make payments, you start paying interest on that interest. In addition to the interest, fees start to get charged. Late fees. Collection fees. Many borrowers are surprised to learn that their student loan balance can more than double by failing to make payments.
The dirty little secret with most student loans is that borrowers who struggle initially are far more profitable customers than those who pay off their loans right away. Lenders know that it is almost impossible for your to discharge your student debt in bankruptcy, so they have no problem with you running up your tab by not making payments. They want you to be stuck making payments for life.
Options for Difficult Circumstances
If you can’t make payments, lenders will gladly give you a forbearance or a deferment the first time you ask. This is a much better deal for them than it is for you. The deferment or forbearance just delays a problem for a few months at a time, only next time a bill is due the balance will be larger due to interest. There are much better alternatives than a forbearance or a deferment.
If you have federal loans, income-driven repayment plans are an excellent option. Using these plans, your monthly bill is based upon how much you earn, not how much you owe. For many struggling borrowers that can mean a $0 per month payment. The balance will still grow due to interest, but you avoid late fees, and each month that you make a $0 payment, you are getting closer to earning student loan forgiveness. On the income driven plans, the remaining balance is forgiven if the borrower makes the minimum monthly payments for 20 to 25 years. This can be shorted to 10 years if you qualify for Public Service Student Loan Forgiveness.
When it comes to private loans, the options are more limited, but there are still steps that can be taken to keep your debt in check. Many private lenders will offer borrowers temporary interest rate reductions so that a struggling borrower can keep up. Lenders don’t advertise these programs, so the trick is usually to speak to someone in the collections department rather than a typical customer service representative. If you feel like you are making an effort in a difficult situation and your lender is not working with you, consider filing a complaint with the Consumer Financial Protection Bureau. This forces the lender to respond to the issues you have raised and you have the CFPB making sure they are playing fair.
Repaying student debt is brutal. For many borrowers the bills are much bigger than they expected and the income they have is less than they need. Even though the deck may be stacked against borrowers, there are still many steps that can be taken to keep things under control. The worst thing any borrower can do is to ignore their loans and hope for the best.