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What to do when you realize there’s no way in hell you can pay your student loans

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What to do if you realize there's no way in hell you can pay back your student loan debtEver feel like there’s no way you’ll ever pay back your student loans, even if you work 80 hours a week and never paid a dime to anyone but Sallie Mae? Or sell off your organs one-by-one on the black market? Or … well you get the idea.

According to the Federal Reserve, there are more than 500,000 Americans walking around these days with $150,000 or more in student loan debt. Assuming typical terms, they’re probably looking at a monthly payment of more than $1,500 a month.

It’s likely a lot of those poor saps are in professions where the debt loads are high, but so are the salaries — think doctors or MBAs. But if they’re not — or they just aren’t having any luck finding a job, they’re pretty much screwed. Unlike most debts, student loans are generally not dischargeable in bankruptcy, says Leslie Tayne, a financial attorney and debt specialist.

“Unless you have an extreme circumstance … you are responsible for your student loan debt for life,” Tayne says.

Still, the worst thing you can do is ignore the fact that your student loan exists.

“Know your loan,” Tayne says. “Understand the terms. It’s really crucial to keep your loan maintained.”

And if you think there’s no possible way you’ll ever repay your student loan, there are a few possible options to at least keep your head above water.

Loan modification

First, there’s the option of trying to work out different loan terms with your lender. While private lenders have no obligation to do this, you never know — they may be understanding, and I’m guessing they’d rather you pay under new terms than default under unrealistic ones.

“If you can come up with even $25 a week, send the student loan company some money just to start reducing it,” Tayne says. “There are many different payment options that may help with putting
 a dent in student loan debt without posing too much of a financial burden. These payment plans differ depending on whether your loans are private or federal.”

She suggests calling your provider to see what options are available.

Deferment or forbearance

If you’re unemployed, suffering from economic hardship or fall under any of these situations, you might be eligible to defer your student loan payments — meaning, your borrower will agree to let you pay them later.

Forbearance is another option, and it’s known for being easier to obtain than deferment. With forbearance, your lender agrees to allow you to stop making payments for a set period of time. However, you still have to meet certain criteria to qualify. To be considered, you can ask your loan servicer if it’s an option.

But be warned: “While your loan is in deferment or forbearance, it’s still going to accumulate interest,” Tayne says. “And then, obviously, your principal is increasing. You can defer or forbear to the point where your loan can almost double. You want to be very, very careful.”

Depending on the type of loan you have, the lender may stop interest from accruing during your deferment. But in forbearance, interest will most definitely continue to accrue. If you decide to take either route, Tayne advises to make sure you thoroughly understand your terms.

“During these periods (of deferment or forbearance), it”s really, really crucial to keep your loan maintained.”

Cancellation or forgiveness programs

In some not-so-common situations, you may be able to partially or completely cancel your student loan. If you become permanently disabled, for example, or if you went to a trade school that closed before you could graduate, you might be eligible for a cancellation.

The government offers loan forgiveness programs for some public service employment. If you join the U.S. Military or teach in a low-income population, for example, you may qualify to have all or part of your student loan debt cancelled.

If you think you might qualify for deferment, forbearance, cancellation or forgiveness, first check out this information, and then contact your student loan servicer. If you do indeed qualify, you’ll have to apply, and, of course, fill out some paperwork.

The most important thing, Tayne emphasizes, is to avoid default. Basically, if the above options aren’t possible, it’s best to pay whatever you can.

“Whatever you do, do not let your loans go into default,” she says. “While I don’t suggest that you stop paying the rest of your bills
 in order to pay off your student debt, I do recommend that you attempt to 
make as much of a dent in paying off your student loan debt as possible.”

(Photo: Eric Steuer)

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10 Responses to “What to do when you realize there’s no way in hell you can pay your student loans”

  1. If you haven’t already looked into them, federal student loans have income-based repayment programs that are extremely flexible. These only apply to federal (not private) student loans, but if you have both, it’s worth a shout to the people at finaid.gov

  2. Mark says:

    I have a friend who took an extreme solution to the problem. She is an older social worker (50s), so really did not earn that much, did not have a lot of years of work to go, and therefore had no hope of ever paying off the debt.

    Her solution was to move to London and become a British citizen.

    Which shows how messed up our student loan system is.

    • saladdin says:

      So her poor choices will force all taxpayers to repay her debt. I see very little wong with the student loan program but tons wrong with the quality of people given loans.

  3. Kristin Wong says:

    @Mark: Yikes. Perhaps we should add “reconsider citizenship” to this post-ha.
    I hope she’s now doing well in London!

  4. rick says:

    You should have mentioned what Kathy posted about the Income Based Repayment Plan. You may qualify to pay little or no monthly amount. If you make qualified payments under this plan for 25 years, any balance with be forgiven, but if you are working in certain types of public service and making qualified payments for only 10 years, any balance will be forgiven.

  5. Kristin Wong says:

    @Kathy & Rick: Yes, definitely–apologies, I should’ve detailed that in the forgiveness section.
    There’s help available if you have partial financial hardship and can qualify for the Income Based repayment; many federal loans are eligible. Not sure that I can post the full link here, but studentaid.ed.gov has a lot of useful information. They detail what conditions qualify for cancellation, forgiveness, deferment, forbearance.

  6. Scott Hedrick says:

    I had an odd situation with my first loan, which took 25 years to repay (and then I went back to school). I had problems paying it back, and the lender was constantly messing up the record. I finally got it straightened out, at least enough I was willing to live with it, but shortly after that my payments were sent back, not because there was a problem with the payment, but because the lender ceased to exist. My lender was a savings & loan, and one that was one of the worst hit when the S&L crisis hit a couple of decades ago. For about eight years, I couldn’t pay, because the only place I knew to pay wasn’t there anymore. Eventually, Sallie Mae got stuck with all those loans and we worked it out. I’m certain a lot of interest was forgiven, because it wasn’t my fault. I had also gone back to school in the meantime and gotten new loans, so it wasn’t too much of a problem. But there can’t be too many people who had a problem repaying a student loan because the lender disappeared!

  7. adam carolla fan says:

    that’s why you go to a community college and state school instead of a private uni.

    those peeps did it to themselves!

  8. Others have mentioned income based repayments, but no one has mentioned (unless I missed it) the pay as you earn (PAYE) program that is a newer option.

    See this link for more info:

    askheatherjarvis.com/blog/pay-as-you-earn-hotter-than-IBR

  9. Educate4Less says:

    A student cannot borrow $150k through the federal Direct Lending system which is the least-awful of the awful options. Stafford loans are administered by the Government and are not devious like private loans are. But if a student already has accumulated private loans, a decent option may be Mom and Dad. Here’s why Mom & Dad might go for it (this time!): If they cash-out re-fi their house to pay off Sally Student’s loans, they might make money. If they re-fi at 4% or less and Sally pays them 5% – reliably! – they make above-CD rates on the “family banking” transaction and Sally locks in a lower rate.

    By the way, IBR and PAYE are just two different ways to put taxpayers (i.e. other Americans) on the hook for an individual student’s (i.e. Your) loans.


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