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What Do You Do When You Can’t Afford Your Student Loan Payments?

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What do you do when you can’t afford your student loan payments? This is becoming a more common question in an uncertain economy. Jonathan recently asked:

I cannot afford my student loans due to my job is doing away with full-time work and only offering part-time work. I pay $200.00 a month, but with my new position I can only afford $100.00 a month. I have tried to renegotiate the terms of my student loans however they will not work with me at all. How will my credit be affected?

Thanks for the question, Jonathan.

What should you do when you can’t afford your student loan payments?

I’m sorry to hear about your job going down to part time. Unfortunately, cutbacks are becoming more and more common in our current economy, as many companies are trying to cut back. Here are a couple answers, and I will chime in at the end:

From Pinyo @ Moolanomy.

I am sorry about your job. Unfortunately, if you can’t repay your loan according to the contract, your credit score will be affected — not to mention all the other fees that you’ll end up paying. In any case, you seem convinced that you can’t make the $100 extra payment to cover your debt obligation. However, I am not and I want to encourage you to think outside the box.

First, are you sure there’s nothing else that you can cut to save money for the time being? There are things that many of us pay for on a monthly basis that we take them for granted, and these things can add up to a lot of money. For example, cable television (or satellite), cellphone, magazine subscriptions, gym membership, club dues, etc. Take a serious look at your monthly expenses and ask yourself if you really need everything that you spend money on.

From Glblguy @ Gather Little by Little.

While I am not real knowledgeable about student loans, I do listen to Dave Ramsey frequently. When people call into his show and pose similar questions, the first thing Dave always recommends is to ask for a forbearance or deferral.

Both will allow you to temporarily stop making payments on your student loan. The difference is that with a forbearance, interest will continue to accrue even though you aren’t making payments. With a deferral, both the interest and your requirement to make a payment will temporarily be suspended.

Here is a really good article that explains how to defer a student loan and provides some detail on the requirements for both a deferral and forbearance.

If for some reason neither of these is an option, than you’ll need to be more creative. You don’t offer any details on your income and expenses, but as Pinyo suggested, I’d take a really hard look at your expenses and trim them where you can. Look for opportunities where you can save money. Do you have some things you can sell to build up a bit of a buffer to help you out? How about getting another job to supplement your income?

I think you have a number of different options you can explore. Situations like this are the primary reason I I stress the importance of income diversity. Not only will this potentially help your current situation by providing some extra income, it will help you weather future storms as well.

My thoughts:

I would definitely look into getting a forbearance or deferral if possible. One way to get a student loan deferral is to take more classes. Your student loans should be put on hold while you are attending school. Some community colleges are very inexpensive, and it may cost you around $100 per month to take a course – delaying your student loan payments and keeping your credit score intact. However, if the classes are more expensive that what you can easily afford, you might have to take on additional debt, so be careful about that. You don’t want to add to the problem.

Earn more money. Another option is to earn more money to help you bridge the $100 per month gap that you are experiencing. You can do this by taking another part time job, doing freelance or consulting work, babysitting, doing yard work, working as a personal trainer, or a host of other ideas. Alternative income can be a great way to help you during rough financial times and can even be a form of insurance against losing part of your main income stream.

You credit score is important. If you don’t make your student loan payments, your credit score will be affected and you will have to work extra hard to improve your credit score. Maintaining a good credit score can have a positive financial impact, so I recommend doing what you can to keep it up.

Do what is best for you. There are a lot of good ideas here: look for ways to save money, try to earn more money, or ask for a forbearance or a deferral. In the end, you will need to find a solution that works for you and your situation. I wish you the best of luck.


Published or updated January 28, 2010.
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{ 19 comments… read them below or add one }

1 Curious Cat Investing Blog

I would try to get another job (or supplement my current-part-time-job with a part-time job). I agree completely with having multiple sources of income and a 6 month emergency fund in cash.

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2 Alan @ Saving For Serenity

I also can’t afford to pay back my student loan. However, I have applied for (and received) a 6 month temporary interest relief. Of course, that has just run out so I am re-applying, and hopefully I can get another 6 months. They grant it depending on your income. So it is possible, especially if your income has changed.

The best part about it is that if I do happen to make a payment on the loan, the entire payment goes directly to the principle.

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3 Ryan

Thanks for the info, Alan. I hope you are able to get the extension and get things going again soon! :-)

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4 Reed

Hello,
I graduated in 2005 with 8500.00 in stafford loans, no private loans ever. Living with my girlfriend in a studio apartment she paid 325 a month including utilities (average for area was 650.00). Many people do not know that loan companies base re-payment from individual income. With my girlfriend paying the rent I took an entire year off working (I am a master frugalist of course). Taking this year off allowed me to defer my payments but also gave me time to learn how I could payoff my loans fast. I decided to take employment as a resident manager of a 30 unit apartment building. The deal was this: Free two bed including utilities, free high speed internet and free cell phone. This alone saved my girlfriend and I aroung 900.00 a month in expenses. My salary was 500.00 a month plus 15 an hour for fixing problems with the units I managed. So I managed this building for a year and was able to defer my loans a second time because rent credits are not comsidered income (giant loophole anyone?). This allowed me to save for an entire year while maintaining a low income tax status. On Janruary 2009 I began paying back my student loans before the payment begin date. It took me three months to pay 7700.00, now I live debt free. Its not how much we make, but how much we spend. About me: I do not own a car as I bicycle commute. I have my living expenses pegged at 800 a month (included food fun and a little room for eating out). I save a minimum of 500.00 a month. I am learning to create passive income so that I may become free of the rat race someday. My suggestion is to radically reduce your expenses and pay minimum 1000.0 a month to your student loans. Though my girlfriend paid our rent for over a year her investment into me, allowed me to find free rent. She hasn’t paid rent in over 20 months now (return on her investment). I learned debt free can be possible but its very counter culture to do so.

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5 Ryan

Excellent way to manage your situation, Reed. There are always opportunities out there if you know where to look. Thanks for sharing! :-)

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6 tammy

Yes, but did you need a college education for that job? Not so much!! The idea is supposed to be that after people graduate they can get good jobs, have lives, have families.
Most people have much more college debt than you. The whole country can’t just take a year off of work and then find a job with free rent so as to hide income from Mr. tax man.
Student loan payments should be more affordable. Forgiven even. If the best and brightest of our society have to take low paying jobs to get a deferment, or work so much that they don’t have time to have a life, then where will we go??? By the time the brightest individuals have the money to have a family it will be past their time. Infertility creeps up, the best of our population never passes on their genes, and the movie Idiocracy really happens.

Oh but wait, we shouldn’t be worried about the future of the planet, we should be woried about our credit scores??? Who cares about your friggin credit score- do what you need to do- if it sucks, then no one will lend you money. You already owe money so I fail to see how this is a bad thing. Screw the student loan man. Save all your pennies until you can buy a house with cash and keep going that way. The world will be better off in the end.

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7 DDFD at DivorcedDadFrugalDad

Go back to school– gets you a deferrment if I am not mistaken. Or just ask the lender for an extension– they seem to have more leaway with student loans.

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8 Doctor S

Forbearance is possible for every student loan and is definitely the best option in this situation. I agree w/ some of the other voices above in that you should try and find a way to generate some more income to cover that $100. You really do not have many options if you are at the point that you can not afford such a payment. Then again, if his credit score is affected, won’t an agency come after him to recoup the money? If that is the case I am sure he can negotiate something with that collectino agency.

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9 Ryan

Doctor S.:A credit score can be affected without a loan going into collections – a few missed payments can affect a score, but won’t necessarily end up in collections. And collections are definitely worse on the score than a couple missed payments. It’s best to avoid defaulting on a loan and entering into collections.

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10 Becky

I am in a similar boat as well. I have a BFA, went back to grad school thinking that a high paying career was in my future, currently making 38K. My original loan monthly payment was $796, I did a forbearance on my first loan but the second loan cannot be put into forbearance. I am now paying $569 a month(which is still astronomical). I don’t have any splurges such as gym membership, magazine subscription, cable, go out to eat etc. I tried getting a part time job, so far no call backs, anything harder than trying to get a job is trying to get a 2nd job. The only other choice I have come up with is the Peace Corp or AmeriCorps, b/c they have 20% loan reimbursement. This is an extreme solution seeing as I would have to turn my life upside down. Really is there no other solution? HELP

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11 Ryan

Becky, I don’t know what to say, other than to continue working hard on trying to find additional sources of income, or to consider taking a job that will help you pay back your student loans. There are quite a few state and national government jobs that offer to pay back some student loans. I recommend looking around.

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12 cranio

After taking out an original loan of about $47,000 for two years of graduate school in 1995-6 and putting it in forbearance for a couple of very lean years, the balance ballooned up to $54,000. I have been paying back $300 on this every month, faithfully, for the last 11 years, and I’ve got it down to $38,000. Given my salary and history of working in low-paying nonprofits the last decade, that’s the most I can pay. At the rate I’m going, it will be paid off when I’m in my 60s. This is incredibly frustrating — I feel like I am dogpaddling.

One solution I see is to allow student loan debtors to be able to access up to $10,000 in their IRA accounts without penalty in order to pay down their loans. First time home buyers are allowed to do this, so why not those of us who are drowning in student loan debt?

I have $28,000 sitting in an IRA that I can’t access without huge penalties for another ten years or so. In the meantime, I continue paying all this interest on this student loan. Really not fair. If you have any ideas about how to get some traction on this idea, I’d love to hear it.

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13 Josh

If your loans are federal loans (and not private) you need to look into the Public Loan Forgiveness program. Once you have made 10 years of qualified payments, your loan is forgiven. You should qualify as you work for non-profits.

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14 rebecca fields

I heard that if you could prove you arew in serious debt and can not pay your student loans, you may obtain a portion of your loans to be deleted

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15 Ryan

Rebecca, student loans are one of the few types of loans that are nearly impossible to discharge. Student loans even remain in place if you file for bankruptcy protection. The best option is to try and apply for a deferral or forbearance, either of which would give you a temporary reprieve from making payments. However, you will still owe the amount; it does not wipe the debt away. Best of luck.

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16 Derrick

For one yearI took a forbearance on my student loan after college, because there were no jobs avaiable from this economic downturn . I couldnt even bust tables or wash dishes for cash. Even with shared expenses the student loans esculated to 52k for a BS degree in five years. As of last year , April 09,I started to pay back when I obtained a job , thinking I would start the ” American Dream”, then three months later was informed that I had to take a paycut or reduced hours . I have a 2 year old kid and a wife that also is currently looking for work. Tutoring and doing odd jobs that i can find to supplement the loss income is not working out. Seems I only see them when I shower and sleep. Paying back a $438 per month loan is not avaliable to me now. I was making enough to pay the bills and live somewhat comfortably, but now sacrificed the car payments, out of a home to a small apmt, and watching my wife cry almost everynight from out fiancial woes. Sometimes looking after my credit score is the last thing on my mind. I’m not even get any help from the state beacause I make $5 over the limit for state assistance.. $5 .. are you kidding me. Is there anything else that I can do to have the student loans forgiven or not proceed with interest. Who knows how long this recession will last or I will last?

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17 Ryan

Derrick, check out this link for more information about what I would recommend: Can’t Make Ends Meet? Try a Three Fold Approach to Better Finances.

Best of luck.

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18 Fonda

Hi Ryan, I’ve been searching for information on student loan deferment because I expect to be leaving the states for about 4-5 months. I am in the process of starting up a nonprofit organization (oddly enough) that will provide scholarships to young women whose families can not afford to send them to secondary school. I need to leave the US to go to the country where the program will begin, in order to meet with the population the nonprofit will serve, and network with professionals. I don’t want to defer my loans for that long, maybe up to a year at the most while trying to get the nonprofit going. Is it possible to qualify for loan deferment with this situation? Thank you for your help!

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19 Ryan Guina

Fonda, the best thing I can do is recommend contacting your lenders and explaining the situation. Each lender has different policies.

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