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.
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.