Many borrowers hit speed bumps along their road to repayment—for many different reasons. If you have student loans, you likely also have unique circumstances (your debt level, salary, and other bills, for example) that affect how you manage them. We all do.
However, some repayment challenges pop up more often than others do. If you face one of the following three issues, you have straightforward options that can help you overcome them. Take advantage of these as soon as possible to prevent even bigger bumps down the road.
1. You Can't Afford Your Payments
We all have trouble making ends meet at some point. If this happens to you, don't just skip your student loan payments—that will put you on the fast track to possible late fees, credit dings, and eventually default. Instead, look into these options for federal student loans that may help you out.
Income-Driven Repayment (IDR)
Enrolling in an IDR plan may be the best option to pursue as soon as you start having trouble making your payments. These programs are designed to be a long-term solution that will adjust as your income does, and there are several available to federal student loan borrowers: income-based repayment (IBR), income-contingent repayment (ICR), Pay As You Earn repayment (PAYE), and Revised Pay As You Earn repayment (REPAYE).
Each option has different eligibility criteria, but they all limit your payments to between 10% and 20% of your disposable income. Also, payments under each can be as low as $0 per month. After 20 to 25 years of eligible payments, your remaining balance would be forgiven, but this amount would be taxable. You can receive forgiveness after 10 years of eligible payments if you work full time for a public service or nonprofit employer, and this amount wouldn’t be taxable.
If you're having trouble making any payment, you may be eligible to temporarily postpone your payments with a deferment or forbearance.
In a deferment, your loan is put on hold and payments are suspended. You will need to meet specific eligibility criteria to be eligible. If your loan is subsidized, the federal government pays the interest while the loan is deferred in most cases. The interest on unsubsidized loans continues to accrue while the loan is deferred.
Another way to suspend payment is forbearance. When your loans are in forbearance, you do not have to make payments. However, your interest—whether the loan is subsidized or not—will continue to accrue, thereby adding to the total amount you actually pay over the life of the loan. Because of this, investigate your deferment options before taking forbearance.
Please remember to use postponements sparingly. Most are limited to 12 months at a time for a maximum of 3 years over the lifetime of the loan. Also, any unpaid interest that your loans accrue is added to their principal at the end of the postponement period.
2. You Can't Keep Track Of All Your Payments
Sometimes, having too many loans can cause you to accidentally miss payments. It can be hard to keep them all straight—even if you are super organized. A good solution for this problem is consolidation.
Federal student loan consolidation combines all of your federal student loans into one new, big consolidation loan. Your new interest rate will be the weighted average of the underlying loans rounded up to the nearest 1/8th of a percent.
Besides streamlining your payments, consolidation does have other pros and cons. For instance, consolidation can lower your monthly payment, but it does this by increasing the life of your loan. That may cause you to wind up paying more in interest in the long run. If you're interested in this option, you can apply for a federal consolidation loan at www.studentloans.gov. You can also consolidate (or refinance) private student loans; however, you would need to apply with a private lender.
If you don't want to consolidate your loans, you can also keep track of them using our Know What You Owe tool. This tool allows you to pull all of your debts (student loans and otherwise) together into the same place, so you can easily organize everything you owe and when your payments are due.
3. You Don't Know How Much You Owe
You're not the only one! Many students sign for student loans while attending college without keeping track of them. Fortunately, the government (mostly) does that for you.
The National Student Loan Data System (NSLDS®) is your go-to resource for everything you need to know about your federal student loans—amount borrowed, date of issue, type of loan, amount still owed, and who your loan holders are. If you have private student loans, you can find their details by pulling your credit report for free once every 12 months from AnnualCreditReport.com.