It's one of the worst things you can face when it comes to your student loan debt - you can't afford your student loan payment. Maybe you're out of school and you get your first bill, and you have no idea how you're going to make that payment.
Or, maybe you've been on and off deferment and forbearance for years, and every time you're encouraged to start repayment, you simply don't think you can afford it.
Sadly, too many people don't take action with their student loans - even if they can't afford it. That's why over 11% of student loans are delinquent according to the Department of Education.
But simply ignoring it or going into default isn't the solution. There are better (and more affordable ways) to tackle a student loan debt payment you can't afford.
If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
Let's break down the options here.
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Best Solution - Get An Affordable Repayment Plan
If you can't afford your student loan payment, the BEST thing you can do it change your student loan repayment plan to something that's more affordable.
Most people simply don't realize the options - especially the income driven repayment plan options. When you graduate college, the first bill you receive will be based on the Standard 10-Year Repayment Plan. This is typically the highest repayment plan amount you will face - and so it's the toughest to afford.
But there are more affordable options (including plans that offer potential student loan forgiveness). For example, you might consider:
Income Based Repayment (IBR) - If you have loans from before July 1, 2014, you payment will not be higher than 15% of your discretionary income. On this plan, you will make payments for 25 years, and at that point, your loans will be forgiven.
If you are a borrower with loans after July 1, 2014, your loan will not exceed 10% of your discretionary income, and the loan will be forgiven after just 20 years.
Pay As You Earn (PAYE) - With PAYE, you will not pay more than 10% of your discretionary income, and your loan will also be forgiven after 20 years. This program is also sometimes referred to as Obama Student Loan Forgiveness.
Revised Pay As You Earn (RePAYE) - This repayment plan caps your payment at 10% of your discretionary income, and the loan will be forgiven after 20 years
Income Contingent Repayment (ICR) - Under this plan, your payments will be the lesser of 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income. With the ICR plan, your loans will be forgiven at the end of 25 years.
Remember, with each of these plans, your student loan payment could legally be $0 per month if your discretionary income is low enough. That's a great deal because you don't pay anything but you're still on the right track for loan forgiveness if you need it.
That's why these plans are the best solution if you can't afford your student loan payment.
Okay Solution - Deferment Or Forbearance
What about if you can't even afford the income-driven repayment plan above? What if that student loan payment is still too high? Well, that's the lowest payment you'll ever get on your student loans, so you're going to need to address your budget.
But, if you just need a temporary break in payments to get your budget aligned, a student loan deferment or forbearance can be helpful.
A deferment or student loan forbearance is an approved pause to your student loan repayment. During this pause, the interest on your loan will still accrue, but you're not required to make payments. This can be the perfect break that you need to get your budget aligned to start making income-driven repayment in the future.
Remember, though, that deferment or forbearance is only temporary. Most deferments last anywhere from 6 months to 3 years. After that, you're going to need to start making payments on your loans.
If you've exhausted all your deferment, then you really need to get on an income-driven repayment plan ASAP.
Bad Solution - Missing Student Loan Payments
The worst solution you can take is simply missing your student loan payment. However, if it is the difference between eating this month and making a student loan payment - of course you have to take care of yourself an your family.
But, before you miss a payment, you need to try to get a deferment or change your repayment plan to something you can afford.
Most of the time I see people missing payments it's simply because they don't know a cheaper alternative to their student loan payment exists. So, before you miss a payment, call your lender and discuss, or login to StudentLoans.gov and see what your repayment plan options are.
Solutions For Private Student Loans
If you have private student loans, there aren't many options for reducing your student loan payment. We've discussed the options for private student loans before, and they're not pretty.
In general, you can pursue two courses of action:
- Call your lender and beg them for help
- Refinance your student loan (likely with the help of a cosigner)
Start with just calling your lender. Although rare, some lenders do have programs to help you if you can't afford your student loan payment. Many of these revolve around job loss, and you typically have to agree to some terms to get help.
Second, consider refinancing your student loans . You might be able to get a longer term (which will lower your payment) or lower interest rates (which can lower your payment but also save you money).
We recommend using Credible to quickly compare your options in 2 minutes or less without a credit check. Plus, College Investor readers get a $200 bonus when they refinance with Credible. Check out Credible here.
Final Thoughts
Not being able to afford your student loan payment is scary and stressful. However, there are options that you can take before you miss it.
If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
Make sure that you know what the solutions are, and how you can make them happen before you start missing your payments. Getting behind and potentially going into default on your student loans is a bad idea.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
