Consequences of Not Paying Off Your Student Loans

What Should I Do If I Can't Pay My Student Loans? 

More than 43 million Americans struggle to pay their student loans. The average amount for the loan is about $40000 per person. 10% of Americans even default on a student loan at some point.

You might also struggle to need help to make payments on time and wonder what to do if you can't pay your student loan.

Here are some basic tactics for you if you need help making timely student loan payments.

1. Reduce your expenses: It is always good to reduce unnecessary costs like gym membership, streaming service charges, etc., and cut your expenses and lose your budget. 

Other discretionary spending like eating out and entertainment are not safe at some point when you are struggling to pay your loan amount, so it is good to look for areas where you can reduce your expenses and increase your savings to repay your loan on time.

2. Find ways to increase your earnings: Look for other opportunities where you can get some extra cash apart from your current job. You can work overtime or part-time to make extra income from home.

3. Income-driven repayment plan: The Department of Education offers income-driven repayment plans. These plans are very useful to reduce your monthly payment to 10 to 20% of your income. The plan can extend the term to 20 or 25 years, after which the remaining balances are given. 

If your financial struggles are temporary, these plans are very useful in the short and long term.

4. Consolidate your student loans: If you have more than one student loan, you can consolidate them in one place. This will help you by extending your repayment term from a standard 10-year plan to 30 years.  

However, you will end up paying more interest, but it will help you with reduced monthly payments, which is more manageable.

5. Student loan settlement: It happens when you settle your loan amount for less than what you borrowed. It is beneficial for those borrowers who need to catch up on their student loans and have already decreased their credit scores.

You will need a lump sum amount to settle the balance. However, some lenders do not consider student loan settlement for smaller amounts, but if they feel that you will default, they will probably agree to the settlement.

How long can you go without paying student loans?

If you miss your student loan payment for a few days, your loan becomes delinquent. It remains in the same position until you pay the overdue amount or change the terms of your plan. If you fail to make payments for a long time, your loan officially becomes a default.

  1. For federal student loans, the default period typically occurs after 270 days of non-payment.
  2. For private student loans,  the default period occurs after 90 days of non-payment.

It is also important to note that late payment also results in late fees, which adds more financial burden on you. Your late payments and defaults are directly reported to credit bureaus, which eventually causes your credit score to drop.

What happens if you are unemployed and can't pay student loans? 

It is important to note that unemployment will not change the loan terms for federal and private student loans. You will have to repay the loan with interest. The only option you are with is to reduce or pause your payment. 

  • The reduction of postponement of your payment depends on the type of loan and your lender.

  • If you are facing a problem of temporary unemployment, you better opt for a loan deferment option. Those with federal student loan plans have to complete an unemployment deferment form. This form is like a questionnaire which determines your eligibility for deferment. You must submit the form and other required documents to your loan provider.

  • If you have a private student loan, then the process of deferment is quite different, and it depends on the lender. You may need to contact the lender directly to enquire about the options available to initiate the process. However, some lenders even have the option to submit the information through their website or application.

Bottom Line

Managing student loans with the right approach is quite challenging. If you feel that you will default or are struggling to make timely payments on your student loan, seek strategies to increase your earnings and avoid defaulting on your student loans. Non-payment of student loans can impact your credit score. Take professional advice from a student loan expert to seek areas of improvement.

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03 Dec, 2023

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