Your Options When You Can’t Repay Student Loans
It can be scary when you cannot pay back your student loans, and the consequences of defaulting on loans can be severe.
- Delaying payments on your loans through forbearance or deferment programs
- Getting your loan canceled and eliminating all payments (rare)
- Discharging your loan through bankruptcy proceedings (rare)
- Getting on an income-sensitive or income-based repayment schedule
- Consolidating your loans into one loan
Each option depends on eligibility requirements, your loan servicer, past student loan payments (if any), and the total amount of your education loan.
Student Loan Deferments
Deferments allow you to stop making payments for a specific time if you can show that you qualify. For instance, you may be able to get a deferment if you can show economic hardship, http://paydayloan4less.com/payday-loans-vt or that you have returned to school, are unemployed, or are looking for a job.
Depending on your type of loan, the deferment lets you stop making payments on the principal and stop interest from growing on the unpaid balance.
For other types of loans, you are only allowed to defer the loan principal. This means that interest on your loan will continue to increase while you are not making payments.
You will often be able to defer your student loans if you meet one of the conditions described below and are not currently in default. You may even be able to qualify for a deferment when you are in default in a “retroactive deferment.”
Student Loan Forbearances
Loan forbearance happens when your loan holder allows you to stop making payments for a set time. However, you should keep in mind that interest will continue to grow during a forbearance. Your loan balance will be higher when you come out of the forbearance.
Generally, forbearances are easier to obtain than deferments because they are not linked to the type of student loans you have. This means they are not covered by the laws and rules that apply to student loan deferments and cancellations.
You may be able to obtain a forbearance for various reasons, such as poor health or unforeseen personal problems. You may be able to get a forbearance if:
- You foresee that you will not be able to pay back your student loans within the period for repayment
- Your monthly payments are more than 20% of your monthly income
Loan forbearances are generally granted for up to one year at a time. You may be able to get a forbearance even if you have defaulted on your student loans.
Bankruptcy and Student Loan Discharge
Your student loans can only be discharged through bankruptcy if you can show repaying your student loan would be a severe hardship on you.
Courts consider many factors such as your age, health condition, income, expenses, family size, and the length that your income problems are likely to persist.
Cancellation of Student Loans
Like a deferment, to get a cancellation of your student loans, you will have to show that you fall into a specific situation depending upon the types of loans you have.
Also, cancellation does not always take care of an entire loan, and you may only end up getting a portion of your loan canceled. The remaining loan balance is still your responsibility.
Conditions for Deferments on or Cancellations of Student Loans
Here are the conditions that may allow you to defer or cancel your student loans. Keep in mind that some of the conditions may only qualify you for loan cancellation, others for both deferment and cancellation, and others for only deferment.
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