5 Options If You Can’t Afford Student Loans When They Restart

The student loan payment freeze is ending soon, and federal student loan borrowers are expected to start making monthly payments again. With no more extensions from President Joe Biden on the horizon, the current pause on student loan payments only runs through January 21, 2022.

In addition to payments picking back up, interest charges will resume on student loan debt, and collection agencies can seek a court order to collect on defaulted loans.

The reality for many borrowers, however, is that the pandemic changed their lives in countless ways, including financially. If you know you can't afford student loan payments when they restart, keep reading to learn what you can do.

What to do if you can't afford loan payments when they restart

If you find yourself in a situation where you can’t afford your student loan payments, don't fret. You have some options that can make student loan repayment more affordable or provide temporary assistance.

1. Recertify your income if it's lower

If your financial situation has changed since before the pandemic, you might qualify for lower monthly loan payments. One way to do this is by recertifying your income with the federal government.

Federal loan borrowers who are on an income-driven repayment (IDR) plan, are already required to recertify your income annually. Most borrowers start on a standard 10-year repayment plan, but you can apply for another plan that lowers your monthly payments.

Typically, monthly payments on an IDR plan go up as you get further into your career, but that's not always the case. If you've faced economic hardship, lost or switched jobs, or experienced other circumstances that lowered your annual income, you might be eligible for lower monthly payments.

Keep in mind that you’ll end up paying more for your loan in the long run on an IDR plan. Since its repayment term is longer, you’ll end up paying more interest over the longer term, compared to a standard repayment plan.

2. Consolidate your student loans

Another way to potentially lower your monthly loan payment is by consolidating your federal student loans. You can combine all of your federal student loans into one Direct Consolidation Loan.

Paying off a consolidated loan is simpler since there's only one monthly payment to worry about. You’ll also receive revised loan terms and a new interest rate, which is the average of the interest rates of your original loans.

Consolidating your student loans is also the only way that borrowers can choose a student loan servicer. If you've had issues with your servicer, consolidating your loans is a chance to switch to another loan servicer. There's no guarantee you won't face the same issues, but it could lead to a better experience for you.

Note that if you're pursuing student loan forgiveness, consolidating your loans causes you to lose credit for any qualifying payments you've built up already.

3. Refinance your student loans

Another option if you're struggling to make payments is refinancing your student loans. One of the primary reasons people refinance student loans is to score a lower interest rate. Another benefit, though, is a chance to choose your loan term, which could lower your monthly payments.

When you refinance federal student loans, they become private loans, and you’ll lose access to valuable protections provided by the federal government. These protections include access to federal repayment plans, loan deferment and forbearance options, and student loan forgiveness programs like Public Service Loan Forgiveness (PSLF).

Make sure you don't need access to any of these protections before applying for a refinanced loan.

The good news is that many private lenders allow you to check interest rates before applying. This typically doesn’t negatively affect your credit score. You can also earn valuable cash bonuses by refinancing through our lending partners.

4. Look at your finances

If you can't make monthly payments, you might need to revisit your financial situation to see where you can make changes. Review your monthly expenses, looking for areas where you can cut costs. Even if it's only temporarily, cutting out unnecessary expenses can free up funds for monthly loan payments.

It might also be time to examine your income. Are you making enough to afford your loan payments? If not, do you need to ask for a raise or change jobs or career paths? You could consider launching a side hustle to make some extra cash to put toward your loan payments.

5. Apply for economic hardship forbearance

If you've tried all of the other options listed above and are still facing financial hardship, apply for assistance through the federal economic hardship forbearance. The Department of Education created the assistance program to help low-income individuals having trouble making loan payments.

You'll need to meet specific requirements to qualify for this type of loan forbearance, including:

• Be a recipient of a means-tested benefit, like Temporary Assistance for Needy Families (TANF).
• Serve in the Peace Corps.
• Work full-time, with an income below 150% of the poverty guideline for your family size and state of residence.

Note: Economic hardship forbearance is only available for a maximum of three years total.

Depending on your loan type, interest might not accrue on your student loan during forbearance. Applying for loan deferment or forbearance should be a last resort, but the program is there for qualified borrowers to provide much-needed assistance.

Importance of preparing for student loan payments

If you borrowed money from the federal government to pay for school, you're obligated to pay off your federal loans. In some cases, you could qualify for student loan forgiveness, but for many borrowers, you'll need to start repaying your loans shortly after you graduate or fall below half-time.

When you fail to make full payments on your loans each month, your account is considered delinquent. If you’re delinquent for 90 days or more, your loan servicer will report the delinquency to the major credit bureaus, which damages your credit.

Missed payments can also cause you to default on your student loans. Defaulting on your loan can have a wide-reaching negative effect on you, financially. Some of the potential consequences of student loan default include:

• Your entire student loan balance, including interest owed, is due immediately.
• You're ineligible for additional federal student aid.
• Your loan default is reported to the credit bureaus.
• You might not be able to buy or sell assets, like a home.
• Your wages can be garnished to help pay off your debt.
• Your tax refund and federal benefit payments can be withheld and used to pay off your debt.

Defaulting on your student loan could have long-term financial consequences. Your best bet is to have a plan for paying off your student loans going forward.

Get help if you’re struggling with student debt

If you're not sure what the best repayment option is for your student loans when repayment restarts, we can help. Our consultants have helped thousands of borrowers save money by helping borrowers create a customized repayment plan based on their specific needs. Reach out for a consultation today with one of our trusted planners.