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The answer depends on whether your loans are federal or private. Debt.com has answers for both.

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Given that Americans owe over $1 trillion to student lenders, it’s not surprising that so many borrowers are struggling to stay out of default. The most recent numbers from the Department of Education show that about one in ten borrowers are facing default.[1] So, if you can’t afford your student loan payments you’re not alone. But what can you do about it?

That often depends on what types of loans you hold. Here are two questions from readers who say they can’t afford their payments. The first has strictly federal student loan debt, while the second has a mix of federal and private. Two of our resident experts offer their advice on the best path to take for each reader.

If you need help developing the right strategy to repay your student loans, we can help. Get a free evaluation today.

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What to do when you can’t afford federal student loan payments

Question: I graduated from college last December and now have to start paying back my student loans. I got $29,000 in loans, but there’s no way I can make the monthly payments on my salary. (I just got a full-time job in May.)

I’ve heard there are programs that lower your payments, but I also hear there are a lot of scams out there. When I search for “how to reduce student loans,” I get lots of companies trying to sell me stuff, but very little objective information.

So are there really government programs? And if there are, why doesn’t the government ever mention it?

— Andres in California

Howard Dvorkin, CPA answers…

Yes, the government wants to help you pay off your student loans. No, the government doesn’t tell you much about these programs.

Federal loan relief information is often hidden

Using your search terms, it took until the middle of the second page of search results to find this explanation from the U.S. Department of Education.

In fact, the federal government does a downright awful job publicizing these programs to the very people who need them most — and that’s not just my opinion. It’s also the government’s own opinion of how they’re doing themselves.

Back in August 2015, the U.S. Government Accountability Office released a damning report on student loans. It’s title: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options.

Sure, the report says, “these plans provide eligible borrowers with lower payments based on income and set timelines for the forgiveness of any remaining loan balances.” However, “many eligible borrowers do not participate.” Why? Simple. They don’t know about them.

“As a result, borrowers who could benefit from the plans may miss the chance to lower their payments and reduce the risk of defaulting on their loans,” the report concludes.

The GAO even suggests the federal government offer “streamlined processes for learning about” these programs, with “enhanced communications targeted to borrowers most likely to benefit from these plans.”

The buried truth: You could get your student loan payments reduced to $0

Aside from how bad the government is at promoting these programs, they can really provide immense relief for borrowers in your situation. The government created a series of programs known as income-driven repayment plans. These three programs help borrowers match their student loan payments to their income and family size. So, the lower your income and larger your family, the less you’re required to pay.

The three programs differ based on the percentage of income you end up devoting to your student loan payments. The income used to calculate this is your Adjusted Gross Income (AGI), which is the same income you report on your annual tax returns.

  • Income-contingent repayment usually sets payments at 20% of AGI
  • Income-based repayment sets payments at 15%
  • Pay as You Earn sets payments are 10% or less

The specific amount you end up paying depends on how you compare to the federal poverty line in your state. If you your annual income is 150% of the poverty line in your state, you end up paying the percentages listed above. But if you’re below your state’s poverty line, then you can end up paying nothing. Your payments are set at $0 until your income improves enough that the government believes you can start making payments.

This isn’t deferment, where your payments are paused. Your required payment amount is $0. It’s counted as if you’re making payments each month because you met the payment requirement (which is nothing). This is important if you’re trying to qualify for a program like Public Service Loan Forgiveness. That program requires you to make 120 payments to qualify for forgiveness. These $0 payments would count towards that total.

This relief will last until your situation improves

The government will keep an eye on your salary to make sure they can get paid as soon as you have the means to do so. To qualify for these programs, you will be required to certify your income and family size. Each year, you’re required to recertify again.

Since you have a full-time job, Andres, you’ll need to see how your annual income compares to the federal poverty line in your state. Instead of hunting that information down yourself and trying to take those calculations to your loan servicer, you can simply work with a company that specializes in federal student loan relief. Debt.com can connect you with those services.

Good luck, and I hope this information helps you.

̶  Howard Dvorkin

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What to do if you have private student loans

Question: I have a rather severe situation. I owe $61,000 in private student loans and another $30,000 in federal loans. I also have a child support obligation to the tune of $600 a month for my children who I haven’t seen in years.

But I only make $14.25 an hour. After all is said and done, I only bring home $850 a month net.

My problem is that the private student loan company wants their money, about $670 a month. I’ve tried speaking to them, and the best they offer is $100 a month for 6 months at most. I’ve used up all the forbearance allowed.

I barely scrape buy as it is. A second job isn’t really an option, as my first job has such long and weird hours. What in the world can I do? I have no savings, no emergency fund, and at this time, little to no hope.   Help me?

— Owen in Colorado

Steve Rhode answers…

These are certainly trying times for you. The stress, pressure, and emotional toll must be immense. You’re probably feeling trapped, pulled, and hopeless. Those are all normal feelings in this type of situation.

On the federal student loans, you absolutely need to consider one of the income-driven repayment plans described by Howard above. These plans aren’t perfect, but they are the best option for federal loans in your situation. You might also want to read up on the pitfalls of these programs to avoid any potential roadblocks.

Now for your private student loans…

On the private loans, you have a few options.

  1. You can make the contractual payment (which you clearly can’t afford)
  2. Send something, even if it’s not the minimum requirement (but that would be pointless)
  3. You can see if your loans can be discharged through bankruptcy (some private loans can be)
  4. OR you can strategically default

What is strategic default and why does it make sense?

Defaulting on your private loans has significant consequences. It will increase your balances. You may be threatened with — or actually experience — legal action. But at its core, this is just a math problem, and unless the private student loan lenders are willing to work with you, then the math makes no sense.

You will eventually default, so why not approach this with a plan and prepare for it? That would be the logically smart thing to do.

You should read Top 10 Reasons You Should Stop Paying Your Unaffordable Private Student Loan to better understand why defaulting with a plan can make sense.

With the right people advising you, defaulting can often result in good conclusions — like settling the debt for less than you owe, reduced repayment plans, nearly zero-percent interest, and the elimination of collection pressure.

You’re currently feeling hopeless, but I see your situation as hopeful. A solution can be planned and executed. If you want to get someone to help you see through the fog and work with you to develop a plan of action to tackle this situation, I’d strongly suggest contacting debt coach Damon Day. He’s uniquely brilliant and skilled at dealing with the issues. We discuss such situations on a daily basis.

You can also see my list of smart student loan attorneys who may be able to assist as well. A good expert will help you develop a plan.

One final thought on your situation. If you believe that your child support payments are too high, you should go back to court to see if you can lower your payments. In addition, if you’re already behind, you should look into relief options that could help including state child support compromise programs.

Don’t give up, Owen, brighter days are ahead.

̶  Steve Rhode

Debt.com can help you find the right solution to get out of student loan debt.

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About the Author

Steve Rhode

Steve Rhode

Steve Rhode is known as the ‘Get Out of Debt Guy’ and he has been teaching people how to deal with money problems since the 1990’s. After his own personal bankruptcy, he formed a nonprofit organization to help people get out of debt. Since then, he’s had a syndicated advice column in 50 newspapers across the country and has written three books. He’s appeared on FOX, CNN, ABC, NBC, and MSNBC giving money advice and now he is now an investigative reporter specializing in covering consumer debt and the debt relief world.

contributors

Howard Dvorkin, CPA

CPA and Chairman

Steve Rhode

Expert contributor

Published by Debt.com, LLC