What Happens If I Can’t Pay My Student Loans?

How you can pay nothing without facing default.

What to do when you're on the hook for student loan debt

Not being able to make your student loan payments can be gut wrenching. The stress it brings can take a toll on your emotional stability, your health and your relationships.

But not having the money to pay doesn’t mean that you’re automatically going to go into default and face things like wage or tax garnishment. As long as you can prove hardship, there are options you can use to stay out of default and avoid credit damage.

If you’re in this situation, there is help available. The information below can help you understand the general options you may be able to use, but every situation is different. Call us or complete the form to the right to let us help you connect with the right professional assistance for your situation.

Option 1: Deferment

This option allows you to postpone payments on principal and interest for your federal student loans. When your loans are deferred, you don’t have to make payments. And in some cases, for Federal Perkins or subsidized loans, the federal government will pay your interest charges during loan deferment.

If your interest charges aren’t paid – if you have unsubsidized loans or other types of loans – then interest continues to accrue while you’re not making payments, so your balances will be higher at the end of deferment.

You can defer your loan payments if you are unemployed, under employed and able to prove financial hardship, enrolled at least half-time in school, serving in the military or Peace Corps. You must apply for deferment with your loan servicer.

Option 2: Forbearance

In situations where you won’t qualify for deferment, you may be able to use loan forbearance. This allows you to reduce or stop payments for up to 12 months on both subsidized and unsubsidized loans.

Forbearance can be granted if you prove a certain level of financial hardship or can prove illness. There is also forbearance during residency programs or if you’re in the National Guard and get activated by your governor. Like deferment, you have to apply for forbearance through your loan servicer.

Option 3: Pay Nothing on Pay As You Earn

There is one last situation where you can qualify to pay nothing on your student loans without facing credit damage or default. This happens for people who are enrolled in the Pay as You Earn student loan consolidation program.

Pay as You Earn is a program meant for people who can prove at least partial financial hardship. That means you only make 150 percent or less of the Federal Poverty Line of your state. In this case, your payments are reduced to 10% of your taxable income.

But if you can prove greater financial hardship than that – as in your make less than the Federal Poverty Line for your state, then your payments may be reduced to zero until you are making more money. Your income is assessed periodically, but as long as you qualify, you pay nothing each month and it still counts as if you made a payment as far as your credit and the term of your loan goes.

Remember, once you consolidate with any student loan program, the term of your loans is adjusted to 25 years. But after 25 years of payments, if you still have remaining balances left over, they’re forgiven – regardless of your career field.

Fact: For public servants like nurses, firefighters and law enforcement, loan forgiveness happens after 10 years.