What to Do If You Can't Pay Back Your Student Loans


From Editor: This is an article written by Evan Fischer for MoneyHacker

3d-character-and-question-markAs unemployment rates continue to hover around double-digits, and more and more people are underemployed or under-compensated, many former college students are finding it difficult to stay current on their loan payments. Defaulting on your student loans is a very bad idea. The detriment to your credit score can be severe, and the government can find ways to get their money from you regardless. Luckily there are options for those that find themselves unable to pay back their student loans. What’s most important is that you take the time to learn all the various options available to you before you’re faced with not being able to pay them back. Here’s a quick look at some of the ways that you can handle this tricky situation.


There are several situations where you may be able to receive a deferment on your payments. This will allow you to halt payment of your student loans for a specific amount of time. There are particular qualifications, such as economic hardship, unemployment, or if you’re returning to school, that determine whether you qualify. But better yet, many of the deferments will stop interest from accruing while also giving you a break from paying the principal. Make sure you understand what types of loans you have, and whether the loan is with a private company or the federal government, before you apply.
ForbearanceIf you find that you do not qualify for a loan deferment, you may still be able to get a loan forbearance. This is a situation where the party who holds your loan allows you to stop payments for a set period. In the case of a forbearance, interest will continue to accrue, so be prepared to find a higher balance on your loan when you return to making payments. But a forbearance is generally easier to qualify for than a deferment. And the qualifications are a bit more basic. If you’re suffering from health or personal problems, or if your monthly payments on your loan are greater than 20% of your monthly income, you will qualify.


This is an extreme response, but may be a necessary option in some cases. If you are filing bankruptcy, it may be possible to have your loans discharged. It is incredibly difficult under current bankruptcy laws, however. You would have to argue that the burden of the loans would cause severe hardship, and appear in court to prove it. The court would decide based on your specific situation, so if you choose this avenue, make sure you can hire an attorney.


Cancellation of your student loans can only happen under a very specific situation, and doesn’t always cancel out the entire amount of the loan. You’ll need to contact the company that holds your loan, or the Department of Education Debt Collection office if your loan is with the government. And while this is a viable option, the circumstances under which it is possible are severe.

For example: death, total disability, severe economic hardship, or entering a uniformed service. You could potentially receive a cancellation if you work full-time in community service, but that may not be a viable option for you. If none of these extreme circumstances are the case, you might be better off returning to school. Even the best online MBA is not as good as a traditional masters program, and you may find when you graduate that the job market and your personal situation has improved.