What To Do If You Can't Repay Your Student Loans

Student loan debt is a very real thing and many people are finding it hard to make their monthly payments. While it may seem like a daunting task, there are ways to make the repayment process work in your favor. Let's take a look at some advice that can help you make those student loan payments.

Don't Be Afraid Of The Lender

If you're having trouble making the student loan payments -- or have missed payments -- do not be afraid of the lender. Keeping an open line of communication will pay off for the lender, Mark Kantrowitz, senior vice president and publisher of Edvisors.com, told International Business Times. "The first thing they should do is contact the servicer of the loan to ask about their options. If you ignore the problem, it's only going to get worse," Kantrowitz said. "The servicer can tell you about the options and what the implications [are]." Kantrowitz notes there will be different options for federal loans and private loans and there are more financial relief options for the former.

Betsy Mayotte, director of regulatory compliance for American Student Assistance, echoed the sentiment. "If they feel like they're in trouble, or have questions, always call their loan holder. That's like the No. 1 commandment, 'When in doubt, call your loan holder,'" Mayotte told IBTimes.

While it may seem terrifying or too complicated to talk to creditors, there is great reward for picking up the phone. "If they ignore the lender, they lose options. For example, if you default on the loan you can no longer get deferments or forbearances and you'll make your situation worse," Kantrowitz said. "It pays to have some awareness of your options, but a very simple 'I'm encountering financial difficulties, I graduated and I haven't been able to find a job. I'm trying every day,' and the lender could say, 'Do you think this will last a year, three years or the rest of your life?' and offer options based on your response."

The antiquated "Pay now or we're gonna break your legs" scenario is totally illegal, Kantrowitz said. "Most of the people at the call center are very nice and pleasant. The call center will have scripted responses, so if you say 'default' there will be a menu of options that they can offer." Even if you have defaulted, it's important to face the problem rather than ignore phone calls from the creditor.

Even if you feel embarrassed, nervous or scared about making payments, Mayotte said you don't want to ever default on your student loan. "They lose options, could get their wages garnished, they could have their tax refunds taken. Based on what state they live in, they can have their professional licenses taken away," Mayotte said.

Know Your Options

As Kantrowitz explained, there are many options for paying student loans. Know the difference between a deferment and forbearance and how long payments could be postponed or reduced. Deferments are available only for federal loans and the government pays the interest of the loan. The deferment term can last up to three years. "There are two types of forbearances: One suspends the entire payment and the other is a 'partial,' where the person only pays the new interest to keep the loan balance from getting bigger," Kantrowitz said. A full forbearance will suspend payment, but accrued interest will mean you'll have to pay more. Forbearances on federal loans can last for up to three years while those on private loans last up to a year, Kantrowitz said. These are good short-term options.

For long-term solutions, lenders have to think about payment plans. Federal loans have a variety of plans, including the Income-Based Repayment (IBR) plan, where the max payment is 15 percent of discretionary income -- defined as "the difference between your adjusted gross income and 150 percent of the poverty guideline" -- which can change over time. Each payment plan also has different terms that can give you up to 30 years to pay off the student loans.

Knowing the various components of your student loan will also make it easier to make the payments. In addition, the federal government, states and professions offer student loan forgiveness programs.

Tough Love

This section may be the hardest for individuals, because who doesn't like going out for dinner or spending a little extra for something fun? Developing a budget and taking care of your finances is a long-term strategy that requires thinking about the future. "Students that are just starting to pay their loans, their initial strategy is, 'OK, how low can I get the payment?' And from an overall personal finance perspective, that may not be the best solution," Mayotte said. By developing a budget, you're able to see how much you can spend on yourself and how much can be spent on the loan. Mayotte notes that the quicker you pay off your student loan, the less interest you'll have to pay. That can add up to huge savings and, perhaps, an even nicer gift to your future self.

One strategy could be picking a lower payment option and occasionally paying more when you can afford to make the larger payment. Another handy tool is the Repayment Estimator, which calculates your estimated payment for each available option.

"Just being aware of your spending patterns is the first step toward restraint. If you know you're spending $400 a month on eating out, you may hesitate the next time someone invites you to a restaurant," Kantrowitz said.