Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.
Updated on Wednesday, December 16, 2015
If you’ve been struggling with payments on your student loans for a while now, 2016 may be just the year to make some changes. A recent report from the New York Fed found that 11.3% of student loans were 90 days or more delinquent, making them the highest delinquency level of any form of household debt.
And remember, after you are delinquent for nine months, you’re considered in default, and your entire student loan balance becomes due immediately. Find out more about defaulting on student loans right here, and how to get your loans out of default here.
If you’re swimming in loans that you simply can’t afford, consider some of the following ways to dig yourself out:
1. Set up an income-driven repayment plan
If yours is a federal student loan, you may qualify for an Income-Based Repayment, Income-Contingent Repayment or Pay As You Earn repayment plan. These plans will allow you to reduce your monthly payment amount based on your income and family size, and your payment will adjust annually based on those factors, as well. In fact, the government just revised their Pay As You Earn plan (referred to as REPAYE), so that borrowers are no longer limited to when they took our their loans, or their debt-to-income ratios. (Find out more about REPAYE here.) To get started, contact your student loan officer or servicer to find out if you qualify and how to apply.
If your current student loan interest rate is sapping you of the hope that you’ll ever pay down your loans, refinancing could be a good option for you. The good news is that in recent years plenty of banks, credit unions, finance companies and new businesses have hopped on-board the refinancing bandwagon, making now a great time to shop around for good rates. While loan approval rules vary by lender, keep in mind that any lender you find will want proof that you can afford your payments (meaning that you have an income sufficient to cover your student loan and expenses) and proof that you’re a responsible borrower with a demonstrated record of on-time payments. (To that end, here is a sample goodwill letter in case you need one to request the removal of a late student loan payment from your credit report.)
3. Consolidate your loans
If you have multiple loans and it’s proving difficult to keep track of everything each month, consolidation can help you pull everything together into one loan so there’s less of a chance of something falling through the cracks. Plus it can potentially get you on a lower, better interest rate plan. In order to determine if you’ll save any money with consolidation, you’ll need to run the numbers and find the average interest rate you’re currently paying on your debt to compare with new offers.
4. Find out if you’re eligible for deferment or forbearance
Some federal student loans may be eligible for either deferment or forbearance of payments when borrowers fall on hard financial times. If you have a private loan, check with your issuer separately to see if they offer any sort of payment assistance. Deferment is a period of time where both the principal and interest on your loan will be temporarily delayed, while forbearance, which you should look into if you can’t make your scheduled loan payments and don’t qualify for deferment, allows you to stop making payments or reduce your monthly payments for up to 12 months, but you will most likely still accrue interest.
There’s no reason to go through another year of struggling to pay off loans at exorbitant rates when there are so many other options out there. Do a little research to see which choice is right for you, and let 2016 be the year you stop stressing (at least as much) over student loans.