Student loans are a financial burden for many people across the United States. In fact, recent research on student debt shows Americans owe a total of $1.78 trillion.
Sadly, many people are not able to pay back what they've borrowed. In fact, a shocking 15% of people with student debt are behind on their payments. This puts them at risk of late fees, damaged credit scores, or even garnishment of their wages or seizure of their tax return in case of default.
While it's easy to see how people could fall behind on a huge debt balance, the good news is that there are often options to avoid missing payments and facing the dire consequences that follow.
Here are a few techniques that could help you avoid getting behind on your student loan payments.
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1. Choose an income-driven repayment plan
If you have federal student loans, you have a great option for avoiding any missed student loan payments. Simply select a payment plan that puts your monthly costs squarely within your budget.
You have the option to change your payment plan as needed after borrowing -- including to an income-driven plan that caps payments at between 10% and 20% of your discretionary income. Your payment on an income-driven plan could be as low as $0 if you're not making much money. And you can apply online and choose one of these payment plans at any time.
If your income isn't providing enough money to make your payments on your current plan -- or if you've recently experienced a decline in income due to a job loss, cut in hours, or other unforeseen circumstances -- apply for an income-driven plan ASAP to ensure your payment stays within budget and you don't fall behind.
Be aware, though, that choosing an income-driven plan can result in paying more interest over time and could leave you in debt for much longer than the standard payoff plan. But it is likely worth paying for more years if you can avoid falling behind on payments -- especially since income-driven plans come with an out. Your loan balance can eventually be forgiven after you make a certain number of payments.
2. Refinance into a loan with a lower rate
If you have private student loans, you can't just change your payment plan at will to reduce your payments. But you do still have an option to lower your monthly costs to make them more affordable so you don't fall behind on payments. You could refinance your student loans.
If you can get a new loan with a lower interest rate, a longer payoff time, or both, this enables you to reduce the amount you're required to pay each month. This could help you avoid becoming one of the 15% of Americans who is behind on your student debt payments.
Refinancing does require good credit and solid income. If you're lacking either, you could ask a cosigner to guarantee the loan. Just be aware that if you don't pay, the lender will hold your cosigner responsible -- so don't make this request lightly. And, again, if you extend your payoff time, you could pay more in interest over time even if monthly payments cost you less.
You don't want to refinance federal student loans, though, as converting federal to private loans would mean missing out on important benefits unique to loans made by the Department of Education.
3. Explore options for deferment and forbearance
Finally, if you are unable to pay your loans, you could talk with your lender about deferment and/or forbearance. Both options allow you to pause payments temporarily. Although interest will continue accruing (except for deferment of federal subsidized loans), this is still typically preferable to falling behind on payments.
You have more flexibility with regards to putting federal loans into deferment or forbearance, but even private lenders typically have options to pause payments if you ask and have a solid justification for doing so. So, reach out to your lender before you get behind.
By exploring these options, hopefully you can keep missed payments off your credit report, avoid late fees, and ensure you don't default on student loans and find yourself facing collections activities that adversely affect your finances for years to come.
