In many ways, student loans are a tricky kind of debt. For one thing, you can’t get rid of them–even if you declare bankruptcy, you’re stuck with the debt with no deductions. They also tend to have strict, specific terms, such as when you start paying and how interest is calculated. Many people miss out on the life they thought they’d have after graduation because they’re weighed down by student debt.
So how do you manage student loans without sacrificing quality of life? If you’re having trouble making payments, the good news is that you have options–quite a number of them, in fact, especially if you’re in the U.S. Your best recourse depends on the reason you’re struggling, how much hardship you’re in, and the terms of the loan itself.
One way to ease the burden is with a student loan consolidation. Basically, this means bundling up your student loan with other debts you have, so that they carry a single, usually low interest rate. This can be a good idea if you have a lot of other debt, especially credit cards, which are notorious for high interest. The drawback to this is that you may end up paying for a longer period and actually pay more interest in total. If you decide to consolidate, plan to pay it off faster once you can afford bigger payments.
If you have trouble finding a job, you can defer your payments for up to three years after graduation. During this period, the government will pay the interest if it is a subsidized Stafford loan. In unsubsidized Stafford loans, you still have to shoulder the interest. The three-year limit may sound generous, but it’s still important to actively look for employment while on the deferment period.
Economic hardship is another reason for deferment. Generally speaking, a person is said to be in economic hardship if his or her income is not enough for a reasonable level of living, or if circumstances such as accidents or illness have made it hard to make ends meet. To qualify, one must usually show extensive proof of their situation, and expressly try to get out of it (i.e. by looking for a better job or other means of income).
Forbearance is considered a last resort for people who are in extreme need. In forbearance, your lender allows you to make fewer payments for a given period instead of considering you to be in default. This option tends to have the biggest impact on your credit, which is why it’s reserved for people who really need it.
No matter which of the options you choose, the solution is temporary: you still have to get yourself out of the situation eventually. This means you have to have a recovery plan and have long-term goals. Most lenders have become more lenient in the wake of the financial crisis, but borrowers who help themselves first are always the first to get back on track.