4 Options for When You Can’t Afford Your Student Loan

College graduates are finding it harder and harder to pay back the money they borrowed to attend school.

A recent study by the credit-reporting agency TransUnion found that 51 percent of all U.S. student loans are deferred—a provision that allows borrowers to temporarily put off making payments on their principal and interest for up to three years.

The study also found that student loan balances increased by 75% in the past five years, with the average balance rising from $18,379 to a hefty $23,829 per borrower. During that same time period, federal student loan delinquencies increased 27%.

And with a little more than half of bachelor degree-holders under the age of 25 unemployed or underemployed, “the repayment of these loans remains a concern,” says Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. That’s especially true because “…both federal and private student loan delinquency rates are higher than most other credit products such as mortgages, home equity lines of credit, credit cards, and auto loans,” Becker continues.

So what’s a borrower to do?

Change your payment schedule.

If you can’t afford to pay back your loan within the standard 10-year time period, contact your loan servicer and request the “extended” repayment plan, which will increase your term to up to 25 years. Doing this will decrease your monthly payment, but there’s a downside: The total amount you pay in interest over the course of the loan will be higher. For example, according to Finaid (a financial aid website), switching from a 10-year to a 20-year term on an unsubsidized Stafford loan will reduce the monthly payment by 33%, but doing so will more than double the amount of total interest paid.

If you have a partial financial hardship (ask your loan servicer for specific scenarios), you could qualify for the “income based” repayment plan, the “pay as you earn” repayment plan, or the “income contingent” repayment plan. Each of these plans considers your income when calculating your payment amount. An added bonus to these plans: If you haven’t paid off your balance at the end of the loan’s term (20 to 25 years), the remaining amount will be forgiven. (Click here for an easy-to-understand comparison chart that explains each option.)

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Postpone your payment.

If you have a financial hardship or an illness, you can request that your servicer grant you a discretionary forbearance, which means that you could discontinue your monthly payments or shrink the amount owed for up to 12 months. (If you’re are a medical or dental intern or a member of the National Guard, for example, you are eligible for mandatory forbearance, which the lender is required to grant.) Interest will continue to accrue during this time period, so if possible, you should pay it monthly so that amount is not added to your loan’s principal.

Consolidate your loans.

Combining all of your outstanding balances into one monthly payment certainly simplifies the bill-paying process. And if you plan strategically, it can give you more time to whittle down that outstanding balance by giving you access to repayment plans previously unavailable—and it could land you a fixed interest rate (as opposed to a variable one), too. But you could lose valuable benefits like principal rebates or even some loan cancellation opportunities, so you really do need to speak with your loan servicer before you consolidate.

Inquire about loan forgiveness.

Five years ago, the Public Service Loan Forgiveness Program was created in an effort to encourage people to seek jobs in law enforcement, early childhood education, public health, and emergency management, among other government positions. If you’ve been employed by a public service organization and you’ve already made 120 payments on your student loan, you could be eligible to have your remaining balance forgiven.

Or, if you’ve been a teacher for five consecutive years at specific schools that serve low-income communities, you may qualify for the Teacher Loan Forgiveness Program, which would eliminate loan balances up to $17,500.

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