The phone is ringing off the hook. It’s the student loan servicer, and they’re calling about the two-month delinquency on your account.
As the phone continues to ring, beads of sweat begin to roll down your face. Why so? Well, you’re unemployed, broke and barely making it by. The constant calls from creditors have taken you over the edge and you’re terrified to face the music. Sounds familiar? Even if your situation isn’t quite this extreme, dealing with student loan debt can be draining. But instead of continuing to wade in a sea of debt, here’s what to do:
Contact Your Loan Servicer
Ignoring your lender could have serious repercussions for your wallet and credit score. How so? Late payments, collections and charge-offs remain on your credit report for seven years. Furthermore, a poor credit score could hinder you from qualifying for competitive interest rates on other loan products.
Your loan servicer is there to assist and would rather receive some form of payment than nothing at all. So, chances are they’ll do whatever it takes to get you back on the right track.
Other Short-Term Strategies
1. Make Payment Arrangements
If you expect to get back on your feet soon, the lender may allow you to enter into a payment arrangement. They may lower the monthly payment amount or change the due date until you’re all caught up.
2. Forbearance or Deferment
You may also qualify for a forbearance or deferment. Federal loan servicers extend this option, but not all private lenders do. A forbearance delays repayment, but interest will continue to accrue. But, a deferment suspends repayment and defers the accrual of interest for a specified period of time. The latter is usually a more viable option.
1. Consolidate Your Student Loans
If a high monthly payment is causing you to fall behind, consider consolidating your loans. Not only will it simplify the repayment process by combining all your loans into a single product, but you could save a bundle on interest if the rate is lower.
Federal loan servicers offer a Direct Consolidation Program. The average repayment period between 10 and 30 years, and qualification is not contingent upon your credit score.
Student loan consolidation programs are also available for private loans, but the lender will evaluate your credit rating. In some instances, the lender may require a cosigner. Income criteria may also apply.
2. Extend the Loan Term
The loan servicer may also agree to extend your loan to lower the monthly payment. Doing so can free up funds and help preserve your credit score in the short-term, but you will spend more in interest over time.
3. Change Your Payment Plan
Federal loan servicers offer standard, graduated, extended and income-based repayment plans. You’ll have to inquire with your loan servicer if you have private student loans to see what programs they offer.
4. Inquire About Student Loan Forgiveness, Cancellation or Discharge
You may be released from some or all of your student loan obligations through one of the forgiveness, cancellation or discharge programs offered by the federal government. Visit the U.S. Department of Education’s website to learn more.
A Final Word of Caution
Have you considered filing for bankruptcy to get out of your student loans? Unfortunately, it is one of the debts that is not dischargeable, so it’s best to devise a plan of action before the problem gets out of hand.
Written By: Allison Martin
Special For: Easy.Credit