How to Reduce the Burden of Student Loans

According to the Consumer Federation of America, a network of more than 250 non-profit consumer groups, there were 4.2 million student loans in default in 2016, which is up 17 percent from 3.6 million in 2015.

The average owned on federal student loans is also continuing to rise – up to $30,650 per borrower from $26,300 in 2013. “Despite a booming stock market and falling unemployment, student loan borrowers in today’s economy are still struggling,” said Rohit Chopra, a senior fellow at the Consumer Federation of America, in a recent MSN.com article.

Just like any loan, you are under contract to repay a student loan based on the terms to which you agreed and it will not go away, whether federal or private. Not doing so will impact your credit record and make it more difficult and expensive for you to qualify for other loans. However, if you are struggling to make the monthly payments, or you are delinquent in your payments or in default, there are steps you can take to lessen the payment pressure.

Be Proactive

If you are in arrears on your payments, the first step is to proactively reach out to the loan servicer that administers the loan or to the collection agency that is responsible for collecting the loan. By making the call instead of waiting for a call, you put yourself in a much better position to find some agreeable way to reduce your monthly payments.

Your loan becomes delinquent the first day after you miss a payment and is considered to be in default, if you have a federal loan, once you’ve missed payments for 270 days or nine months. (Private lenders may have different terms for handling loan delinquencies and defaults.)

Whether your loan is delinquent or in default, most if not all loan providers and their servicing organizations would rather come to some arrangement that allows you to pay off your loan than deem your loan uncollectable and write it off their books. If you have a federal loan and you’re not sure who is servicing your loan, you can find out by visiting www.nslds.ed.gov or by calling 800-4-FED-AID.

There are a number of online resources that can help you navigate the student loan world, especially if you are seeking help to reduce your payments or solve a loan issue. Along with such organizations as the Consumer Federation, other popular resources include The U.S. Department of Education, myeddebt.ed.gov, Student Loan Help Center, Consumer Finance Protection Bureau, Student Loan Borrower Assistance and Nelnet.com.

Reduce Your Payment

If you can’t afford to make your monthly payment due to inadequate income or perhaps you’re between jobs, you may be able to negotiate a lower payment in alignment with what you can afford or if you have a co-signer.

If you have a federal loan, you can access a variety of programs to lower your loan payments such as income-driven repayment. Under this program, you could cut the monthly payments from 10 percent to 20 percent of your income each month. You may also be eligible for deferment or forbearance as options for payment relief needs, although qualifying for these programs is more difficult.

If you are a public employee such as teacher or government worker, there are programs through the federal government that can help. In some specific cases, federal loans can be forgiven, such as being employed by a non-profit agency. Some companies such as law and CPA firms also offer student loan repayment as a perk for employees. One company we know offers $2,000 a year paid to the borrower’s student loan servicer, up to a lifetime maximum of $10,000.

Consolidate Your Loan

Consolidating your student loan with other loans is another an option to consider. Loan consolidation can simplify loan repayment by bundling your loans, which can lower monthly payments. If you have two or more federal student loans (e.g. undergraduate and graduate school) you can apply to consolidate those loans under a Direct Consolidation Loan, a federal program through which the individual loans are paid off.

Generally, with a Direct Consolidation Loan, you are eligible to consolidate after you graduate, leave school, or drop below half-time enrollment. If you are in default, you must meet certain requirements before you can consolidate your loans. A Direct Consolidation Loan has a fixed interest rate for the life of the loan, and once your separate loans are consolidated they cannot be removed from the new loan even if one of the loans now offers more attractive terms.

Working with a Private Lender

Private loans are not eligible for a Direct Consolidation Loan or other federal programs. However, commercial lenders such as credit unions and banks offer their own consolidation and other programs for student loans.

There are several highly informative, online resources for student loans including Credit Union Student Choice, an Internet portal that lists nearly 250 credit unions nationwide which provide special student loan programs. Student Choice can put you in touch with hundreds of credit unions that offer innovative private student lending programs. The site can immediately direct you to a local credit union that offers student loan consolidation and other programs.

Another Internet resource that features student loan programs for consolidation and other purposes is LendKey.com, which includes information on credit unions. With these and other online resources as your fingertips, you may find that your neighborhood credit union is a good place to start if you are seeking to refinance or consolidate your federal and/or private student loans with attractive terms that are often better than those offered by competing banks.