What to Do If You Can't Afford to Pay Back Your Student Loans

Rahna Epting speaks as student loan borrowers and advocates gather for the People's Rally To Cancel Student Debt During The Supreme Court Hearings On Student Debt Relief on in Washington, DC., on February 28, 2023. Credit - Jemal Countess—People's Rally to Cancel Student Debt/Getty Images

More than 26 million Americans who applied for loan forgiveness are in limbo, awaiting the Supreme Court’s response to Biden’s loan forgiveness plan after oral arguments were heard on Feb. 28.

Most legal experts expect that the plan will likely be struck down, leaving the $1.6 trillion owed in student loans by some 45 million people intact. Either way the Supreme Court rules, borrowers will be expected to begin paying back their student loans within 60 days of the decision, which is when the pandemic-era moratorium on student debt repayment will end.

Some 33 million Americans are going to face student loan payments again for the first time in three years. And without debt forgiveness, the bills will likely be bigger than most expected them to be. “People want to be able to move on. They want to be able to see that [forgiveness] reflected on their balances,” says Persis Yu, Deputy Executive Director at the Student Borrower Protection Center, a student loan advocacy group.

Advisers tell TIME that borrowers should take a proactive approach before student loan debt payments restart. The good news is that borrowers whose loans are held by the federal government have several options if they can’t afford to make their payments.

Here are some ways to alleviate your student loan debt once payments resume this summer.

Know what type of loan and servicer you have

Before borrowers make any decisions about possibly changing their payment plan or applying for a forbearance or deferment, advisors suggest that borrowers first research their options and reach out to their loan servicer.

Information about the type of loan you have and who your loan servicer is can all be found on a borrower’s account on studentaid.gov. “Logging into their account is really important because during the payment pause there was a shift in federal student loan servicers, and so some borrowers may see that they actually have a new servicer now,” Kyra Taylor, an Attorney at the National Consumer Law Center (NCLC), a nonprofit that advises on consumer issues for vulnerable communities, says.

Borrowers should ensure all contact information is up to date on both their loan servicer and education department accounts so they can stay up to date with ongoing changes and regulations for student loans.

Advisors say the most reliable tool for figuring out their payment alternatives is the Education Department’s loan simulator. Borrowers should be able to walk through their options onsite and with their servicer.

If they want a second opinion, nonprofit credit counselors at organizations like the National Foundation for Credit Counseling can help walk borrowers through their options.

Consider enrolling in an income-driven repayment plan

The first line of action when struggling to make student loan payments is to consider an income-driven repayment plan.

Income-based repayment plans are programs meant to aid borrowers who are facing financial hardships. The Education Department calculates how much a borrower can afford to pay based on their salary and family size. In certain instances, your monthly payments may be as low as $0 per month.

Under the current standards, borrowers who make qualifying payments—payments that are full and on-time—will have their student loan debt forgiven after 20 to 25 years, regardless of how much money is owed in your balance.

That could soon change for the better for borrowers.

In January, the Education Department announced proposed revisions to their existing Revised Pay As You Earn Repayment (REPAYE) Plan, one of four income-driven repayment plans offered. Borrowers who earn $15 per hour or less would qualify for a $0 monthly payment, under the amendments.

Other borrowers with undergraduate loans would pay just 5% of their discretionary income, instead of the existing 10% charge under current regulations. The Education Department is also proposing changes to the way they calculate discretionary income that would allow borrowers to pay lower monthly payments. Discretionary income is the leftover income people have after considering rent and other necessities.

The changes would also decrease the timeframe for loan forgiveness from 20-25 years to 10 years if you borrow less than $12,000.

“The other nice thing about income driven repayment is that it’s kind of like a safety net. In the event that life goes a little haywire,” says Taylor. “Because the monthly repayment amount is anchored in the borrower’s income, if they have a drop in income for any reason, because of a job change, health issue, etc., they can recertify their income and that could lower their monthly payments if their income goes down.”

There are currently four income-based repayment plans—REPAYE, PAYE, IBR AND ICR— though the Department of Ed previously said it might phase out some of these plans. You can check if you qualify for an income-based repayment plan here, or consult with your loan servicer.

One-time account adjustment

Last year, the Education Department announced a one-time account adjustment that applies to borrowers enrolled in an income-driven repayment plan and eligible public service loan forgiveness (PSLF) borrowers. The PSLF program allows people who are employed by “a U.S. federal, state, local, or tribal government or not-for-profit organization” to be eligible for forgiveness after making 120 qualifying monthly payments.

Under the initiative, the Education Department said it would retroactively review borrower’s loan payment histories to add more months towards their payment count. This means that borrowers will receive credit towards forgiveness even when they made partial or late payments, or for months in forbearance or deferment.

Borrowers who have 20 or 25 years of “accumulated time in repayment” do not have to currently be enrolled in an income-driven repayment plan to receive credit in the one-time account adjustment. However, they do have to have direct loans, or consolidate their federal student loans into a direct loan by May 1 to receive the full benefit of the adjustment.

The adjustment is automatic, meaning borrowers do not need to do anything to see the changes applied to their accounts.

Forbearance and deferments

Forbearance allows borrowers to temporarily pause their student loan payments, or make smaller payments, for a certain period of time. Advisers warn, however, that forbearance probably won’t allow a borrower to make progress on paying off their loans because interest will increase debt on their accounts during the pause.

“I always warn consumers that you don’t really want to take advantage of these options if you can afford to repay because what happens during those periods of forbearance is that the interest continues to accrue on the loans and the balances grow,” Barry Coleman, Vice President of Program Management and Education at the National Foundation for Credit Counseling, says.

Borrowers have to apply for a forbearance via a form with their loan servicer. Forbearances will be granted for no more than one year at a time.

Advisers warn that borrowers should first “exhaust their ability to reduce their payments under an income-driven repayment plan” before ever considering a forbearance.

Deferments are similar to forbearances in that borrowers can postpone payments, though under this program interest will not accrue for subsidized federal loans. (Interest will accrue on unsubsidized loans, which weren’t given based on financial need.) Similar to forbearances, you have to request a deferment from your loan service provider or apply through the Department of Education’s website.

Deferments are granted a year at a time, for a maximum of three years. The federal government has specific deferment programs that vary by eligibility and type of loan. You can check for the different types of deferments here.

What to do if you’ve defaulted on your loans?

If you’ve missed payments for 270 days, your loans automatically go into default.

Defaulting loans can pose serious consequences to borrowers, including resulting in the garnishment of borrowers’ social security, tax refund, and wages.

“The other thing about federal loans is that there’s no statute of limitations, so that collection can go on indefinitely until you pay off your debt,” Taylor tells TIME. “If you can get out of default, most borrowers really want to get out of default because those financial consequences are so severe.”

Borrowers can move out of default by consolidating their federal loans into a new loan, or enter into a rehabilitation agreement over a nine month period, Taylor tells TIME. Borrowers can only consolidate or rehabilitate their loans once.

However, borrowers who defaulted on their loans can become re-eligible for student aid benefits and get out of default through the Fresh Start Initiative, a program launched in 2022 that offers benefits, including being eligible for federal grants and loans if you want to return to school to finish your degree, or start a new one. Borrowers would also become eligible for other loans, like mortgages, under this plan.

“It’s available to people who defaulted before the pandemic began and it enables them to call the default management group and to say, please remove my loans from default…and [borrowers can] be back in good standing when repayment restarts,” says Coleman. He suggests borrowers start making efforts to leave default now.

Fresh Start will remain in effect until one year after the payment pause ends.

Special circumstances

Some borrowers are eligible for certain loan discharges if their school misled them or engaged in other misconduct. A borrower defense discharge, for instance, is available to borrowers who “believe that their school misled them or lied to them about something that was central to their decision to enroll,” according to the Department of Education. “It could be misleading them about the program itself, the employment rates of graduates, salaries of graduates, [and more],” Taylor says. Borrowers must submit an application to be eligible for this type of forgiveness.

If you’re a student whose university closes while you are currently enrolled, on a leave of absence, or “soon after you withdraw,” you can also apply for a closed school discharge. Contact your loan servicer or check eligibility requirements here for more information.

If you have suffered an injury that makes you permanently or totally disabled, you are also eligible for a discharge of your federal loans. Information on whether you qualify can be found here.