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What To Do When You Can’t Repay Your Student Loans

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For many recent grads, student loan debt is an overwhelming burden. In fact, about 7 million borrowers have gone at least a year without making a payment—which means about 17 percent of debtors are delinquent. 

If you can’t afford to pay back your student loan, it may seem like your hands are tied, but the last thing you want to do is ignore your debt. Unlike most other debts, student loans aren’t typically dischargeable in bankruptcy. In other words, you’re likely stuck with them. However, there is some relief, and David Carlson, personal finance expert and author of Hustle Away Debt, breaks it down for us.

WHAT HAPPENS WHEN YOU STOP PAYING YOUR LOAN?

When you're late on your debt payments, you can expect your credit score to plummet. And poor credit leads to all sorts of other money hassles: You might find it difficult to buy a house, get a car, or rent an apartment. If that’s not enough, some bill providers are even allowed to charge an extra fee to customers with low credit scores.

“You do not want to fall behind on your student loans because it’s the first step on a path to defaulting on your student loans,” Carlson says. “A default on your student loans," which happens once your payment is 270 days late, "will stay on your credit history for seven years.” 

You want to avoid going into default at all costs, because there are so many negative consequences. For example:

- If it’s a federal loan, you’re no longer eligible for student loan forgiveness programs.
- Your wages can be garnished.
- Your tax refund can be garnished.
- If the loan is sent to collections, you may owe additional fees.

Before looking into relief options, which all have potential drawbacks, Carlson says borrowers should first look for ways to earn extra cash. “My suggestion is to first look to increase your income at your 9-5 job,” Carlson says. “If you have maxed out your compensation at your 9-5 it’s time to look into side hustles," like a freelance gig or part-time job. "My wife and I were able to offset our $1000+ monthly student loan payments through taking part in side hustles.” 

Beyond that, here are a few options for relief.

1. INCOME BASED REPAYMENT

If you don’t earn much and you have a federal student loan, you might consider an income-driven repayment plan, which lowers your monthly loan payment based on your income. “There are four different options with this but they all follow the general principle that you will only be required to contribute a certain percentage of your discretionary spending towards your loan,” Carlson says. 

Here's the Department of Education's summary of each option:

Plan Name Amount Payback Period
Revised Pay As You Earn Repayment Plan (REPAYE) Generally 10% of discretionary income  10-25 years, depending on degree 
Pay As You Earn Repayment Plan (PAYE) Generally 10% of discretionary income  20 years
Income-Based Repayment Plan (IBR) Generally 10-15% of discretionary income 20-25 years depending on when you borrowed
Income-Contingent Repayment Plan (ICR) The lesser of: 20 percent of discretionary income, what you'd pay on a repayment plan with a fixed payment over the course of 12 years 25 years

The eligibility requirements and repayment criteria vary between each plan, but you can check out the details, including instructions on how to apply, via this IBR fact sheet (PDF).

Also, with an income-driven repayment plan, some of your interest and loan balance may be forgiven—but keep in mind, you’re generally required to pay any taxes on this forgiven amount

2. CHANGING YOUR PAYMENT PLAN

“Yet another option is changing your payment plan,” Carlson says. “Many people stick to the default Standard Repayment Plan when they graduate. This plan has fixed payment amounts and [payments] typically occur over the course of 10 years. Two ways to lower your payments today would be to switch to the Graduated Repayment Plan that starts with a lower payment amount that gradually increases over time.”

Similarly, an Extended Repayment Plan changes your repayment period from 10 to 25 years. Payments can be fixed or gradual. Of course, the longer it takes you to pay off your loan, the more you’ll pay in interest. But if you’re truly struggling, it's a better option than risking default. 

If income based repayment isn’t an option (maybe you have a private loan, which understandably isn't eligible for federal loan programs), you can always try calling your lender to work out a new plan with new terms. Again, the longer you take to pay off the loan, the more you’ll pay in interest.

3. DEFERMENT AND FORBEARANCE

Many lenders also offer deferment and forbearance. With deferment, you can stop paying your loan's principal and interest for a while, essentially postponing your repayment to a later date. Best of all, interest won’t accrue during that “no pay” period. Forbearance works pretty much the same way, minus the interest benefit. Your interest will continue to accrue while you’re not paying your loan. 

“There are a variety of situations where you are able to enter deferment, including being enrolled at least part-time as a student or during a period of unemployment or inability to find full-time employment,” Carlson says. 

The Department of Education has full details on both options at their Federal Student Aid website. If you have a private loan, again, you’ll have to talk to your lender to see if they offer either option.

BEWARE CONSOLIDATION

With a loan consolidation, your student loans are refinanced into a new loan. This means you’ll have a new repayment schedule, and your interest rate may change, too. If you’ve gone into default, consolidation can take you out of it. However, it’s not an ideal move. 

Carlson warns that, when you consolidate a federal student loan, you lose some of the aforementioned relief options. And like many of the other options, you end up stretching out the life of your loan, which means you’ll pay more in interest over time. “You may hear a lot of people who suggest consolidating student loans, but think twice before going down that road,” Carlson says. “Look into some of the other options before falling behind and even consider working directly with your lender to put together a plan that works for both of you.” 

“Keep in mind that most of these options are short-term solutions,” Carlson says. “Don’t get me wrong, student loans can be a huge burden to deal with. Sometimes you have to focus on getting by in the short-term, and there’s nothing wrong with that.  Eventually you will have to pay back your student loans so it’s best to eventually focus on attacking the problem.” 

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These Are the Top 25 U.S. Cities With the Lowest Cost of Living
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Coastal cities like New York and San Francisco bustle with excitement, but residents pay plenty of hard-earned cash to enjoy perks like Central Park and world-class museums—and to pay their sky-high rents. If you’d rather have a full bank account than a hipster ZIP code, consider setting down roots in America’s most affordable region: the Midwest.

Niche, a data analysis company, has ranked the 25 cities with the lowest cost of living across the United States—and the top 10 are all located in America’s heartland. Their selections were based on factors including access to affordable housing, food and fuel costs, and median tax rates, all of which were gleaned from U.S. Census and Bureau of Labor Statistics data.

Indiana was the most-represented state in the list’s top 10 section, with Fort Wayne, Evansville, and South Bend nabbing the first three spots. The remaining cities were mid-sized metropolitan areas in Kansas, Ohio, Iowa, and Illinois, all of which offer urban conveniences at a fraction of the cost of their coastal counterparts. After that, other cities in the mix included municipalities in Texas, Michigan, Alabama, South Dakota, and Minnesota.

Check out Niche's top 25 list below, and visit their website to view their methodology.

1. Fort Wayne, Indiana
2. Evansville, Indiana
3. South Bend, Indiana
4. Topeka, Kansas
5. Toledo, Ohio
6. Wichita, Kansas
7. Akron, Ohio
8. Cedar Rapids, Iowa
9. Davenport, Iowa
10. Springfield, Illinois
11. Rochester, Minnesota
12. Dayton, Ohio
13. Springfield, Missouri
14. Wichita Falls, Texas
15. Kansas City, Kansas
16. Odessa, Texas
17. Cleveland, Ohio
18. Indianapolis, Indiana
19. Abilene, Texas
20. Sioux Falls, South Dakota
21. Montgomery, Alabama
22. Lansing, Michigan
23. Des Moines, Iowa
24. Brownsville, Texas
25. Warren, Michigan

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Weird
Switzerland Flushes $1.8 Million in Gold Down the Sewer Every Year
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Switzerland has some pretty valuable sewer systems. As Bloomberg reports, scientists have discovered around $1.8 million worth of gold in the country's wastewater, along with $1.7 million worth of silver.

Scientists at the Swiss Federal Institute of Aquatic Science and Technology examined sewage sludge and effluents, or discharged liquid waste, from 64 water treatment plants and major Swiss rivers. They did this to assess the concentrations of various trace elements, which are "increasingly widely used in the high-tech and medical sectors," the scientists explained in a press statement. "While the ultimate fate of the various elements has been little studied to date, a large proportion is known to enter wastewater."

The study, which was recently published online in the journal Environmental Science & Technology, revealed that around 94 pounds of gold makes its way through Switzerland's sewage system each year, along with 6600 pounds of silver and high concentrations of rare metals like gadolinium and niobium. For the most part, these metals don't harm the environment, researchers say.

With gold and silver quite literally flowing through their sewers, is there any way that Switzerland could turn their wastewater into wealth? Scientists are skeptical: "The recovery of metals from wastewater or sludge is scarcely worthwhile at present, either financially or in terms of the amounts which could be extracted," the release explains.

However, in the southern canton of Ticino, which is home to several gold refineries, the "concentrations of gold in sewage sludge are sufficiently high for recovery to be potentially worthwhile," they conclude.

Switzerland is famous for its chocolate, watches, and mountains, but it's also home to major gold refineries. On average, around 70 percent of the world's gold passes through Switzerland every year—and judging from the looks of it, much of it goes down the drain. As for the sewer silver, it's a byproduct of the chemical and pharmaceutical industry, which is a cornerstone of Switzerland's economy.

[h/t Bloomberg]

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