Last Updated on May 24, 2022
If you’re having trouble paying back your student loans, it can feel like you’re spinning your wheels and getting nowhere. But there are ways to resolve the situation—and they don’t involve borrowing more money. Here are some tips on how not to pay back student loans:
1) Don’t just make minimum payments.
2) Don’t ignore the problem until it gets worse.
3) Don’t ignore your credit score.
How Not To Pay Student Loans
Dealing with a substantial debt burden can be overwhelming. As you repay your debt, wondering the best way to get out of student loan debt is natural. You wouldn’t be the first one to wonder if there’s a way to get out of paying your student loans legally, like declaring bankruptcy.
The honest answer is getting out of your student loans by declaring bankruptcy is pretty difficult. There are some other options that may help minimize the amount of money you pay back, like federal forgiveness programs or even options that can make monthly payments more affordable, like income-driven repayment plans.
- Loan Forgiveness Programs
Depending on your eligibility, there are a few different loan forgiveness programs available to borrowers with federal student loans. These programs could help you get out of paying a portion of student loan debt as they forgive your loan balance after a certain number of years.
Each forgiveness program has different eligibility criteria.
Teacher Loan Forgiveness
This federal student loan forgiveness program forgives the loans of highly qualified teachers. Depending on the subject area they teach, teachers who meet the eligibility requirements may have up to $17,500 or up to $5,000. Teachers are eligible to apply for this loan forgiveness program after they have completed five years of service.
Recommended: Explaining Student Loan Forgiveness For Teachers
Public Service Loan Forgiveness
This program is designed for those working in public service. In order to qualify for Public Services Loan Forgiveness (PSLF) applicants must meet the programs eligibility requirements including:
• Working for a qualified organization; including the U.S. federal, state, local, or tribal government, or a qualified nonprofit organization
• Work-full time
• Hold Direct Loans or have a Direct Consolidation Loan
• Make 120 qualifying payments on an income-driven repayment plan
Borrowers who are interested in pursuing PSLF will have to follow strict requirements in order to qualify and have their loan balances forgiven. The Federal Student Aid website, operated by the U.S. Department of Education recommends that participants certify their employment at least annually, or every time they change jobs. This is to ensure that the borrower is still on-track and making qualified payments. For more information, check out SoFi’s overview of the Public Service Loan Forgiveness program.
- Income-Driven Repayment Plans
Income-driven repayment plans for federal student loans tie a borrower’s monthly loan payments to their income. Depending on the specific income-driven repayment plan you select, they may cap your monthly payments between 10% to 20% of your income, depending on eligibility.
The repayment period for income-driven repayment plans varies from 20 to 25 years, depending on the specific plan the borrower is enrolled in. Income-driven repayment plans help make loan payments affordable for borrowers. However, extending the loan terms may result in accruing more interest over the life of the loan than on another repayment plan.
At the end of the loan term, any remaining loan balance may be forgiven. Be mindful that the forgiven amount may be considered taxable income by the IRS.
- Disability Discharge
It may be possible to have federal student loans discharged if you have a permanent disability. But it’s still very difficult to apply for a total and permanent disability discharge . You need to fill out forms and show the Department of Education that you are not able to earn an income now or in the future because of your disability.
Recommended: The Student Loan Discharge Process Explained
To do so, you need to get an evaluation from a doctor, submit evidence from Veterans Affairs, or show that you are receiving Social Security Disability Insurance. But you cannot apply for disability discharge until you have been disabled for 60 months unless a doctor writes a letter saying that your disability and inability to work will last at least 60 months.
Unfortunately, not all private student loans even give you the option to discharge your loans if you’re permanently disabled. If you’re permanently disabled and looking to get out of private loans, you may have to take your lender to court.
- Temporary Relief: Deferment or Forbearance
This option won’t eliminate student loan debt but may be an option to consider for borrowers struggling to make monthly payments on their federal student loans. Forbearance and deferment both offer borrowers the ability to pause their payments, if they qualify.
Depending on the type of loan you have, interest may continue to accrue even while the loan is in deferment or forbearance. However, applying for one of these options can help borrowers avoid missed payments and potentially defaulting on their student loans.
Note that private student loans don’t offer the same benefits as federal student loans. Some, however, may offer their own benefits. For example, SoFi offers Unemployment Protection, which allows qualifying borrowers to pause loan payments if they lose their job through no fault of their own.
- Student Loan Refinancing
Again, this option won’t get rid of your student loans, but it could help make student loans more affordable. By refinancing your student loans, you can potentially qualify for a lower interest rate, which can possibly lower your monthly payments, or save you money on interest over the life of your loan.
If you refinance with a private lender, you can also change the term length on your student loans. While private lenders like SoFi can refinance both your federal and private student loans, you should know that in doing so, you lose some protections that federal student loans provide like income-based repayment programs.
- Filing for Bankruptcy: A Last Resort
Bankruptcy is a legal option to clear debt, however, it is extremely rare that student loans are eligible for discharge in bankruptcy. In some instances, if a borrower can prove “undue hardship” they may be able to have their student loans discharged in bankruptcy.
Recommended: Bankruptcy and Student Loans: What You Should Know
Filing for bankruptcy can have long-term impacts on an individual’s credit score and is generally a last resort. Before considering bankruptcy, review other options , such as speaking with a credit counselor or consulting with a qualified attorney who can provide advice specific to the individual’s personal situation.
It can be challenging to get out of paying student loan debt. It is only in extremely rare circumstances that student loans can be discharged in bankruptcy. For federal student loans, some options that can help alleviate the burden of student loan debt include deferment or forbearance, which may be helpful to those who are facing short-term issues repaying student loans. Another avenue to consider may be income-driven repayment plans which tie a borrower’s monthly loan payments to their income, which can help make monthly payments more manageable.
Refinancing could be another option to consider. Qualifying borrowers may be able to secure a more competitive interest rate which could result in less accrued interest over the life of the loan. This option won’t be right for all borrowers as refinancing federal student loans eliminates them from federal benefits and protections, such as deferment, forbearance, income-driven repayment plans, and federal loan forgiveness programs.
If refinancing is something you are looking into, consider SoFi. There are origination fees or prepayment penalties and it’s possible to get a prequalification quote in just a few minutes.
cares act student loan forgiveness
As soon as everything began shutting down in an effort to slow the spread of COVID-19, the economy started to take a big hit. So, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (aka the CARES Act) in March 2020 as a way to help keep Americans and businesses afloat as we ride out this pandemic.
You know that stimulus check that hit your bank account? Yeah, that’s part of the CARES Act. Under the act, the government gave out $2.2 trillion to help ease some of the financial loss due to the coronavirus.1 Most of the money went toward individual American taxpayers, unemployment funds, small business loans, medical equipment for hospitals and local government.
But there’s more to the CARES Act than just handing out checks—it also comes with some changes in favor of borrowers, specifically those with student loans.
What Does the CARES Act Say About Student Loans?
Believe it or not, there are 42.9 million borrowers who, put together, owe about $1.6 trillion in federal student loan debt.2 Wowza! And those who have recently lost their jobs are too busy trying to pay their mortgages and feed their families to worry about their student loan payments right now.
So, under the CARES Act, payments for federally owned student loans are temporarily suspended until May 1, 2022.
What does that mean? Well, normally, you would have to prove you can’t make payments with your current income in order to get student loan forbearance or deferment. (Forbearance and deferment are just fancy words to describe putting your payments on hold. The difference is that interest continues to grow with forbearance but may or may not with deferment.) But under the CARES Act, all federal student loans have been automatically placed in forbearance. So, you won’t be charged anything on your student loans until May 2022, not even interest payments—but you’re still able to keep paying on them if you want.
But that’s not all. Under the CARES Act, there’s currently a 0% interest rate for all federal student loans. So, any payments you make toward those loans right now will go straight to the principal (the original amount you borrowed), and your loan won’t grow in interest.
Which loans qualify?
Federal student loans that are owned by the U.S. Department of Education are covered under the CARES Act. This includes Direct Stafford Loans, Direct PLUS Loans for parents and graduate students, and Direct Consolidation Loans. It also covers two other kinds of student loans, but only when they’re not owned by commercial lenders: Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans.
Any private student loans or loans that aren’t federally owned are not covered under the act. So, sorry, but Sallie Mae is still going to expect her monthly payment.
If you’re not sure who owns your student loans, you can check here. If you see ED next to the loan, that means it’s owned by the Education Department and is covered under the CARES Act.
How long will it last?
For now, about 26 months. No payments are required on federal student loans from March 13, 2020 until May 1, 2022. Same goes for the 0% interest. If, for some reason, you were already charged after March 13, 2020, that payment will automatically go toward the principal. And as long as unemployment and the economy stay on track, the May 1st date should stay the same.
Will my payments be forgiven during this time?
No—the government is not paying your student loans for you during this time. It’s just letting you delay the payments. So, if you don’t pay anything toward your student loans until May 2022, you’ll still owe the same amount you owed before the CARES Act took effect.
And if you’re applying for the Public Service Loan Forgiveness (PSLF) Program, this suspension won’t affect your eligibility. But student loan forgiveness isn’t something you should get your hopes up about. You’re better off taking control of your own financial future, instead of waiting on the government to save you.
How Does the CARES Act Affect My Credit?
If you choose to not pay your federal student loans during this time, it won’t affect your credit. Your student loans will still show up on your credit report, but as long as you were in good standing before the CARES Act, this pause won’t hurt your credit score.
And if you had already defaulted on your federal student loans, there’s some good news for you. Right now, student loan collections are on pause. That means the government can’t take money out of your paycheck, tax return or Social Security to make sure you pay. But it’s not exactly a free pass—this is your chance to catch up on those payments if you can and get back on track.
But global crisis or not, avoid getting sucked into worshipping at the altar of the almighty FICO. Instead, focus on taking care of you and your family and getting rid of your debt for good.