What to Do When You Can’t Afford Private Student Loan Payments

When you’re struggling to make ends meet, your student loan payments can feel like the heaviest ball and chain weighing down your finances.

If you have federal student loans, there are many options for lowering your payments. You can opt for an income-driven repayment plan, deferment or forbearance.

But what if you have private student loans?

If you’re interested in learning how to lower private student loan payments, here’s a breakdown of the options you do have and which ones to consider

Federal vs. private student loan payments

Remember, not all student loan lenders are created equal. Especially if you compare private and federal student loan lenders.

Federal student loans are all distributed by the U.S. Department of Education and come with standard benefits and protections.

Usually banks and other private financial institutions provide private student loans. And since private student loans are offered by various lenders, there is no standardized protocol for dealing with payments.

In other words, each lender may do things a little bit differently.

Lower private student loan payments with forbearance or deferment

If you’re wondering how to lower private student loan payments, consider deferment or forbearance.

Deferment is when you can temporarily postpone your student loan payments. Forbearance, which is similar to a deferment, can postpone your student loan payments for a certain amount of time.

However, both deferments and forbearance are usually offered by private lenders under specific circumstances.

For instance, Sallie Mae, a popular private student loan lender, offers a deferment for borrowers going back to school. Or, if borrowers are pursuing an internship or residency.

Sallie Mae also offers forbearance for up to twelve months. However, it’s only for three months at a time. They view it as a way to help you avoid delinquency and default if you’re facing temporary financial difficulty.

However, if you want to apply for it, you must make a Good Faith Payment of $50 per loan ($150 max) to receive a forbearance from Sallie Mae.

It’s important to note that interest will continue to accrue on your Sallie Mae private student loans. Even with deferment or forbearance. And, any unpaid interest will be capitalized. You’ll be responsible for late payment fees as well.

Discover, another private student loan lender, offers deferment if you are in school, on active military duty, working in public service, or enrolled in a residency program.

Contact your lender if you can’t afford private student loan payments

If you are struggling to come up with a strategy for how to lower private student loan payments, consider contacting your lender.

“Borrowers who are struggling financially should contact the lender to ask about their options for financial relief,” says Mark Kantrowitz, student loan expert with PrivateStudentLoans.Guru.

And if you have defaulted on your private student loans or are at risk of defaulting, you should ask your lender about any alternative payment plans.

These plans may be considered on a case-by-case basis. To avoid default and any other issues down the road, you should throw everything you can towards your private student loans to keep the loan in good standing.

Unfortunately, private student loans don’t usually come with income-based repayment options or forgiveness options.

Additionally, private lenders don’t offer as many flexible repayment options as federal student loans. That’s because they’re under no obligation to offer borrowers financial assistance.

“Private lenders have no obligation to offer these options on private student loans, but do so because it is more profitable to have a borrower who is current than a borrower in default,” explains Kantrowitz.

If you can’t afford private student loan payments, get in touch with your lender ASAP and discuss your options. It’s better to communicate and be proactive, instead of risking default, which could lead to trouble with your credit down the line.

How to lower private student loan payments on your own

Aside from what your lender can offer you, there are other things you can do try to do to improve your situation.

First, opt for a bare-bones budget. A bare-bones budget is a budget that focuses only on your needs, such as food and shelter.

It’s not necessarily fun to cut back on certain things just to pay back your student loans. But if you want to avoid default, your budget is the first place to look.

Secondly, when thinking about how to lower private student loan payments, consider earning more income.

“Borrowers who are struggling financially should also consider options for increasing income,” says Kantrowitz. “This can include asking their employer for a raise, working overtime, or getting a second job in the evening and weekends.”

Additionally, you may be able to save some money on your student loans by applying for auto-debit. This can lower your interest rate by 0.25 percent with Sallie Mae, and potentially other private student loan lenders.

Of course, you only want to do this once you can truly afford your student loan payments. Otherwise, you could be hit with an overdraft fee or insufficient fee instead.

Opting for bankruptcy

If you are unable to lower private student loan payments, you may wonder if you can opt for bankruptcy to help you start fresh.

While getting your private student loans discharged isn’t totally impossible, it’s pretty rare.

“It is almost impossible to get student loans discharged in bankruptcy,” Kantrowitz says. “Doing so requires demonstrating that the student loans represent an undue hardship on the borrower and the borrower’s dependents in an adversarial proceeding.”

“A very small percentage of borrowers are successful in getting their student loans discharged in bankruptcy,” adds Kantrowitz.

Create a strategy with your lender moving forward

If you want to learn how to lower private student loan payments, the first thing you need to do is contact your lender and discuss what options are available for you.

And if you truly can’t afford your loan payments, look at your income and expenses to see if there are changes that can be made.

Ultimately, it’s important for you to stay in touch with your lender and pay what you can to avoid default at all costs.

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