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What Should I Do if I'm Behind on Repaying My Student Loans?

Most borrowers have a reprieve this year, but if you're in trouble, act now

a   piggy bank wearing a graduation cap marked "debt" sits on a field of money

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En español | Of the $1.6 trillion in total student debt at the end of 2020, borrowers 50 and older owed about 22 percent of that amount, or $336.1 billion — more than a fivefold increase from 2004. Whether you’re having difficulty making your payments now or expect to have trouble doing so later, you should know your options.

Fortunately, many student-loan borrowers got a reprieve from making payments and accruing interest or facing calls from collection agencies. In January the U.S. Department of Education extended the federal suspension, which began March 20, 2020, through at least Sept. 30, 2021.

Federal loans owned by the Department of Education are eligible for the suspension. To verify whether your loan qualifies, visit StudentAid.gov/login and enter your federal student aid (FSA) ID username, email, or mobile phone and password. You’ll find everything you need to know about your loans, including the names of loan servicers to whom you make payments. If a loan servicer’s name begins with “Dept of Ed,” your loan is covered. Or you can call the Federal Student Aid Information Center at 800-4-FED-AID (800-433-3243; TTY for the deaf or hard of hearing is 800-730-8913).

Ineligible loans include private loans taken by students or their parents; some federal student loans under the Federal Family Education Loan (FFEL) program, which are owned by commercial lenders; and some Perkins Loans, which are held by the institution or school you attended. Certain third parties, however, have suspended payments and interest voluntarily or will allow borrowers to postpone monthly payments (some for up to 90 days) or are offering reduced payment options, according to the Consumer Financial Protection Bureau (CFPB).


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Facing delinquency

If you’re already behind on payments for a loan not covered by the suspension or you expect to fall into delinquency when it ends, don’t hide your head in the sand. Call your loan servicer to explore your options. “Be prepared to discuss your financial situation — what’s changed, what’s short term and what may be long term,” says Scott Buchanan, executive director of the Student Loan Servicing Alliance, a nonprofit trade association focused exclusively on student-loan-servicing issues. The loan servicer will want specifics, including your income and your discretionary expenses.

If you’re confident that your situation is temporary, you could seek a short-term solution. With a deferment, the loan servicer will suspend your payments. With a forbearance, it will reduce or suspend your payments. They’re offered in increments of three months for up to a year. Either way, interest will continue to accrue, so your loan balance and the total cost of your loan will increase, and if you’re pursuing loan forgiveness, your progress will stop.

If you took a Parent PLUS loan to help pay for your child’s education, you’re legally required to pay the money back. But if your child is better off than you, you could take the “skin-in-the-game” approach and ask him or her to make a few payments, says Melissa Cox, a certified financial planner in Dallas.

Still, for many borrowers those options just kick the can down the road, observes Michael Lux, a lawyer who blogs at StudentLoanSherpa.com. If your payments will be as unaffordable in the future as they are now, or you’re pursuing loan forgiveness, explore switching from a standard repayment plan with a term of 10 years to an income-driven repayment plan, which will reduce the amount of your monthly payments based on your income and family size and extend the loan term to 20 or 25 years. After that the balance is forgiven, although you may owe tax on the amount forgiven. For eligible workers in some public service careers, the Public Service Loan Forgiveness program results in the balance being forgiven after 10 years of payments, with no tax penalty.

If you have a federal loan, like an FFEL or Perkins, owned by a third party, you could consolidate payments into a single, new federal Direct Consolidation Loan so they would qualify for coronavirus deferment and zero interest. Consolidating may not be a good idea for everyone, though, as it resets the clock for loan forgiveness and may also result in deferred interest being added to the balance. Check with your servicer first. To find and compare your options, try this free student loan tool: Loan Simulator.

Whatever path you choose, call your loan servicer well before the Sept. 30 expiration, Buchanan advises, to avoid the last-minute rush.

A final note

Watch out for scammers who may call with offers of secret or special relief. They often use official-sounding company names or claim to be working for a consumer advocacy group or with the federal Education Department. According to the CFPB, red flags include pressure to pay high up-front fees, promises of immediate loan forgiveness or debt cancellation, demands that you sign a third-party authorization or power of attorney, or a request for your unique FSA ID.

Patricia Mertz Esswein worked for the Kiplinger Washington Editors for 35 years, directing special editorial projects, editing Kiplinger Books on business and personal finance topics, and, beginning in 2004, writing for Kiplinger's Personal Finance magazine. She covered real estate and a variety of other personal financial topics, and wrote a regular column called "Success Story."

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