How to Pay Off Student Loans When You're Totally Out of Luck

Corbis, Jamie Grill
America is in full-on student loan damage control mode. Faced with a $1 trillion student debt hole and college graduates entering the job market already $27,000 in the red, lawmakers are butting heads over the right way to give borrowers some much-needed relief.

But for anyone out there who is struggling to make payments on their loans today, chances are that help will be too little, too late.

Maybe you're out of a job, aren't earning enough, or simply don't know where to begin. What do you do if you can't pay back your loans? Here's a guide:

If You're Not In Default Yet, But You're Struggling To Make Payments ...

First Things First –– Tell Your Lender

As much as we love to hate them, lenders are not always the enemy. They can help you, but only if you are communicative and tell them from the get-go that you're going to have trouble meeting the terms of your loan repayment plan.

The worst thing you can do is throw your hands in the air and see what happens.

The longer you ignore student debt, the worse your life will be, plain and simple. Debt collectors have only gotten more aggressive since the recession, and on top of harassing phone calls, your credit will get dragged through the mud.

Not sure who your lender is? Search for them here:

Defer Payments

Federal student loan borrowers automatically get a six-month grace period to start paying off their loans. After that, you can apply for deferment through your lender. There are several ways to qualify, including unemployment, military service, grad school attendance, or if you are still pursuing a degree part-time, among others.

Deferring your loan means you won't be on the hook for payments for a temporary time period, but, unfortunately, any interest charges will still be applied –– and trust us, compounding interest is a friend to no one. Deferment is a great option if you're struggling to get a start on paying back your loans, but it's not a permanent solution by any means.

How to apply: Find your loan servicer at and apply.


If you're not qualified for deferment, forbearance is another option. It can last up to 12 months, during which time you'll be off the hook for payments but will still accrue interest on your loan. In order to qualify, you must be facing financial hardship, for example, having expenses resulting from a serious illness.

How to apply: Find your loan servicer at and apply. Sometimes, they'll ask for supporting documents to back up your claim.

Income-Based Repayment

There are plenty of reasons to take out federal loans in lieu of private student loans, but the Income-Based Repayment plan takes the cake. For most borrowers, IBR payments are capped at 15% of their income. Recently, President Obama signed an order to reduce IBR payments to 10% of income for borrowers who took out loans after October 2011.

The best part? If you are enrolled in IBR for 25 years, any remaining balance will be erased. Plus, public service workers can apply for loan forgiveness if they are enrolled in IBR.

How to apply: Find your loan servicer at and apply.

If You've Already Missed Payments And Are In Default ...

Loan Consolidation

If you have defaulted on your federal student loan (generally, missing payments for more than 90 days), you will probably already have been contacted by debt collectors. At that point, you might consider consolidating your debt. That means they'll combine your balances and reissue your loan under a new repayment plan (be wary of fees, though). How to apply: Request a consolidation application from your debt collector or you may apply for a new direct consolidation loan with the U.S. Department of Education.

Loan Rehabilitation If you're in default on your loan and consolidating doesn't sound appealing, think about a rehabilitation plan. Your lender will set up a payment based on your financial situation. Once you pay consecutively for nine months, it's like getting a clean slate. They scrub your defaulted status off your credit history, any wage or tax refund garnishments will end, and you may be eligible for deferment and forbearance again.

How to apply: Contact your debt collector and request this option. If they give you any grief and you still think you qualify for one of these options, ask to speak with their Special Assistance Unit. If that doesn't work, file a complaint with the Federal Student Aid Ombudsman Group at the U.S. Department of Education.

If You Have Private Loans That You Can't Repay ...

Unfortunately, none of the aforementioned options are available to consumers who have private loans. Dealing with private lenders is never ideal, especially if you have defaulted on your loans. Not only are they notorious for aggressive debt collections practices, but they have next to no standard flexible repayment options for borrowers facing financial hardships.

Your best bet is to dig your heels in and face the debt collectors head on. If you ignore their calls, they will eventually take legal action and with a court order, they can begin garnishing your wages.

There may not be an official repayment plan offered to people who can't pay, but at the end of the day, debt collectors and lenders are after one thing: money. If you try to negotiate a repayment plan with them or offer to settle your debt for a lower sum, you may get somewhere. Keep in mind, settling debts usually means forking over a lump sum within hours of sealing the deal.

Whatever you do, keep a record of all letters and phone calls you receive. If any collector is particularly aggressive or threatening, you can pursue action against them through your state's Attorney General's office or by filing a complaint with the Consumer Financial Protection Bureau.

The bottom line: Action is better than inaction. As much as the student loan situation in the U.S. could use an overhaul, there's little to gain by waiting for lawmakers to throw you a bone. At the end of the day, loans are tied to your name (and whoever co-signed them) and the longer you wait to take action, the worse off you'll be in the long run.

More from Business Insider

Increase your money and finance knowledge from home

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

What is Inflation?

Why do prices go up?

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

William you may want to correct the misspelling of the word "financial" on your home page.

June 15 2013 at 1:48 PM Report abuse rate up rate down Reply
William Roundtree

Here at Student Debt Relief we are able to get your student loans out of default with in 4-6 weeks through several government programs you may qualify for, this will allow you to file your taxes this year and receive a monthly payment that can go as low as $25. This will clear up your credit report and you will then be able to qualify for additional finical aid please give me a call 1-855-429-9577

June 12 2013 at 12:47 PM Report abuse rate up rate down Reply

The Obamas waste the tax payers money on their lavish vacations.

June 10 2013 at 7:08 PM Report abuse +1 rate up rate down Reply

PiddlePaddleistupidallthetimeandinsane. LOL.

June 10 2013 at 7:06 PM Report abuse +1 rate up rate down Reply


Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein



I bet the republicans don\'t even know who Albert Einstein is.


I see you practice what you preach. LOL PiddlePaddlestupidallthetimeandinsane

June 10 2013 at 7:05 PM Report abuse +1 rate up rate down Reply

Well lets see,.....the house republicans has tried now 37 times to repeal The Affordable Healthcare Act. Wasting time and taxpayers money.


Affordable Healthcare Act. LOL It\'s anything but that.

Sporting a new screen name? LOL

Continuing to create multiple screen names to copy and paste your stupidity is the another sign of insanity. You\'re batting a 1000 today.

June 10 2013 at 7:03 PM Report abuse +2 rate up rate down Reply

Until I can find a decent paying job with my education background and past work experience, I don't care who calls or threatens me for payment I ant paying a damn thing until the income begins at a decent living amount, since I don't use credit for anything I buy including big ticket items such as cars and houses I couldn't care less what goes on my credit profile from going default due to the economy, its only money once your gone of the face of this earth it doesn't mean anything forever!

June 10 2013 at 3:45 PM Report abuse +1 rate up rate down Reply

Poor OWS'ers.......... are they totally out of luck? Or are they just deadbeats and freeloaders begging for anything they can get.

June 10 2013 at 1:18 PM Report abuse +1 rate up rate down Reply

Insanity: doing the same thing over and over again and expecting different results.

Albert Einstein

Piddle Paddle
So does you creating multiple screen names like you do so you can vote others comments down multiple times day after day.

June 10 2013 at 11:54 AM Report abuse +2 rate up rate down Reply

Piddle Paddle finally admits that he's insane. Most here already knew that. He keeps copying and pasting the same comment over and over again. Scroll down and see.

June 10 2013 at 11:36 AM Report abuse +3 rate up rate down Reply