If you’ve got student loans, chances are at some point during the repayment period you’re going to have difficulty making your payments. Given today’s still-sluggish economy, you may have trouble making your payments shortly after you graduate from college or grad school. Don’t panic– you may have options. The worst thing you can do is do nothing. If you don’t make your payments, your loans can become delinquent or even defaulted. That has serious consequences (which I’ll be discussing in a subsequent post).

Federal Student Loans

Your federal student loans have built-in rights that can help you manage your payment obligations during difficult times. If you’re in financial trouble, It is crucial that you take advantage of one of these options; don’t ignore your federal loan obligations, you’ll regret it later.

1. Change your repayment plan: Do you know what repayment plan you are on? The federal government offers several repayment plan options, and each one may give you a different monthly payment and a different payment period. If you are struggling to pay your federal student loan bills, you may want to consider switching repayment plans. For those borrowers who started paying off their loans several years ago, you may want to explore your eligibility for the relatively newly-created Income-Based Repayment (“IBR”) plan, which caps your monthly payment at a percentage of your income.
2. Request a deferment: A deferment allows you to postpone your payments for a period of time. During the deferment period, interest does not accrue for subsidized loans, and interest charged on unsubsidized loans doesn’t get added to the loan principal until the deferment period is over. This ensures that your loan principal will not balloon during the deferment period. This is an excellent option and is available for a variety of situations, including half-time or full-time school enrollment, unemployment, economic hardship, military service, and for certain types of law enforcement and volunteer work. Some of the deferments can be indefinite, while others are strictly time-limited.
3. Request a forbearance: A forbearance, like deferment, allows you to postpone your payments for a period of time. Unlike deferment, however, interest continues to accrue during the forbearance period. That means that your loan principal might rise more and more quickly the longer you remain in forbearance, since you are not making any payments to pay down the principal and the accumulating interest (although you should be able to make voluntary payments if you are able to). A forbearance can be requested for a variety of situations such as poor health, long-term economic hardship, natural disasters, and military service.

Private Student Loans

Generally, private student loans have fewer options than federal student loans. There usually will be only one or two repayment plan options- but you nevertheless should explore whether a different repayment plan is available. Private lenders do sometimes offer deferments and forbearance, however. Deferment options are generally for more limited and specific circumstances (i.e., returning to school half-time or full-time). Forbearance may also be an option, but it may be granted in more limited circumstances and for shorter periods of time than your federal loans. Even for private loans, however, relief may exist, so check out your options. You may want to have your lawyer look over your original loan contract to see what rights you have and to start exploring what options are available to you by negotiating directly with the lender.

The bottom line is this: if you find yourself in difficult times, you may have options. The worst thing you can do is to simply stop paying. If you can avoid delinquency or default, you should try– you’ll be grateful for it later.