How to Stop Your Student Loans From Going into Default

Nov 19, 2017 by

Taking out a student loan is supposed to be an investment that pays off once you graduate and use your education to get a high-paying job, unfortunately, it doesn’t always work out that way.

Unforeseen circumstances lead you to drop out, you graduate but decide to pursue a completely different career path, the job market dries up, or your finances simply get the better of you.

Whatever your situation the good news is, even if you are close to defaulting on your student loan, there are some simple ways to avoid doing so.

Here are 7 ways to stop your student loan from going into default:

1) Get an Extension

If you believe you’re going to default on your student loan, the first thing you should do is start a dialogue with the lender and be honest about your situation. In some cases, they may grant an extension (i.e. the date it is expected to be paid by or an extension on the next installment).

If you get an overall extension this will give you more time to pay and reduce the amount required per installment, however you will still end up paying more in interest.

2) Forbearance and Deferment

Deferment and forbearance are when repayments on your student loan are paused or reduced temporarily to allow you to get your finances together and avoid default. For federal student loans, there are official documents you can fill out that allow you to defer for up to 3 years or reduce payments for a year if you face financial hardship.

If you borrowed from a private lender forbearance and deferment is not guaranteed and will be at their discretion.

3) Repayment Plans

If you have a federal student loan you may be eligible for an income-based repayment plan, which will reduce your monthly repayments and tie them to your income. Some plans will even allow you to write the debt off after a certain amount of time even if there is a substantial amount outstanding.

Repayment plans may also be available with private lenders, but this is at their discretion and will usually fall under an extension, interest freeze or in rarer cases a reduced overall repayment.

4) Federal Loan Consolidation

If you have multiple federal education loans you can pool them together in a federal Direct Consolidation Loan to make repayments easier to manage and to give you a bit of breathing room. One of the key benefits is that you will usually be given longer to repay the loan (compared to any of the individual loans), but this will mean you’ll pay more interest in the long run.

5) Private Loan Consolidation

If you have multiple debts on top of your student loan you might also consider a debt consolidation loan from a private lender. The benefits are pretty much the same, but you might also be able to borrow more than the total of all your outstanding debts, which can further help you get back on your feet if you’re particularly struggling with your finances.

6) New Loan or Credit Card for Breathing Room

If you believe you’re going to default on the loan because you’ve simply gotten behind with your budget and just need a bit of breathing room, you might consider using a credit card or getting an emergency loan online from websites like ElcLoans.com to bridge the gap.

Of course, you should only take this route if you’re just waiting for your next paycheck or some other income that you know will get you back on track. It’s never a good idea to get into debt to pay off existing debts.

7) Work Overtime or Sell Unwanted Belongings

If you’re struggling to make payments (especially if you got off track because of an unforeseen expense), take the time to consider whether you have any options for making some extra cash until you’re comfortable again.

Perhaps you can ask for some extra hours at work, take on a second job, or do some online freelancing.

We all have unwanted items stashed in our drawers or gathering dust somewhere, so why not get them up on eBay, a local Facebook buy/sell group or do a yard sale?

If you take on board the above tips you stand a good chance of not getting in trouble with your student loan. If you have any other methods for avoiding default, be sure to let everyone know in the comments below.

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