Financial Hardship and Student Loans
You have your student loan bill but don’t know what to do.
Financial Hardship
There are many reasons why you might not be able to make payments on your student loans. If you’re starting an internship or residency, you might be struggling with the low salaries associated with these positions. Or, you might experience periods of time when you cannot work or face unemployment for other reasons. Even if you have a full-time salary, the burden of high educational debt makes it tough to make payments sometimes.
As a first step, consider switching into an income-driven repayment plan. These plans offer payment options based on a percentage of your income, even if that income is zero. Please review the video series on loan repayment options for more information. You also might have heard of deferment or forbearance, especially from veterinarians with older loans. A deferment or forbearance on your student loan lets you avoid making loan payments during the time of the deferment/forbearance. That sounds great, right? However, this option will increase the total life-of-loan cost and increase the time it will take you to fully repay the loan. If your financial hardship is short-term, these might be worthy of consideration. Just remember that, although they appear to offer an easy solution, deferment and forbearance have long-term consequences that will impact your financial planning.
AVMA Life offers Supplemental Disability Income Insurance for education expense obligations. Eligible recipients may receive up to $2,000 per month to cover educational expenses.
| Deferment | Forbearance | Income-driven | |
| Loan Type | Federal and Private (limited) | Federal and Private | Federal loans only: specific loan qualifications vary by repayment program |
| Qualification | Continued education or fellowship; unemployment; economic hardship; military deployment | Financial hardship payments > 20% monthly gross income, enrolled in specific programs (i.e. AmeriCorps, National Guard, etc.) | Four plans offered with qualifications based on specific loan, income and family size; defaulted loans are not eligible |
| Interest | Interest may be subsidized on certain loans (usually undergraduate loans) | Interest will accumulate | Interest will accumulate |
| Length of the loan | This will extend the length of the loan | This will extend the length of the loan | Payments (even at $0) will count towards the loan term |
| Detailed information | Federal website on Deferment and Forbearance | Federal website on Deferment and Forbearance | Federal website on Income Driven Plans |
Avoiding Default on Student Loans
Never default on your loans. Bankruptcy and loan default are sometimes portrayed as the easy way out of what may seem to be insurmountable debt, but these actions have severe negative consequences that will affect your long-term financial health. Defaulting on loans incurs fees and severe penalties, and defaulted loans remain on your credit record for up to seven years after the claim is paid. They will damage your credit rating, preventing you from getting a practice loan, credit cards, auto loans and mortgages, and can make it very difficult for you to get a job or rent an apartment or house.
Declaring bankruptcy is not a way to escape student loan repayment, either. Less than 1% of bankrupt borrowers succeed in getting their student loans discharged during bankruptcy proceedings, according to FinAid.org.
Take a look at the above chart to explore your options prior to risking default. Remember, you have limited options for private loans. Keep that in mind if you are considering refinancing as part of your strategy.