Financial Hardship and Paying Back Student Loans
Situations both within and outside of your control can impact your ability to make your student loan payments. Maybe you landed your dream internship or residency—professionally rewarding, but a financial strain due to the lower salary range. Or maybe something unexpected happened, such as a job change for a spouse, an injury, or unemployment.
Regardless of the cause, you have options if you are experiencing financial hardship.
Options for Federal Loans
As a first step, consider switching into an income-driven repayment plan if you have federal loans. These plans offer payment options based on a percentage of your income, so they’re typically more affordable than time-driven plans. And if your income is low enough, you may even be eligible for zero-dollar payments that still count toward your loan term. Review the video series on loan repayment options for more information.
Options for Private Loans
Options for reducing the cost of private loans are more limited than for federal loans. Keep this in mind if you are considering refinancing to private loans as part of your strategy. You may need to pursue deferment or forbearance, but read on for points to consider.
Deferment and Forbearance
Exercise caution when considering deferment or forbearance. They may sound great at first glance because they let you temporarily avoid making loan payments—and your loan servicer may even recommend them without knowing the specifics of your circumstances. But they have two major long-term impacts:
- They increase your total loan cost.
- They increase the total time you are in repayment.
If your financial hardship is short-term, or you have private loans, these options might be worth considering. But be sure to do your research and/or consult with a student loan professional to make an informed decision.
Financial Hardship and Disability
For disability-related financial hardship, AVMA LIFE offers Supplemental Disability Income Insurance for education expense obligations, regardless of the type of loan. Eligible recipients may receive up to $2,000 per month to cover educational expenses. This policy must be in place prior to experiencing a disability, so contact an AVMA LIFE agent if you’d like to add this coverage.
Compare Options
| Income-driven | Deferment | Forbearance | |
| Loan Type | Federal loans only | Federal and (limited) private loans | Federal and private loans |
| Qualification | All federal loans in good standing are eligible. Specific plan qualifications are based on loan type, income, and family size. Defaulted loans are not eligible. | Continued education or fellowship; unemployment; economic hardship; or military deployment. | Financial hardship or enrolled in specific programs (AmeriCorps, National Guard, etc.) |
| Interest | Interest will accumulate. | Interest may be subsidized on certain loans (usually undergraduate loans). Interest will accumulate on all others. | Interest will accumulate. |
| Length of loan | Loan term not extended. Payments (even at $0) will count toward the loan term. | This will extend the length of the loan. | This will extend the length of the loan. |
| Details | Studentaid.gov: income-driven plans | Studentaid.gov: get temporary relief | Studentaid.gov: get temporary relief |
Avoid Defaulting or Declaring Bankruptcy on Student Loans
Loan default and bankruptcy 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, and they likely aren’t necessary given the availability of other options.
Defaulting on loans results in 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, which could prevent you from getting a practice loan, credit cards, auto loans or 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. FinAid.org reports that borrowers are “extremely unlikely to successfully obtain an undue hardship [loan] discharge.”
You Don’t Have to Do This Alone
Financial hardship is stressful, and student loan payments can amplify this feeling. Always remember that there are options available, and you do not have to navigate these decisions alone. In addition to the information presented here, review the video series on loan repayment options featuring expert Paul Garrard, and seek the counsel of a qualified student loan or other financial professional.