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The Wild World of Student Loans: What to Do If You’re in Trouble

Posted in The Wild World of Student Loans by Caroline Roberts on February 4, 2011
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Image Source,Photobucket Uploader Firefox ExtensionWarnings about student loans mean nothing if you’re drowning in debt. Anyone at that point shouldn’t be fretting about how they got there. The dream of education is sold harder than a Ronco product, and a bunch of people spent a lot of money for an education that isn’t paying off. What’s important is figuring out

Talk to your lender before you default. By talking to your lender, you might be able to create a payment plan or find a compromise that will keep your loan from defaulting. Once you default, there’s no going back. A deferment might give you some breathing room, but don’t forget that, depending on your situation, the interest will keep on growing.

Do your best to avoid default. If you stop paying, you won’t get to know the lender. You’ll get to know the debt collector, and you’ll face wage garnishment, not to mention a host of other unpleasantries, such as constant phone calls asking you why you haven’t paid up.

More after the jump! William Hogarth: A Rake’s Progress, Plate 4: Arrested For Debt. From Wikimedia Commons, public domain.

Consolidate multiple loans. One of the best strategies to get control of a loan payment is if you can handle it early and consolidate the loans. Even if you still have to pay a lot, having one monthly payment will cut down on your hassle.

Serve the public. Doing good for the world might do good for your wallet. For example, if you work for the Peace Corps, you might benefit from loan forgiveness. Kiplinger has an excellent article called “How to Shed Student Debt” that lists a few of your options.

Bankruptcy is not an option. It’s strange that people can file bankruptcy in order to restructure their finances for almost any reason, except student loans. Alas, that is the way it is. Student Loan Borrower Assistance (via Consumerist) offers examples of individuals who were able to prove that paying off their student loans posed an “undue hardship,” but the article also mentions that you might need to hire a lawyer to pull this off … yet another charge on top of your debt.

Make a tough choice. You can’t hide from student loan debt. Collectors will find you. To pay the debt down, you either need to save more money or find a higher-paying job. This could mean that you have to leave the academic profession, or you have to move to a less-interesting place with a lower cost of living. It’s up to you what’s most important, but you’ll need to brace yourself for a sacrifice if you want to start funneling your money toward the debt.

Save begging for last. A new grad set up a website asking for donations to help pay off her hefty $200,000 student loan. Kudos for the chutzpah, but there are other options, and the reactions on Gawker were not pretty. Then again, with that kind of moxie, this person will probably find a job that will help pay the loan, and if this trick helps her pay the loan, who cares what others think of it?

6 Responses to 'The Wild World of Student Loans: What to Do If You’re in Trouble'

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  1. Great points. I would clarify, though, that student loan consolidation is only available for Federal Student Loans: Stafford, PLUS, GRADPlus, Perkins and other federal loans. This includes loans through the old Federal Family Education Loan program and the current Federal Direct Student Loan program.

    In my college planning practice, I encourage clients to borrow through the federal loan programs first. The interest rates and repayment options are better. Forbearance and Deferments are available for federal student loan borrowers who have trouble repaying their loans. Private or Alternative loans have higher interest rates, are credit based, offer limited repayment options and do not offer consolidation or forbearance.

    • Thank you for the clarification! It’s really important information to have. I am in complete agreement with your mantra–federal loans first, private loans … preferably never.

  2. […] Full post: “The Wild World of Student Loans: What to Do if You’re In Trouble“ […]

  3. AP Willow said,

    Also keep in mind that there are new federal assistance programs springing up (because of Obama) so that people don’t drown in debt and can take jobs that make them happy, rather than because of pay. It’s called income based repayment and your monthly payment is determined by your income (even if you have 200K in debt, you might only pay a few hundred/month if your job doesn’t pay well. Also, your remaining debt is forgiven after 25 years):

    This site also has information about the new public service debt forgiveness program (after 10 years of paying, the rest of your debt is forgiven if you work in any non-profit. This includes universities)

  4. Thanks for the link! Anything that encourages people toward public service is a good thing. Most people wind up not going into teaching/public-interest law/certain medical fields because the loans are too darn high.

  5. Mackie Blanton said,

    How come February was the last time I received a newsletter from you all? I am noticing this only now because I have been very busy, but I should still have been receiving emails from you.

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