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Federal student loan repayments are set to resume on May 1 after a two-year pause related to the COVID-19 pandemic, and many borrowers are not financially ready to repay them. A recent report from the Federal Reserve Bank of New York found that a large percentage of borrowers are at risk of default when payments resume.
See: Most student loan borrowers not ready to restart payments on May 1
Find: Student loan suspension saved borrowers $195 billion, but many will default in the end
Failure to repay student loans can have many consequences, from hurting your credit score to being taken to court by your loan provider. Rather than risk default, you should look at other options. Here are some recommendations from Debt.org.
Negotiate new terms with your lender
As Debt.org noted, it’s in lenders’ best interests to do everything they can to make sure you keep paying. If you tell them about your situation, they might rework your repayment plan to make it easier for you to pay the monthly payment. Just make sure the plan won’t cost you an arm and a leg. You don’t want to end up paying exorbitant interest rates and fees over a long period just to get a lower monthly payment.
Sign up for an income-driven repayment plan
Most federal student loan borrowers are enrolled in standard repayment plans, in which debt is paid off over 10 years. It’s the fastest and cheapest way to repay a loan. But you can also opt for the pay as you earn, cash back as you earn, cash back based on income and cash back based on income plans. All apply to join one of these plans and even switch between them to suit your needs.
The plans usually involve paying 10% to 15% of your Discretionary Income, depending on the program you choose. You should see a significant reduction in your monthly loan payment.
Student loan deferment or forbearance
A deferral will allow you to not make payments for a specified period as long as you meet certain criteria, which usually include the following: be enrolled in school at least half-time; be enrolled in a graduate scholarship program; be in an approved rehabilitation program for people with disabilities; be unemployed and looking for a job; suffering from economic difficulties; and serve on active duty in the military.
Deferments are also available if you have a Perkins loan and are a full-time law enforcement or correctional officer or serve in the Peace Corps.
With a student loan forbearance, you are allowed to stop making payments for a set period of time or have your payments temporarily reduced. However, interest will continue to accrue. There are two categories of abstention: general and compulsory. General forbearances may be granted if you have costly health conditions or meet certain debt-to-income criteria.
Loan officers are required to grant mandatory forbearance if you meet various conditions, such as serving in a medical or dental internship, serving in an AmeriCorps position for which you received a national service award, or serving as a teacher that would qualify you for a forgiveness teacher loan.
Earn extra income
If you are not currently earning enough to pay off your student loan, consider a second job or side job to earn more money. Side gigs can range from lawn work in your spare time to being an online marketer or online instructor if you have a particular area of expertise.
See: 22 side gigs that can make you richer than a full-time job
Find: Do you have $200 coins lying around? It’s worth checking your spare change
As for second jobs: The Great Resignation has contributed to a massive shortage of labor in many sectors of the economy. You may find it particularly easy to land part-time jobs in retail chains or hospitality businesses such as restaurants and hotels.
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