Do you need help repaying student loans? There are plenty of options to help you tackle your debt, even when your income is limited or non-existent.
Many of us are annoyed by our student loan balances. It’s frustrating to spend hundreds of dollars each month on old debt for a degree you may not be using when you would much rather spend or save that money for something else.
We forget that being able to afford our student loan payments is a luxury. Many graduates cannot.
In the US, more than 40% of government student loan borrowers are not making payments. This means they are either in default, delinquency or have postponed their payments, usually due to financial hardship.
In Canada, 13% of borrowers default on their student loans – but a default only happens after the loan has been in arrears for nine months, which means there’s probably plenty more that are a few months behind but not in trouble yet.
What happens if you can’t make your student loan payments?
Your student loans are a debt obligation just like any other, which means there are severe consequences for missing payments. Missing student loan payments, or only making a partial payment that does not cover your minimum, can negatively impact your credit score. Do this repeatedly, and your loans can go to default, which will further exacerbate the situation.
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Once your loan is in default, the government can and will come to collect. They can take from things like your income tax refund, and even pursue legal action to garnish your wages. In other words, you will probably end up paying your student loans, no matter what.
Student loans cannot be discharged in bankruptcy
On both sides of the border, student loans are one of the rare types of debt that cannot be discharged in bankruptcy (at least not immediately) with few very exceptions.
If you’re drowning in debt and eyeing declaring bankruptcy as a way out, it might rid you of your credit cards and personal loans, but your student loans won’t be going anywhere.
Declaring bankruptcy will have a long-lasting negative impact on your credit, and you’ll still be stuck with your student loan bill (plus all the interest and fees it incurred in non-payment) at the end of it.
In most cases, the only way to get out of repaying your student loans is death or permanent disability, neither of which is preferable to paying off the balance.
Seek help before you miss a payment
So if you can’t escape paying your student loans but you don’t have the financial resources to do so, what can you do?
If you’re facing financial hardship and cannot make your student loan payments, it’s best to notify the government sooner rather than later. Remember, when it comes to any debt, your creditor wants to be paid, and they will work with you to make that happen.
In Canada, you can’t apply for relief or assistance programs once you’re 90 days behind in payments, which is why it makes it imperative that you let the government know right away if you can’t meet your debt obligations.
You know what day of the month your student loan payments are withdrawn from your bank account. If there’s not going to be any money in there, tell them before the cheque bounces.
Different types of repayment relief available in the US & Canada
There are a few forms of student loan repayment relief and assistance available. It depends on where you live, what type of loan you borrowed, and what your circumstances are. Below are some of the options available:
What is the Repayment Assistance Plan (RAP)?
In Canada, if you are single with no dependents and earn less than $25,000 per year, you do not have to make payments on your student loans. You can apply for the Repayment Assistance Plan, which will suspend the required payments on your debts for 6 months.
Enrolment in RAP is not automatic, so you will need to re-apply at the end of 6 months. Even though you are not required to make payments on your student loans during this time, they will incur interest. You can be granted up to 10 years (60 months) of repayment assistance.
After that, the government will chip in to help cover your payments and interest until your loan is paid off by the time you hit 15 years.
It might seem nice for the government to pick up the tab if you simply wait long enough. But it’s never a good thing to be earning less than $25,000 for 15 years since graduating. You can apply for the Repayment Assistance Plan online, directly through your student loan provider.
Student Loan Deferment
Deferment is typically available for US student loans. In deferment, you do not have to make payments on your student loans for a certain period. To be granted a deferment, you must be experiencing economic hardship, unemployed, or returning to school. To apply for deferment, contact your student loan provider.
Student Loan Forbearance
If you are unable to qualify for a deferment, you may be able to delay making payments on your student loans by applying for forbearance.
Like the Repayment Assistance program for Canadian student loans, you can qualify for forbearance if you are unable to make your student loan payments due to economic hardship.
Loan forbearances are typically granted for one year at a time. You may still be able to get one even if you have defaulted on your student loans. To apply for forbearance, contact your student loan provider.
Student Loan Forgiveness
Sometimes student loan forgiveness is available to graduates working in a specific industry, job, or geographic location. For example, doctors or nurses working in remote or rural areas are eligible for up to $40,000 of loan forgiveness over five years. In the US, those working in public service, government or non-profit job are eligible for the Public Service Loan Forgiveness Program.
Student loan forgiveness is very rare, so if you qualify for one of these options, definitely take advantage.
Final thoughts on repaying your student loans
It’s not easy to pay off debt, but it’s much harder to live with the consequences of not doing so. Work hard and make the necessary sacrifices it takes to pay off your debts as soon as possible.
You don’t want to find yourself in a situation where you cannot meet your obligations. However, if there does come a time when you cannot pay your loans, contact your creditors immediately. Take advantage of the options available to you to help.
Your goal is not to avoid repayment; it’s to avoid default and get to debt-free with your credit score in tact.
8 Comments. Leave new
I’m a big fan of making tuition free for all post-secondary students. I’ve heard some counter arguments against it, but I really don’t think there would be a significant abuse. There’s no major talks of it in countries that do offer education for free.
One of the main arguments I’ve heard is that people don’t want their tax dollars paying for someone else’s education. Do you think student loans are just magically created? Tax dollars are already going to toward creating loans, even with the expectation people will pay them back.
I’m lucky I didn’t have student loans and I wish everyone had that opportunity.
I really agree with you. Especially now that the economy has evolved to the point where some post-secondary training is almost essential to secure a good paying job. It’s a public good that would give so much back to people and improve society as a whole.
I completely agree once we make education accessible to everyone. You are strengthening the Canadian economy. People can make more which means they don’t need to rely on government assistance. This also opens up the debate of a higher minimum wage.
Australia has HEX debt which is a pretty neat alternative as well. The government pays for your tuition up front. Once you enter the work force and start making over a certain amount of money, your debt automatically starts coming off your paycheck and going back to the government. To my acknowledgment this money is more or less interests free.
Could you share the links for the Canadian programs, especially the Loan Forbearance? Thx!
I feel shackled by paying $3k/month towards my student loans, but I can’t imagine what it feels like to not be able to make payments. I had a one month period after graduation where I thought I’d be missing payments since I still didn’t have a job!
Helping people manage their college costs and expectations beforehand is super important but difficult to do. It’s tough to ask a high school student to project their income after graduating college, but that’s what it takes! This problem will take a village to help solve, that’s for sure. A really, really big village.
Keeping fingers crossed for you. 3K is indeed a pretty serious number, but you’ll make it. Unfortunately tuition is way to expensive nowadays and not all graduates have the chance to secure a well paying job. Really tough.
Ful time emplotyement with a federal, state or local government agency, entity or organization, or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service, may qualify you for this program. A private not-for-profit employer that is not a tax-exempt organization can also qualify if they serve the public interest and have no affiliate with labor unions or partisan politics.
10 years is 120 months. Just FYI.