What to do if you can’t afford your private student loans?


 If you’re having trouble paying your student loans, you’re not alone. More students are taking out more in loans than ever, and it can be hard to make those payments once you graduate — especially if you have other debt and financial obligations.

In 2018’s graduating class, 69% of students took out loans, and those who did take out loans left school with an average of $29,800 in debt. For a lot of those graduates, when their private student loan payments are too high, they end up missing payments and potentially defaulting.

A report on student loan default from the Urban Institute predicted that 40% of borrowers will default by 2023. The odds of default vary based on the background and amount of other debt carried. They found that 32% of those who borrowed less than $5,000 defaulted within the first four years, and 15% of borrowers with more than $35,000 defaulted in the same timeframe.

That’s still a good percentage of people who can’t pay their student loans, and if you’re in the same position, make sure you understand your student loans, both federal and private.

For the purposes of this article, we’ll look at what can happen if you don’t pay private student loans. Then you can start to weigh some options if you can’t afford your student loan payments.

What happens if you don’t pay your private student loans?

Each private student loan lender will likely be a little different. But generally, missing a student loan payment can put your loan into delinquency, and may incur late fees and/or penalties.

In addition, depending on the loan, interest can accrue on those penalties and on the unpaid principal loan amount, which then can get added to how much you owe. If you miss too many consecutive payments, you may be at risk of defaulting on the loan.

Each private lender has their own terms that trigger student loan default. That typically means multiple missed payments. Even if you declare bankruptcy, it’s unlikely your student loan debt goes away. It’s important to check the terms of your private student loans since they vary by lender.

Once a student loan goes into delinquency or default, it will likely affect your credit score. That can possibly affect your ability to take out loans in the future or achieve other financial goals like buying a house.

In addition, once a private student loan goes into default, the lender can send it to collections.

If you can’t pay your private student loans, you could ultimately face a judgment that could result in a garnishment of your wages (there are, however, some protections and rights you have when it comes to debt collection on student loans).

Ideally, if your student loan payments are too high, you might consider other options before risking delinquency or default.

What if you can’t pay your federal student loans?

The first thing you might consider is separating your federal and private student loans. Federal loans often come with more protections and options for repayment plans.

For example, federal loans typically offer income-driven repayment plans based on your income and family size, relative to the amount of student debt owed. There are also required forbearance and deferment clauses on federal loans available to qualified borrowers.

Even though federal student loans (both subsidized and unsubsidized) are government-backed and originated by the U.S. Department of Education, they’re administered by a student loan servicer, which is a private company in charge of the loan. This does not make these loans “private” student loans.

It means you might be making your payments to a private loan company, but it’s still a federal student loan and still comes with federal student loan protections.

Options if you can’t pay your private student loans

If your private student loan payments are too high, however, then the options are slightly different because every private loan lender sets its own terms and conditions. While there are fewer options if you can’t make your private student loan payments, there are still some things you can consider.

1. Talking to your lender

If your private student loan payments are too high, then it might be worth talking to your lender. You could start by getting a copy of your promissory note so that you know all the terms and conditions of your specific loan.

Each private lender sets out its own repayment and deferment options, so your loan may differ from your friends’ loans.

Lenders, however, want to get paid, and it’s not in their interest for you to default. Once you have the terms of your loan in hand, then you can try talking to your private lender about potential alternative student loan repayment plans to see if they’ll work with you on what you can afford or even if you might be able to put your loan payments on hold if you need to.

2. Deferment and forbearance options

In certain circumstances, deferment and forbearance options are available to temporarily put payments for federal loans on hold. However, for private student loans, forbearance and deferment options are not required, but any specifics will be laid out by your lender.

Private lenders may offer forbearance and/or deferment in certain circumstances, such as returning to grad school or entering active military duty. If you can’t pay your private student loans, then you may want to see if your lender offers these options.

It’s important to know, though, that in most cases, interest continues to accrue and compound during forbearance or deferment on private student loans. That means the interest on the amount you owe builds up and gets added to the loan principal (which then accrues its own interest), and could end up costing you more in the long run.

3. Making a student loan repayment budget

This may sound obvious, but it can be important to create a plan and budget for repaying your student loans. Cutting back on some expenses or looking for additional income to allocate towards student loan payments could pay off in the long run.

Because student loan interest accrues and compounds over time, every little bit paid off now can save more money later.

In addition, if a borrower makes as many payments as possible on time, it could save late fees or additional penalties.

There are a few principles for how to tackle a student loan payment.

You could start with the loans that have the smallest balances and build momentum (Snowball Method), or start with the highest interest loans to save yourself the most money (Avalanche Method).

You can also benefit from prepaying more than the minimum monthly payment. If you allocate additional payment towards your loan principal, then you won’t accrue interest on that principal you paid down, and you could save yourself money.

4. Refinancing your student loans

If your private student loan payments are too high, one way to potentially lower your monthly payments could be to refinance your student loans by extending your term.

If you need lower monthly payments right away, extending your loan term is one way to accomplish this (keeping in mind that a longer-term means you’ll likely pay more in interest over the life of the loan).

Once you’re on a more solid financial footing, refinancing could qualify you for a lower interest rate, which could save you money in the long run (since interest adds up and compounds over time).

Lowering your student loan payments

If you’re struggling to make your student loan payments, then refinancing your private student loans with a longer-term could lower your monthly payments — which could free up money you may need for bills and other necessities.

If your credit score or financial outlook has improved since you first took out student loans, however, then you might be able to qualify for a new loan with better terms and a lower interest rate. 

Consolidating federal loans with private loans, even at a new interest rate, however, does turn the federal loans into private loans. That means you would lose access to federal benefits, such as deferment, forbearance, or income-driven repayment plans.

Refinancing just a private loan creates a new private loan with new terms, and you can keep your federal loans separate if you choose.

When people think of California, visions of Hollywood or driving down the 101 in a plush convertible can easily come to mind. Pretty dreamy right? There is a lot to love about California, but it also has its faults, as in — most obviously — its history of earthquakes.

But all puns aside, the gorgeous beaches, moderate weather, and leading-edge tech opportunities come at a price. California is the second most expensive state to live in, which doesn’t always feel so dreamy. With such a high cost of living, it can be challenging to keep debt from piling up, with student loan debt being no exception.

Average student loan debt in California

If you have your heart set on attending school in good old Cali, you’re possibly wondering what the average student loan debt in California is. Well, in 2017, 50% of California college attendees had student loan debt, and on average owed $22,785.

When it comes to student loan default rates, as of 2015 (the most recent federal data available) California has a default rate of 10.2% with over 41,000 loan borrowers in default. Their score isn’t the lowest, but it isn’t the highest either. States like Nevada, West Virginia, and New Mexico all have rates of over 15%. Additionally, the 10 California-based colleges with the highest student loan default rates were all technical, community, or cosmetology schools.

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California student loans

If your goal is to attend school in California and you’re looking at ways to finance your education, you have options. And both federal and private student loans may be worth considering when researching how to pay for your college degree.

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Federal student loans

Federal student loans

Federal student loans are all provided by the U.S. Department of Education’s William D. Ford Federal Direct Loan (Direct Loan) Program. If you take out a federal loan, the U.S. Department of Education is your lender.

To see which type of loan you may qualify for, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA®) form to apply for financial aid for college or grad school. You can review your state’s deadline and the federal FAFSA deadline here.

You should also review the deadlines for each college you are considering, as each college may consider the date that they receive your FAFSA form or the date your FAFSA form is processed, as their final deadline. FAFSA will then offer you a financial aid package, dependent on your college, that may include grants, work-study opportunities, and federal student loan options. It is important to note that not every student will qualify to receive federal aid.

There are four types of direct loans available:

Direct Subsidized Loans: For eligible undergraduate students who demonstrate financial need these loans help cover the costs of higher education at a college or career school. The federal government pays the interest on Direct Subsidized Loans while a student is in school at least half-time, and interest starts accruing on these loans only after a six-month grace period once students graduate, or if they drop below half-time enrollment.

Direct Unsubsidized Loans: Eligible undergraduate, graduate, and professional students may qualify for these loans. Eligibility is not based on financial need. Interest on these loans begins accruing immediately after funds are disbursed.

Direct PLUS Loans: These loans are for graduate or professional students, and parents of dependent undergraduate students who need help paying for education expenses not covered by other financial aid. Eligibility for this loan is not based on financial need but requires a credit check.

Direct Consolidation Loans: This type of federal loan combines all of your eligible federal student loans into a single loan, with one loan payment. Students generally use this loan if they have taken out multiple federal loans and want to combine them into one loan for repayment. The interest rate on these loans is the weighted average of the interest rates on all of the loans that a student is consolidating, rounded to the nearest one-eighth of 1%.

NOTE: All federal student loans have fixed interest rates, and generally they have lower interest rates than private loans.

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Private student loans

Private loans are funded by private organizations such as banks, online lenders, credit unions, some schools, and state-based or state-affiliated organizations. Federal student loans have interest rates that are regulated by Congress. Private lenders follow a different set of regulations, so their interest rates can vary widely.

Private lenders may (but don’t always) require you to make payments on your loans while you are still in school, whereas you don’t have to start paying back your federal loans until after you graduate, leave school, or change your enrollment status to less than half-time. Their rates will usually differ too. Private loans have variable or fixed interest rates which may be higher or lower than federal loan interest rates, which are always fixed.

Unlike federal loans which can only be applied for within certain deadlines (once a year, and states have their own deadlines), private loans can be applied for on an as-needed basis. Even if you suspect you may need to take out a private loan, it’s still a best practice to submit your FAFSA before applying to see what federal aid you may qualify for first.

If you’ve missed the FAFSA deadline and you’re struggling to pay for school throughout the year, private loans can potentially help you make your education payments  — as long as you have enough lead time for your loan to process and for your lender to send money to your school.

For more information on private loans, you can check out our article: Private student loans 101

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Scholarships & grants

Who doesn’t love a gift? You may sometimes hear grants and scholarships referred to as “gift aid.” That’s because while grants or scholarships may have certain academic or other requirements to keep them, you usually don’t have to pay them back like you would with a loan.

There are a few instances where you may have to pay back grant money, but typically only if certain requirements aren’t met. Generally, grants are need-based and scholarships are awarded based on merit.

There is no one-size-fits-all grant or scholarship amount or requirements, and both scholarships and grants can come from a variety of entities (including private organizations and federal or state governments).

Some scholarships or grants can be for a small amount that may help you pay for your books or research supplies, but others can cover the entire cost of your education. Who knew parking passes could be so expensive?

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California scholarships & grants

It may be your lucky day! There are dedicated California college grants and California college scholarships available for residents of the Golden State. Here are just a few of the many options available for California residents.

Cal Grant

Cal Grants for eligible students provide aid to undergraduates, vocational training students, and teacher certification students. To complete a Cal Grant application, submit your FAFSA® or CA Dream Act Application, and then register your certified GPA. Here’s how to apply.

Middle-Class Scholarship

The Middle-Class Scholarship is for eligible undergraduates, vocational training students, and teacher certification students with family assets up to $171,000.

California National Guard Education Assistance Award Program

Active members in the California National Guard, State Military Reserve, or Naval Militia may be eligible for this award program.

Critical Care Scholarship Program

The Critical Care Scholarship Program is for eligible California residents pursuing a degree in healthcare or nursing and offers an opportunity to apply for financial assistance through an online essay contest.

Good Tidings Community Service Scholarship

High school seniors and residents of select California counties who have shown a commitment to extraordinary community service projects may apply for this scholarship.

Joel Garcia Memorial Scholarship

This scholarship is awarded annually to qualified Latino students who are planning to pursue a career in journalism.

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California student loan repayment & forgiveness programs

If you’ve taken out student loans to attend a school in California, it is never too early to start thinking about your repayment plan. And guess what? You have quite a few repayment options at your disposal.

Take a deep breath — you’ll have time to pay off your loans once you leave school. The standard student loan repayment term is 10 years, but allowances are made for eligible loan borrowers who need more time to pay off their loans for up to 25 years.

Federal student loan interest rates vary based on what year you receive the loan, and they change annually in July. Between July 1, 2018, and July 1, 2019, interest rates for federal student loans ranged from 5% to 7.6%, depending on the type of loan.

For private loans, terms and conditions such as interest rates are set by the lender and vary due to many factors. Federal student loans typically offer the lowest interest rates and more flexible repayment options as compared to private student loans.

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Federal student loan repayment options

Just like there are several types of loans to explore, there are also different kinds of repayment plans. You can learn more about your repayment options for federal student loans here,  but the following high-level summaries can give you an idea of which repayment plan may work for you.

Standard Repayment plan

Most borrowers are eligible for this plan and may often pay less over time than with other plans because the loan term is shorter (typically, less interest accrues over shorter loan terms than longer ones if payments are made in full and on-time). There is a 10-year repayment period with this plan.

Graduated Repayment plan

Most borrowers are eligible for this plan, which allows them to pay their loans off over a longer period than the Standard Repayment Plan. Payments start relatively low, then increase over time (usually every two years). 

Extended Repayment Plan

To qualify for this plan, there are income thresholds for certain loan types to qualify, and you won’t qualify for Public Service Loan Forgiveness (PSLF) if you choose this loan. Monthly payments are typically lower than under the 10-year Standard Plan or the Graduated Repayment Plan, and borrowers may have a longer period to pay them off (and therefore make more interest payments).

Revised Pay As You Earn (REPAYE)

Direct Loan borrowers (and all Consolidation Loan borrowers) with eligible loan types may be able to choose this plan. Monthly payments are 10% of discretionary income, and any remaining loan balance will be forgiven after 20 years (for undergraduate studies) or 25 years (for graduate or professional studies).

Pay As You Earn (PAYE)

To qualify for this plan, borrowers must have a higher debt relative to their discretionary income. Payments for this plan are capped at 10% of discretionary income (and never more than what would be paid on the Standard Repayment Plan), and any remaining balance will be forgiven after 20 years.

Income-Based Repayment (IBR)

IBR is designed for borrowers who have a high debt relative to their income in order to qualify. Monthly payments will not usually be higher than the 10-year Standard Plan amount. Generally, however, borrowers may pay more over time than under the Standard Plan.

Income-Contingent Repayment (ICR)

Direct Loan borrowers with an eligible loan type may want to consider ICR. This plan is different from IBR because there is no financial hardship requirement. But, it may cost more over time when compared to the 10-year Standard Repayment Plan, and any remaining balance will be forgiven after 25 years.

Income-Sensitive Repayment

Borrowers can expect to pay more over time than under the 10-year Standard Plan. Monthly payments are based on annual income, but loans will be paid in full within 15 years. This repayment plan is only available for FFEL Program loans, which are not eligible for PSLF.

Still not sure which payment plan is right for you?

For more information on repayment plans, check out our student loan repayment options article to help add some clarity.

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Student loan refinancing

Another option to potentially help accelerate student loan repayment is to refinance your student loans with a private lender. Some private lenders will let you consolidate and refinance both your federal and private student loans into one loan and interest rate.

Consolidating your loans (aka combining them) under one lender gives you the opportunity to refinance your loan and get a new term and interest rate. If you have an improved financial profile compared to when you took out your original loan, you may be able to lower your interest rate when you refinance — or even shorten your term to pay off your loan more quickly!

But, it is important to remember that if you refinance federal student loans with a private lender, you will lose access to federal programs such as the income-driven repayment plans mentioned above, as well as student loan forgiveness and forbearance options.

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Student loan forgiveness

At first glance, student loan forgiveness looks appealing. But it may not be as easily attainable as one might think. For example, 98% of applicants who applied to the Public Service Loan Forgiveness (PSLF) Program were denied due to issues such as not meeting the program requirements or mistakes made on their forms.

That being said, there are state-specific and federal Public Service Loan Forgiveness programs that certain student loan borrowers may be eligible for.

Before you review your options, it’s important to know that the terms forgiveness, cancellation, and discharge essentially mean the same thing when it comes to federal student loans, but are applied in different scenarios. For example, if you are no longer required to make loan payments due to your job, that could fall under forgiveness or cancellation.

Or, if the school you received your loans at closed before you graduated, this situation would generally be called a discharge.

Even if you don’t complete your education, can’t find a job, or are unhappy with the quality of your education, you must repay your loans. But there are circumstances that may lead to federal student loans being forgiven, canceled, or discharged. Here are some of those options:

Public Service Loan Forgiveness (PSLF)

The PSLF Program may forgive the remaining balance on eligible Direct Loans after making 120 qualify monthly payments under a repayment plan (and working with a qualifying employer).

Teacher Loan Forgiveness

Those who teach full-time for five complete and consecutive academic years in a low-income school or educational service agency (amongst other qualifications) may be eligible for forgiveness of up to $17,500 on select federal loans.

Perkins Loan Cancellation

Cancellation for this specific loan is based on eligible employment or eligible volunteer service and the length of time applicants were in such a position, among other factors.

Total and Permanent Disability Discharge

Qualification may relieve eligible borrowers from repaying a qualifying Direct Loan, a Federal Family Education Loan (FFEL) Program loan, a Federal Perkins Loan or to complete a TEACH Grant service obligation.

Death Discharge

Due to the death of the borrower or of the student on whose behalf a PLUS loan was taken out, federal student loans may be discharged.

Bankruptcy Discharge

Certain eligible borrowers may have federal student loans discharged if they file a separate action during bankruptcy, known as an “adversary proceeding.”

Closed School Discharge

Borrowers who were unable to complete an academic program because their school closed might be eligible for a discharge of Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans.

False Certification of Student Eligibility or Unauthorized Signature/Unauthorized Payment Discharge

Due to a variety of circumstances, borrowers may be eligible to discharge Direct Loans or FFEL Program loans due to issues such as identity theft or mistakes made by a school.

Unpaid Refund Discharge

Certain borrowers may be eligible for partial discharge of Direct Loans or FFEL Program loans if they withdrew from school, but the portion of a loan that the school was required to return to the borrower wasn’t returned.

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California specific student loan forgiveness programs

Federal loan forgiveness programs are a logical place to start, but it can be smart to also consider other student loan forgiveness programs, too. There are forgiveness programs tailored to loan borrowers who live in certain locations or have an in-demand and service-based vocation.

California Bachelor of Science Nursing Loan Repayment (BSNLRP)

Recipients of the California Bachelor of Science Nursing Loan Repayment Program may receive up to $10,000, contingent on a one-year service obligation practicing direct patient care at a qualified facility in California.

California Dental Association (CDA) Foundation Student Loan Repayment Grant

To help offset some of the financial burdens of dental school, the CDA Foundation awards grants to select a recent dental school/specialty graduate.

California Mental Health Loan Assumption Program (MHLAP)

A recipient may receive up to $10,000 to repay loans in exchange for a 12-month service obligation in a hard-to-fill or retained position. Please note that this program will not have an application cycle for 2018-2019.

California State Loan Repayment Program (SLRP)

The California State Loan Repayment Program assists with the repayment of qualified educational loans for eligible primary health care professionals. A two-year full-time or four-year half-time initial service commitment is required to be eligible.

Steven M. Thompson Physician Corps Loan Repayment Program (STLRP)

Recently licensed physicians and surgeons practicing in Health Professional Shortage Areas in California may qualify to be granted up to $105,000 in educational loans in exchange for full-time service for a minimum of three years.


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