If your student loan payments seem overwhelming, you should know that you’re not alone. Americans are shouldering a growing student debt burden; In fact, US borrowers owe a combined $1.7 trillion in student loan debt, according to the Federal Reserve .
For federal student loans, if a borrower fails to make payments on a loan for more than 270 days, the loan will go into default. Having trouble paying off student debt is not uncommon. According to the latest figures as of the publication date of this article, 9.7% of the borrowers who started repaying federal student loans in 2017 defaulted within the next three years.
Given the tough job market and rising cost of living in urban areas, it’s completely understandable that paying off your student loans is a challenge. But if you just stop making payments, there can be serious, long-lasting consequences. Ignoring your debt can seem like the easy solution, but in the long run, it actually makes things worse. There are ways to deal with your student loan debt in a constructive way—you’re never out of options.
Do Student Loans Ever Go Away?
The short answer is no, if you’re not part of the Public Service Loan Forgiveness Program . Unlike other forms of debt, such as home and auto loans, student loans generally cannot be discharged during bankruptcy. Borrowers are still required to repay student loans even if they don’t graduate or are struggling to find a job in your field.
Ignoring your student loans will likely result in an increasing balance. In addition to interest that accrues over time, failing to repay a student loan on time can result in additional fees if your debt gets moved into collections. Because on-time payments account for a portion of a borrower’s credit score, failing to make payments can negatively impact a person’s credit score. Having a credit score on the low end of the spectrum can impact your ability to get a mortgage, car loan, credit card, or apartment lease.
If you default on federal student loans, the government can take your tax refund or up to 15% of your wages. You can also be sued, though this is more common with private loans.
Is There a Student Loan Statute of Limitations?
There is no statute of limitations for federal student loans. That means you can be sued at any point for not paying your loans, as long as you’re alive.
There is a statute of limitations for private student loans, which is set by individual states and generally ranges from three to 10 years. But even this limit just means the lender can’t sue you anymore—it doesn’t mean the loan goes away or they stop trying to collect what is owed.
Is Getting out Paying Student Loans Possible?
Are there ways to get out of paying student loans? There are some temporary solutions that allow borrowers to temporarily stop making payments on their student loans.
Relief for Federal Student Loans
For federal student loans, you can temporarily pause payments by requesting a deferment or forbearance. You might qualify if you’re still in school at least part-time, unable to find a full-time job, facing high medical expenses, or dealing with another financial hardship. The type of loan held by the borrower will determine whether they can apply for a deferment or forbearance.
Federal student loans can only be deferred for up to three years. There are two types of forbearance; general and mandatory. Borrowers facing financial difficulties can request a general forbearance, and their loan servicer determines whether or not they qualify. General forbearance is awarded in 12 month increments, and can be extended for a total of three years.
Loan servicers are required to award qualifying borrowers a mandatory forbearance. Qualifications include participating in AmeriCorps, National Guard duty, or medical or dental residency. The Federal Student Aid website has a full list of criteria for mandatory forbearance. Mandatory forbearances are also granted in 12 month increments, but can be extended so long as the borrower still meets the criteria to qualify for mandatory forbearance.
Borrowers who enroll in an income-based repayment plan, can qualify to have their loan balance forgiven after a certain amount of time, the amount of time depends on the plan. (Keep in mind, you’d still have to pay taxes on the amount forgiven.)
In rare cases, certain loans can be cancelled or discharged , if your school closes while you’re enrolled or you are permanently disabled. For obvious reasons, these aren’t options to count on, so you can assume your loans will be sticking with you.
Temporary Relief for Private Student Loans
Private lenders sometimes offer relief like forbearance when you’re dealing with financial hardship, but they aren’t required to. If you have a private student loan, check with your lender directly to see what temporary relief programs or policies they may have.
Because student loans don’t disappear, it’s important to make them manageable. Borrowers with federal student loans may be able to qualify for deferment, forbearance, or income-based repayment options which can provide some temporary relief or help make monthly payments more manageable. Options available for borrowers facing financial hardships with private student loans vary by lender.
For some borrowers, student loan refinancing can be a one way to lower interest rates, reduce monthly payments, and combine all your loans into a single monthly payment. Reducing monthly payments by extending the life of the loan may result in more interest over the life of the loan.
It’s also possible to refinance both federal or private loans, or a combination of the two. Note that refinancing federal loans eliminates them from federal protections, including relief options like deferment and forbearance, so this won’t be a suitable option for everyone.
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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.