deferment

What Really Happens When You Don't Pay Your Student Loans

Toni Husbands — Thu, 18 Jan 2018 09:30:10 +0000

Student loan figures are staggering, and as the amount borrowed rises, so too do defaults. Failing to pay your student loan can cause serious fallout. Unlike other types of debt, student loans cannot be discharged during bankruptcy. Defaulting is nothing to be taken lightly.

According to Student Loan Hero, college students across the country are graduating with an average $37,172 in student loan debt. And overall, Americans owe around $1.48 trillion in student loans. Unfortunately, 11 percent of the 44 million student loan borrowers have a loan in default.

Student loan default defined

How long can you miss payments before you're classified as in default? The answer depends on who's done the lending.

The Federal Student Aid Office defines a default on a Direct Loan or Federal Family Funded Educational Loan as failure to pay in more than 270 days (nine months).
For private student loans, the definition of a default is stricter. You're usually considered in default if you've missed payments for three months, but some lenders brand you in default after just one missed payment.

Your loan could also be automatically categorized as in default if you or your co-signer dies or files for bankruptcy, no matter whether you're making timely payments or not. (See also: 6 Questions to Ask Before Taking Out Student Loans)

What can happen if your student loan defaults?

Student loans are among the most dangerous debt available in our society today. I say dangerous because there are few options to extricate yourself from a student loan if you fall on hard times. Mind you, federally subsidized loans offer multiple options for forbearance or deferment, which is a plus. But some private loans only permit a 12-month reprieve over the life of the loan. (See also: 4 Things You Need to Know About Deferring Student Loans)

If you can't get a forbearance or still find yourself unable to pay after a deferment, and you end up in default, brace for some significant financial consequences.

Wage garnishment

Student loan collection agencies can legally garnish your wages without a lawsuit. And they can take not only the amount that was initially due, but also penalties that can dramatically balloon your outstanding debt. Now you've also got to worry about overdrawing your bank account, exacerbating the financial stresses that caused you to stop paying your student loan in the first place.

Ineligibility for repayment assistance

Once you're in default, your options for help begin to narrow. You'll be ineligible for repayment assistance programs, meaning you can no longer apply for a deferment or forbearance. Gradual payment plans will be off limits.

Suspended license

In 22 states, including my home state of Illinois, professional licenses or your driver's license can be suspended if you fail to make student loan payments and the loan defaults. It will be much more difficult to earn an income without your professional certification or driver's license.

Credit issues

Obviously, not paying your student loans will implode your credit. Some basic financial transactions, from getting a cellphone plan to qualifying for a mortgage, will be more expensive and difficult. It could take months or years to rebuild your credit record.

Tax refunds seized

Your tax refund can be withheld to satisfy the outstanding balance on defaulted student loans. Federal benefits like Social Security can also be garnished.

You can't outrun your debt

Student loans don't just go away if you ignore them. They are difficult to discharge and federal government collection agencies have tremendous legal authority to take your funds if you neglect to keep your payments current.

Some Americans dodge their student loan obligations by relocating overseas. This is not a solution. Late fees, penalties, and interest continue to accrue, and if life changes and you ever decide to repatriate, the problems will only be worse.

Avoiding student loan default status

The best defense against student loan default is to be proactive. Contact your student loan servicer as soon as your payment troubles begin. Inquire about payment assistance options available to borrowers experiencing difficulty repaying. (See also: 8 Surprising Ways to Pay Off Your Student Loans)

Avoiding the problem with your student loan is the absolute worst plan of action. In general, student loan borrowers who are struggling with their payments should consider:

Requesting a forbearance or deferment.
Modifying the loan through The Direct Loan Consolidation program.
Refinancing to a nonprofit student loan program to lower the interest rate.
Revising the terms of the loan repayment.
Applying to discharge the student loan.

You do have options, but you've got to recognize the problem before you default. Take action early and you can head off a lot of the issues that can turn your inability to pay into a disaster with long-running consequences.

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This article is from Toni Husbands of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Valuable Rights You Might Lose When You Refinance Student Loans

Carrie Kirby — Thu, 15 Jun 2017 08:30:16 +0000

Fannie Mae, the nation's largest buyer and guarantor of mortgage loans, made news recently when it announced it would sweeten the deal for folks who want to refinance their mortgage to pay off student loan debt. Fannie Mae works with 1,800 lenders nationwide, so their rule change affects many homeowners. At the same time, newer financial companies that target millennials have been pushing student loan refinances as a way to save money and simplify life.

Fannie Mae's change will make it more affordable for graduates — or parents — to use home equity to pay off student loans by waiving the usual extra charge for taking out cash when you refinance a home. With mortgage interest rates still at historic lows, this could indeed be an opportunity for young adults with high-rate student loans to reduce their monthly payments. But proceed with caution.

If you have a private student loan, you probably have nothing to lose by converting it into a mortgage, personal loan, or other consolidation loan. But if you have a federal loan, you should be more cautious about making changes. You may not realize you'd be losing these protections and options when you give up your federal student loan.

1. Deferment

If you lose your job or are unable to find a job after graduation, you may qualify for a deferment, which halts your loan payments until you're in a better position to pay. With certain federal loans, the government will even pay the interest during deferment.

2. Forbearance

Similar to deferment, forbearance stops your payment obligation during a period of hardship. But unlike deferment, interest continues to accumulate.

3. Income-driven repayment plans

The government has rolled out a whole range of flexible payment options in recent years to help federal loan borrowers handle payments. These plans cap your monthly payment at a certain percentage of income (10 percent for the program known as Pay As You Earn and 15 percent for the Income-Contingent Repayment Plan). Another benefit of income-driven repayment plans that you would lose if you refinance: an end date. With PAYE, any balance you still owe after 20 years is forgiven; with ICE, loans are forgiven after 25 years. (See also: The Definitive Guide to Pay As You Earn)

4. A second chance if you default

The Federal Loan Rehabilitation Program is a one-time opportunity to get a default removed from your credit report by making a series of on-time payments. This can save you from wrecking your credit and being unable to buy a home later.

5. A central source for tracking loans

If all your student loans are federal, you'll be able to check up on all of them online through the National Student Loan Data System. If you refinance some but not all of your loans, you may end up having to keep track of them using multiple resources.

6. An unsecured loan

If you default on your student loan, you can lose your good credit, but not much else. If you default on your mortgage, you can lose your house. Let that reality sink in before you jump to refinance a home loan to pay off student loan debt.

7. A fixed interest rate

Of course, you could use a fixed-interest mortgage or a fixed-rate personal loan to pay off your federal student loan. But make sure that's what you're getting. If you use a variable rate loan to consolidate your debt, you could get hit with a big payment increase when rates inevitably go up. Federal loans, on the other hand, are guaranteed to be fixed rate.

8. Prepayment penalties

Federal loans don't charge a fee if you pay more than you owe on any given month, but some private lenders do — check on that before you commit to a refinance.

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Ways Student Loan Debt Can Affect Your Mortgage Application

Dan Rafter — Mon, 01 May 2017 08:30:13 +0000

You're ready to buy a home, but you're also paying back federal or private student loans. Will this make it more difficult to qualify for a mortgage?

Yes. But that doesn't mean qualifying for a mortgage while paying off student loans is impossible. Here's what you need to understand before starting the home buying process.

Debt-to-income ratio

When determining whether to approve you for a mortgage, lenders look at something called your debt-to-income ratio. This ratio shows how much of your gross monthly income — your income before taxes are taken out — your monthly debts eat up. If your debt-to-income ratio is too high, lenders won't approve you for a mortgage because they worry that you won't have enough money each month to handle this significant payment.

It's important to remember that mortgage lenders aren't as concerned about your total student loan debt as they are about the size of your monthly student loan payments. Lenders typically want all of your monthly debts, including your new mortgage payment, to equal no more than 43 percent of your gross monthly income. So, if your total debts — again, including that new mortgage payment — are at or under that percentage, your odds of qualifying for a mortgage loan are higher.

Your student loan payments are considered part of your monthly debt by lenders. For example, if you are paying $300 a month on your student loans, your lender will count that amount when calculating your debt-to-income ratio. If that $300 payment pushes your debt-to-income ratio past 43 percent, you might not be able to qualify for a mortgage.

A deferment won't help

Your student loan might be in deferment while you are applying for a mortgage, meaning you won't have to start making payments on it for six to 12 months. You might think this will help your debt-to-income ratio. After all, when you're applying for your mortgage, you aren't making those student loan payments.

But this isn't the case. Lenders will still count your student loan debt against you. That's because lenders know that long before you pay off your mortgage, you'll have to eventually start making those monthly student loan payments. Lenders don't want your mortgage payment to be affordable for 12 months but then suddenly turn into a burden once your student loan payments kick in. When your monthly debts suddenly rise, you might no longer be able to afford those mortgage payments that you were once able to handle.

Loans insured by the Federal Housing Administration, better known as FHA loans, were once an exception to this rule. In the past, student loan debt that was deferred for more than 12 months before a mortgage's closing was not counted in applicants' debt-to-income ratios. That changed last year, when the FHA amended its rules. Now, if the lender doesn't know what the monthly student loan payment amount will be when the deferment ends, it must count 2 percent of applicants' total student loan debt as part of their monthly debt.

So if you have $30,000 worth of student loan debt, under the new FHA rules, $600 will be added to your monthly debt levels, a figure that could push you over that 43 percent threshold.

Borrowers might actually help themselves by getting their student loans out of deferment. That's because their actual monthly payments could be far lower than 2 percent of their total student loan debt. If loans aren't in deferment, lenders will use the actual amount borrowers are paying each month on their student loans. (See also: 4 Things You Need to Know About Deferring Student Loans)

Missed student loan payments can hurt, too

Student loan debt doesn't just make reducing your debt-to-income ratio harder. It can also hurt your credit score, if you're not careful about making your payments on time.

In addition to debt-to-income ratios, lenders also rely on borrowers' FICO credit scores when determining who qualifies for a mortgage. Most lenders consider FICO scores of 740 or higher to be exceptionally strong. If your score is under 640, you'll struggle to qualify for a mortgage without paying high interest rates. If your score is under 620, you'll have a hard time qualifying for a mortgage at all.

Paying your bills late is one of the biggest reasons for a low credit score. Your student loan payment is officially considered late when it is 30 days or more past due. A single late payment can sink your credit score by 100 points or more. On the other hand, making your student loan payments on time every month will help your score, making you a more attractive borrower.

What you can do about student loan debt

What can you do if your student loan debt is hurting your debt-to-income ratio? You can always improve your ratio by earning more income each month, perhaps by taking on a second job. The more income you make without increasing your monthly debt, the lower your debt-to-income ratio will be. (See also: 15 Ways to Pay Back Student Loans Faster)

You might also try to consolidate your student loan payments into one loan with a lower monthly payment. That will reduce your overall monthly debt obligation, again improving your debt-to-income ratio.

Reducing other monthly debts — anything from trading in a car with a high monthly payment to paying off your credit cards — can help, too.

Then there's your choice of home. Buying a lower-priced home will result in a lower monthly mortgage payment. That will also reduce your future monthly debt and lower your debt-to-income ratio.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Things You Need to Know About Deferring Student Loans

Emily Guy Birken — Mon, 24 Apr 2017 08:30:13 +0000

Finding a way to pause your student loan payment can be a lifesaver when your financial life goes sideways. And trust me, this can happen to anyone at any time.

For me, the financial roller coaster ride started in June 2010. I was expecting our first child when my husband accepted a job in another state. I'd had to quit my teaching job when we moved, and I knew I was not going to be bringing in a paycheck for at least a year.

On top of this reduction in income, we bought a house in our new city, but it took nearly a year to sell our old house. We were stuck paying two mortgages for 11 months.

Between the two of us, my husband and I also had about $35,000 in outstanding federal student loan debt. To help get a better handle on our monthly budget, we decided to explore the option of deferment until our financial situation became more stable.

What is deferment?

Deferment allows you to pause the monthly payments on your federal student loans for a set period of time. For subsidized loans (these include Federal Perkins loans, Direct Subsidized loans, and Subsidized Federal Stafford loans), interest will not accrue on your loans while they are deferred. Unsubsidized loans, on the other hand, do accrue interest during the deferment period. If you have an unsubsidized loan that you plan to defer, you are allowed to pay the interest to keep it from being capitalized and added to your principal, but it is not a requirement for your deferment.

Deferment can make a huge difference in your bottom line, but it is not necessarily a cure-all to your financial problems. Here is what you need to know about deferring your student loans.

1. You might not be eligible for deferment

When we applied for a deferment of our student loan payments, our first big surprise was the discovery that we were not eligible. Borrowers are eligible for, and have the right to take, deferment in the following circumstances:

During at least half-time enrollment in postsecondary school;
During full-time enrollment in an approved graduate program;
During enrollment in an approved rehabilitation training program if you are disabled;
During a period of unemployment (limited to three years);
During active duty with the military, or within 13 months of when your active duty occurred;
During periods of economic hardship, as defined by federal regulations (also limited to three years).

My husband and I had assumed that going from two family members to three, from two paychecks to one, and from one mortgage to two, was sufficient enough to meet the economic hardship requirements. But federal regulations only allow for economic hardship deferment if you are either on public assistance, or the salary from your full-time employment is no more than 150 percent of the federal poverty guideline for your family size and state. His salary was too high to qualify.

Instead of deferment, we had to apply for a discretionary forbearance, which is the option available to borrowers who aren't eligible for a deferment.

What's the difference between deferment and forbearance?

The biggest difference between the two processes is that interest will accrue on your loans if they go into forbearance, even if your loans are subsidized. This means that unless you pay the interest during the forbearance period, the accrued interest will be capitalized (added to your principal).

In addition, deferments are granted in six-month increments, and you may keep applying for the next six-month increment of deferment as long as you qualify for it. Forbearance, on the other hand, is granted in 12-month increments, and you may only apply for it three times over the life of your loan.

In some situations, forbearance is mandatory, which means your loan servicer must offer forbearance to you. You can receive mandatory forbearance in any of the following situations:

During a medical or dental internship or residency program;
During economic hardship wherein your total monthly student loan payment is 20 percent or more of your total monthly gross income;
During service in a national service program, such as AmeriCorps;
You are a teacher who is eligible for teacher loan forgiveness;
You meet the eligibility requirements for the U.S. Department of Defense Student Loan Repayment Program;
You are a National Guard member who has been activated by a governor, but who is not eligible for a military deferment.

For student loan borrowers who do not meet any of the eligibility requirements for a mandatory forbearance, the only other option is applying for a discretionary forbearance. As the name implies, these are granted to borrowers at their lender's discretion, and generally borrowers apply for them because of financial hardship or illness.

In 2010, my husband and I were granted a discretionary financial hardship forbearance. My unemployment was nominally my choice — although I was actually unemployed because of my baby's insistence on a Virgo birthday that coincided with the beginning of the school year. If I had been unable to find full-time work, that would have potentially made us eligible for a deferment, rather than a discretionary forbearance.

2. Accrued interest can pack a mean punch

Unless you are lucky enough to be eligible to defer a subsidized loan, you are likely going to deal with accrued interest. The problem with accrued interest is that it's like the inverse of compound interest: The interest that you accrue on your student loan is capitalized, which generates even more interest.

For instance, between the two of us, my husband and I paid about 4.5 percent interest on our outstanding $35,000 student loan debt. By putting our loans into forbearance and not paying the accrued interest, we added over $1,600 to the $35,000 principal over 12 months.

Not only does capitalized interest increase the total amount you owe, but it can also potentially increase either your monthly payment or your repayment term.

3. Be prepared for paperwork

Neither deferment nor forbearance is an automatic process, even when they are "mandatory." You will always have to apply for either deferment or forbearance.

If you are applying for deferment, you will need to submit a request to your loan servicer. For deferments while you are enrolled in school at least half-time, you will need to contact your school's financial aid office as well as your loan servicer. This process is relatively simple, but you will need to go through it every six months to maintain your deferment.

For forbearance requests, the paperwork can be a little more onerous. Like deferment, you will need to submit your request to your loan servicer. In some cases, you will need to submit documentation to support your request, especially if you are requesting a discretionary forbearance. For instance, my husband and I were required to prove we were paying two mortgages at once to be granted our forbearance.

4. You must continue paying until your request is granted

After you have made your request for deferment or forbearance, you are required to continue making your monthly payments until your lender informs you that the request has been granted. Generally, this process takes about 10 business days, but it can take as many as 30.

Not making payments during this time can be serious. If you skip a month after submitting your request, and your request is denied, then your lender will consider you delinquent and you risk defaulting.

Both the paperwork and the necessity of continuing payments means that deferment and forbearance are options you have to plan ahead for. If you have a sudden financial downturn with no emergency fund, then you might be scrambling to request a deferment or forbearance, which may not be immediately granted.

Postponing your student loan payments doesn't erase them

Anyone can fall into an untenable financial situation. Your student loan servicer wants to work with you to help you stay afloat, but deferment and forbearance are not instantaneous processes nor are they a given. Putting your student loan payments on hold can help you get back on your feet financially, but you need to be prepared to handle the costs and be ready to get back to paying off your loans as soon as you can.

This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't Ignore These 4 Things Before Refinancing Your Student Loans

Kat Tretina — Thu, 18 Aug 2016 10:00:16 +0000

The average American with student loans has approximately $30,000 in debt, and makes a monthly payment of nearly $250. With interest rates sometimes reaching as high as 8%, many people struggle to bring down the balance. One popular solution is to refinance your loans, getting a lower interest rate or lower monthly payment with a different repayment term. For some people, this can be an excellent way to make progress on eliminating their debt. For others, it can be a short-term option that ends up causing more problems later on.

What Is Refinancing?

If you have federal or private student loan debt at a high interest rate, you can refinance your debt by taking out a new loan from a private lender to cover your entire current balance. You use that money to pay off your current debt, then make payments at a lower rate or different repayment term on the new loan.

If you have high-interest debt, refinancing can be a way to save you thousands over the course of your loans. When you are researching your options, it is important to look at offers from multiple lenders to ensure you are getting the most competitive interest rate and terms. LendEDU is a site that allows you to compare multiple offers in one place to get the most attractive loan that meets your needs.

4 Factors to Consider Before Refinancing

While refinancing student loans is a good decision for many people, there are factors you need to consider before you sign any agreement.

1. Interest Rates

When refinancing your debt, you will have the option of choosing a variable or fixed interest rate. Variable rates as low as 2% are available. However, they can change every year and can go as high as 8% to 10%. While fixed rates are often slightly higher than the initial variable interest rate, (usually they are about 3%), that interest rate is guaranteed not to increase over the course of your debt. If you have a small amount you can pay off quickly, a variable rate can make sense. However, if you need five to 10 years to pay off your loans, a fixed rate is more secure.

2. Deferment Options

If you have federal student loans, you have the ability to defer your debt if you run into economic hardship, such as if you lose your job. When you refinance with a private lender, you may end up losing that benefit since some companies do not offer deferment options. Make sure you understand their policies regarding economic hardships to ensure you're prepared for the worst-case scenario.

3. Loan Terms

When you refinance, your monthly payment can be cut in half. While that looks great on paper and it frees up money in your budget, you actually will end up paying much more over the length of your loan. To get the payment so low, your repayment term is extended from the standard 10 years to 20 or more. Over the duration of your loan, you can end up paying thousands more in interest. If you opt for an extended repayment term, assess your budget every year. As you move up the corporate ladder and get a better salary, you can increase your monthly payments and pay the debt off more quickly, saving yourself money.

4. Prepayment Penalties

Some private lenders have prepayment penalties, meaning you will owe a fee if you pay off your new loan early. In some cases, the fee may be small, but for some companies, the cost might be prohibitive. Make sure you check if there are any prepayment penalties ahead of time.

For some, refinancing student loans can be a great way to save money and pay down the debt faster. It can be a good strategy to get a lower interest rate or to get a more affordable monthly cost. By considering these four factors, you can ensure you are informed and empowered to make the best decision for you.

Have you refinanced student loans? Has it worked out for you?

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This article is from Kat Tretina of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Is Student Loan Forbearance, Anyway?

Dan Rafter — Tue, 02 Aug 2016 10:00:11 +0000

Struggling to make your student loan payments each month? You're in good company. According to a May story by CBS Moneywatch, members of the class of 2016 who took out student loans left college with an average of $37,173 in student loan debt. That's the highest average ever, and an increase of 6% from just one year earlier when such students graduated with an average debt of $35,051.

If you're struggling to pay your student loans each month, you can apply for either forbearance or deferment of your federal student loan payments. Deferment and forbearance both put a temporary halt on your payments. That sounds good, and it can provide you with relief. But both programs come with limitations and neither does anything to reduce your student loan debt.

Deferment and forbearance are worth investigating if your student loan payments have become a burden. But before you sign up for either program, here are the facts you need to know.

What Loans Qualify?

You can only apply for forbearance or deferment of federal student loans. Private loans are not eligible for these programs. If you are struggling to pay private student loans, you'll need to work directly with the lenders behind them.

Deferment

Deferment is the preferred option for a temporary halt on your payments. That's because in deferment, not only are your payments delayed, but the government might even pay the interest on your loan during this period if you are paying off Federal Perkins loans, direct subsidized loans, or subsidized Federal Stafford loans.

The government won't pay interest on any of your unsubsidized or PLUS student loans. But even if the government doesn't pay this interest, you do not have to make interest payments on your own during the deferment period. If you don't, though, the interest that accumulated during the deferment period will be added to your principal balance when you do begin making payments again.

Who Qualifies for Deferment?

You are eligible for deferment if you are unemployed or have been unable to find full-time employment. You might also qualify if you are suffering through an economic hardship, such as a reduction in your full-time income.

You Will Have to Apply for Your Deferment

To start the process, call the loan servicer to which you mail your loan payments, unless you need deferment for Perkins loans. In this case, call the school you were attending when you took out the loan. You'll most likely have to fill out a form detailing the reasons why you can't afford your monthly payment.

Forbearance

In forbearance, your federal student loan payments will again be temporarily halted, usually for up to 12 months. But in forbearance the government will not pay your interest during the temporary halt, no matter what type of federal loan you are paying off.

You can make the interest payments on your loans during forbearance or you can temporarily stop making these payments, too. Your interest will continue to accumulate during the forbearance period, though, and will be added to your principal balance when this halt ends. This means that the amount you owe after your forbearance period ends will be higher than when you started forbearance. This could make paying off your student loan debt even more challenging.

Who Qualifies for Forbearance

You can qualify for a discretionary forbearance because of illness or financial hardship. Again, you will have to start the process by contacting the lender to which you are sending your student loan payments each month.

Mandatory Forbearance

There are times when the federal government requires your lender to grant forbearance. This is known as mandatory forbearance. You might qualify for this if you are serving in a medical or dental internship or residency program, the total you owe in student loan payments is more than 20% of your total monthly gross income, you qualify for the U.S. Department of Defense's Student Loan Repayment System, or you are serving in a national service program.

You might also qualify for mandatory forbearance if qualify for the teacher loan forgiveness program or you are a member of the U.S. National Guard and have been called to duty but don't qualify for a military deferment.

Are you struggling to repay your student loans? Have you considered these options?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Should You Refinance Your Student Loan?

Dan Rafter — Wed, 09 Dec 2015 14:00:23 +0000

If you're struggling to pay back your student loan debt, you're far from alone. Earlier this year, Edvisors reported that members of the class of 2015 graduated from college owing an average of more than $35,000 in student loans. That's the highest this average has been.

You can refinance your existing student loans to ones with lower interest rates. This can help you manage this debt. If your interest rate is lower, your monthly payment will be lower, too. You'll also pay less over the life of your loans, thanks to the lower interest rates.

But there may be costs, too. If you're refinancing federal student loans into private loans — those originated by private banks and financial institutions — you'll lose the protections and programs that government-sponsored student loans provide. And that can end up hurting you in the long run, even if you lower the interest rates and monthly payments on these loans. Federal loans offer loan forgiveness, deferment, and income-based repayment protections. Most private student loans don't come with these protections.

Loan Forgiveness

If you are employed full-time in an eligible public service or non-profit job and you've made at least 120 on-time payments on your federal student loan, the government will forgive the remainder of your student-loan debt.

The Consumer Financial Protection Bureau says that one-fourth of U.S. workers can qualify either for loan forgiveness programs or income-based repayment plans. Consider whether you'd be eligible for loan forgiveness before refinancing with a private lender. (See also: 8 Ways to Get Student Loan Debt Forgiveness)

Deferment

Federal student loans also come with deferment options, which give you more time before you have to start paying them back.

You normally have six months after graduation before you have to start paying on your student-loan debt. But under federal programs, you can apply for additional deferments if you are unemployed, facing economic hardships, or are serving in the U.S. Armed Forces.

Some private loans do offer ways to pause payments as well, but be sure you understand all the terms before making the switch. (See also: 3 Private Lenders That Can Really Save Money On Your Student Loans)

Income-Based Repayment

The income-based repayment plan that the government offers for federal student loans can provide immediate relief if you are employed but not earning a high salary. If you are a new borrower on or after July 1 of 2014 who has no balance on a previous federal student loan, your loan payments will be capped at a maximum of 10 percent of what the government calls your discretionary income, the difference between your income and 150 percent of the poverty guideline for your family size and the state in which you live.

Those borrowers with especially low incomes might not have to make any student-loan payments at all.

If you make these lower payments for 25 years, and you still haven't paid off your student-loan debt, the government will forgive the remainder of what you owe.

For more information about these and other assistance programs – they are too complex to completely sum up in this story – visit the Department of Education. (See also: Which Student Loan Repayment Plan Saves You the Most?)

Refinancing

If you are interested in refinancing your federal student loans, you will have to follow certain steps.

As with any loan application, you'll need to prove that you can afford your new monthly payments, even though they'll be lower than your current ones. Usually that means providing lenders with proof of income as well as bank statements.

You'll also need a good credit score if you want to qualify for interest rates that are low enough to make refinancing worthwhile. Your credit score will be low if you've missed or been late on payments or if you have run up loads of credit-card debt. You'll struggle to qualify for a refinance if your credit score is under 640 on the FICO scale.

Here are some places to consider if you'd like to apply for a refinance.

LendKey: LendKey has no origination fees and their loans are funded by community lenders like credit unions and community banks.

SoFi: Loan terms are from five years to 20 years. SoFi offers additional resources and benefits.

CommonBond: Loan terms start at five years and go up to 20 years. They also allow a temporary pause in payments if you lose your job. In addition to student loans for grads, they also offer refinancing for parents with PLUS loans, and even loans for getting your MBA.

Earnest: Earnest allows a lot of flexibility for borrowers, even allowing them to change between fixed and variable rates at no charge. Earnest also looks at additional factors beyond the traditional credit scores and income — including education, employment history and other details to get a better picture of the borrower.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: