Your Options When You Can't Repay Student Loans

It can be scary to be unable to pay back your student loans, and the consequences of defaulting on loans can be severe. It’s important to understand your options if you ever reach that point. Let’s see what they are together.

Repayment Options Overview

Your loan servicer will contact you before your loan repayment period begins. You can select a repayment plan that fits your financial situation. If your financial circumstances change and you cannot pay your student loans, contacting your loan servicer or the U.S. Department of Education is a good idea. You have many options if you have government-based student loans, and they will work with you.

These options include:

• Delaying payments on your loans through forbearance or deferment programs
• Getting your loan canceled and eliminating all payments (rare)
• Discharging your loan through bankruptcy proceedings (rare)
• Getting on an income-sensitive or income-based repayment schedule
• Consolidating your loans into one loan

Each option depends on eligibility requirements, your loan servicer, past student loan payments, and your education loan amount. Private loan servicers may also have options for you. Contact them if you are struggling to pay.

Student Loan Deferments

Deferments allow you to stop making payments for a specific time if you can show that you qualify. You may be able to get a deferment if you show economic hardship, have returned to school, become unemployed, or are looking for a job.

Depending on your type of loan, the deferment lets you stop making payments on the principal while keeping interest from growing on the unpaid balance. You can only defer the loan principal for other types of loans that don’t quality. This means that interest on your loan will continue to increase while you are not making payments.

You can often defer your student loans if you meet one of the required conditions and are not currently in default. You may even qualify for a deferment when you default in a retroactive deferment.

Student Loan Forbearances

Loan forbearance happens when your loan holder allows you to stop making payments for a set time. Your interest will continue to grow during a forbearance, making your loan balance will be higher when you come out of the forbearance.

Forbearances are often more accessible than deferments because they are not linked to your student loan type. The laws and rules for student loan deferments and cancellations do not cover forbearance.

You may be able to get a forbearance for various reasons. These include poor health, unforeseen personal problems, or foreseeing that you will not be able to pay back your student loans within the period for repayment.

Loan forbearances are generally granted for up to one year at a time. You may be able to get a forbearance even if you have defaulted on your student loans.

Cancellation or Student Loan Forgiveness

Like a deferment, you will have to show that you fall into a specific situation to get a cancellation of your student loans. This can depend on the types of loans you have. For example, you may be eligible if you are a teacher, health professional, or government employee. You can also qualify if you have been paying under an income-driven repayment plan for a set period of years.

Cancellation does not always cover an entire loan. It’s possible you may only get a part of your loan canceled. The remaining loan balance is still your responsibility.

Conditions for Deferments or Cancellations of Student Loans

Certain conditions may allow you to defer or cancel your student loans. Some conditions may only qualify you for loan cancellation, deferment and cancellation, or only deferment.

It may be possible to defer or cancel student loans if the borrower:

• Has died
• Is suffering from a permanent total disability
• Is suffering from a temporary total disability
• Is enrolled in a rehabilitation program for a disability
• Is unemployed
• Has an economic hardship
• Is currently enrolled in school
• Enters uniformed service
• Is teaching or serving a needy population
• Is performing community service
• Is working in the healthcare field
• Is working in law enforcement
• Went to a trade school
• Was a victim of identity theft
• Left school but never got a refund

Other conditions may qualify as well.

Student Loan Extended Repayment Plans

If the abovementioned options are not suitable, you might want to consider various repayment options. The DOE will work with you and your financial situation. You should never have to pay for help with your student loans.

Do You Have a Federal or Private Student Loan?

If you have a school-issued loan, like a Perkins loan, you should ask your school about any available repayment options.

If you took out a loan from a private lender, such as a bank, you might have limited repayment options. Whatever the case, it is not wise to wait until your loans default before trying to figure out a solution. Some of your options may expire if you wait.

Be aware that the holder of your federal loan must allow you to change your repayment plan at least once a year. Lenders want you to repay your debt to them, and many are willing to work with you to make that happen. It never hurts to ask them for assistance.

Options discussed in this article are mostly limited to federal student loan repayment. If you are unsure what types of student loans you have, visit the National Student Loan System Website.

Standard Student Loan Repayment Terms

Although the monthly payments may be higher if you select a standard repayment plan, it’s still probably the best option if you can afford it. By paying more upfront, you will likely pay less in interest in the long run.

Under a standard loan repayment plan, monthly payments correspond to the loan amount. Using a standard repayment plan, you will make payments for 10 years.

Graduated Repayment Plan

A graduated student loan repayment plan increases your monthly payments as time goes by. Usually, your monthly payments will increase every two years. However, like a standard repayment plan, your loan must pay off your loan within 10 years.

If you choose a graduated repayment plan, you can expect it to cost more for your loan in the long run. You will pay more interest than you would under a standard repayment plan.

Income-Driven Repayment Plan

If you have had a tough time finding a well-paying job out of school, you may want to look into an income-contingent student loan repayment plan. This is sometimes called a”pay as you earn”plan. Borrowers can still enroll in IDR plans after July 1, 2024, though specific plan details may evolve.

Under this income-based repayment scheme, the amount of your monthly payments will vary as your income changes. Your annual income will determine the cost of your monthly payments. If you’re married and file a joint income tax return, you’ll have to use your joint income to determine the amount of your monthly payments under an income-based repayment plan.

Direct Federal Student Loans: Income-Sensitive Repayment Plans

Most direct student loans from federal student aid are eligible for income-based repayment plans, excluding PLUS loans. Your annual payment will vary based on your income, but it will never exceed 20% of your discretionary income.

You must have an FFEL loan or a”direct loan”to get an income-based repayment plan. To calculate discretionary income, use your annual gross income minus the amount based on the poverty level for your household size.

If you have a very low income, your income-based repayment plan may not require you to make monthly payments. Otherwise, your payments may be less than the monthly interest your loans accumulate. Although this may seem like a big break, it could hurt you in the long run. You may end up paying much more on your loans than you would otherwise due to this accumulating interest.

You must pay off your student loans within 25 years, not counting periods of deferment or forbearance, on an income-based student loan repayment plan. For loans forgiven through 2025, there is no federal income tax owed on the forgiven amount.

Non-Direct Federal Student Loans: Income-Based Repayment Plans

If you received a federal student loan, such as a Stafford loan, PLUS, or HEAL loan, from a financial institution, chances are they offer an income-based repayment plan.

As these loans are not from the government, there may not be any provisions in the agreements for loan forgiveness after 25 years. In addition, the payments may not be as low as a direct federal student loan.

Student Consolidation Loans and Refinancing

Loan consolidation may allow you to lower your monthly payments by:

• Grouping several loans together
• Extending the repayment period

Because you are extending your repayment period, you will likely pay more interest throughout repaying your loans. However, consolidation may also allow you to secure a lower interest rate on your student loans, so it may be worth investigating.

There are several reasons you may want to consolidate and refinance your loans. These reasons include:

• The monthly payments on your loans are too high, but your income is not low enough to qualify you for postponement or deferment
• There are low interest rates available, and you want to get a lower interest rate for your student loans
• You are currently in default on your student loans, and you want to qualify for new loans or grants so you can continue your education
• Not all your loans are through a direct loan program from the government, and you want to get on an income-contingent repayment plan that your lender does not provide
• You want to consolidate your loans into one monthly payment

Several different lenders, including the federal government, offer loan consolidation. Your student loan repayment options will vary depending on the consolidation lender you select. Keep in mind that you can only consolidate your student loans once, except for a few types of loans.

As tuition and student loans have increased, consolidating loans has become more popular. Because of this, many lenders have aggressively marketed loan consolidation. You should compare different loan consolidation programs to find the best deal.

What Happens After a Student Loan Default?

When a student loan borrower fails to make a payment, they become”delinquent”the first day it’s late. If you remain delinquent for nine months, the student loan enters default.

Once in default, your loan balance plus interest is due immediately. You may be liable for collection fees and the commission of any debt collection agency charges. Your delinquent status gets recorded on your credit report and will impact your credit score. The U.S. Department of Education (DOE) has several collection options available, including:

• Seizing your tax refunds
• Garnishing your wages
• Seizing federal benefits such as Social Security retirement and disability benefits
• Revoking professional licenses
• Bringing lawsuits to collect from assets such as bank accounts, valuable property, and real property

If you’re in danger of defaulting on a federal loan, it’s a good idea to try to negotiate.

Seizing Tax Refunds for Student Loan Debt

The Department of Education may seize your tax refund and apply it to defaulted student debt. Borrowers may appeal, but effective defenses are limited.

You may be able to prevent the seizure of your tax refund if the loan:

• Has been repaid
• Is being repaid under a negotiated repayment plan
• Belongs to someone else
• Fits into some other limited circumstances

The Department of Education may seek to garnish your wages. They can garnish up to 15% of your disposable income. The defenses to garnishment are very like those against the seizure of a tax refund.

Fresh Start Program if You’re in Default

The Fresh Start Program offers borrowers in default a chance to bring their accounts up to date. If approved, the DOE removes your loans from default status and assigns them to a new loan servicer. Your default status clears, and the DOE removes the default from your credit history.

After completing your loan transfer, you will apply for a new repayment plan, such as an income-driven one, depending on your financial situation. The Fresh Start website offers a loan simulator to estimate your potential payments.

As of August 2025, the Fresh Start program, which began after the payment pause ended, ended in September 2024. Borrowers who did not act before the deadline may no longer be eligible for its benefits.

Student Loan Bankruptcy

Under the current law, student loan discharge through bankruptcy filing is difficult. Most bankruptcy discharges are only available for unsecured debts, such as medical bills, personal loans, and credit card debts. Student loan debts without  undue hardship and recent tax debt are generally not eligible for discharge.

To apply for student loan bankruptcy, you must initiate either Chapter 7 or Chapter 13 bankruptcy before filing an adversary proceeding. This is a separate lawsuit asking the bankruptcy judge to discharge your student loans. You can’t apply for a student loan discharge alone. You must have a bankruptcy case.

The bankruptcy court may discharge your student loans if you meet the undue hardship standard, sometimes called the Brunner test. You must have made good-faith efforts to pay your student loans and show that continued payment will prevent you from maintaining a minimal standard of living. Proof that that this hardship will continue for a significant part of your repayment period is also required.

The bankruptcy court will consider many factors, such as age, health condition, income, living expenses, dependents, and the length of time your income problems will likely persist. Each case is judged on its own merits.

If you think you have no better option available, discuss your situation with a bankruptcy attorney . They’ll help you determine if you qualify for Chapter 7 bankruptcy, or if Chapter 13 is a better option for debt relief. An attorney can help you file bankruptcy and seek a student loan discharge if feasible.

Find Out More About Student Loan Relief

Many graduates with student loans struggle to keep up with their payments. If things feel like they’re getting out of control, remember that there other options for paying back student loans. A good way to manage them is to speak with a local education law attorney and/or a local bankruptcy attorney, who can tell you about your options based on your specific situation.