This post today deals with when you've found yourself off work due to an injury - without pay - and you're starting to realize you can't keep up with student loan payments. At this point, probably all your bills are going to be an issue, but student loans can be a big factor for working professionals. Here's Kat from Student Loan Hero weighing in with some advice!
The average college graduate who took out loans to pay for school graduates with $37,172 in student loan debt — and that’s just for a bachelor’s degree. It’s not uncommon for law school grads to walk away with more than $150,000 in student loans.
You might be able to comfortably manage your student loan payments on your regular salary, but a serious injury can throw your financial life into jeopardy. If a disability prevents you from working, you could quickly fall behind on your payments, causing you to become delinquent on your loans or enter default.
Missing payments can wreck your credit, hurting your chances of buying a home or getting approved for other loans later on. However, there are options to help you through a serious injury or illness while staying current on your loans.
Forbearance or deferment after an accident
After an injury, you may be able to postpone or delay your federal student loan payments by entering into forbearance or deferment.
You can defer your loan payments for up to three years. Depending on what kind of loans you have, you may not be responsible for interest that accrues during this period, either. You can qualify for deferment if you are unemployed or are facing an economic hardship.
With forbearance, you can postpone your payments on federal loans for up to 12 months if you are experiencing financial difficulties or high medical expenses. Keep in mind that interest will accrue regardless of the loan type.
To apply for forbearance or deferment on your federal loans, you can apply online. If you have private student loans, many lenders also offer similar deferment or forbearance options for borrowers who are unemployed or facing a medical emergency. However, it’s up to the individual lender if they wish to offer this benefit, and the terms will vary.
If you need to postpone your payments while you heal, contact your lender to discuss your situation and see if deferment or forbearance is an option.
Income-driven repayment plans
If you’re injured, have federal student loans, and your income has decreased, you may be eligible for an income-driven repayment (IDR) plan. There are four types of IDR programs:
- Income-Based Repayment
- Income-Contingent Repayment
- Pay as You Earn
- Revised Pay as You Earn
While each plan varies slightly, they are all based on the same idea: The government extends your repayment term and caps your monthly loan payments at a percentage of your discretionary income. If you still have a loan balance after 20-25 years of repayment, your remaining debt is forgiven.
Depending on your post-injury income and your family size, you may qualify for a payment as low as $0. With an IDR plan, you stay current on your loans while paying much less — or even nothing at all.
An IDR plan can be a short-term solution until you are recovered and can work again, or it can be a long-term option to make your loan payments more manageable. However, keep in mind that by extending your repayment term and lowering your monthly payments, you will likely pay more in interest over time.
Private loans are not eligible for income-driven repayment plans, but some private loan servicers offer alternative programs if you’re struggling to make your payments. You may be able to sign up for an interest-only payment plan through which you only make payments on the accrued interest every month. That can dramatically reduce your payments.
Not all lenders offer this option, but it’s worth contacting your loan servicer. Inform them about your injury and difficulty making payments, and see if there are other options.
Disability discharge of your student loans
If you have federal student loans and are permanently disabled because of an injury or disease, you may be eligible for Total Disability Discharge. Under this program, the government forgives the balance of your loans so you never have to make payments on them again.
You will, however, be expected to pay taxes on the forgiven amount — a potentially significant burden for someone who’s not able to work. To be eligible, you must apply online and submit certification from your physician that states you are totally and permanently disabled. Your doctor must also state that you are unable to work because of your health issues.
Alternatively, if you are currently receiving Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), you can submit documentation of your Social Security benefits.
If you have private loans, you’re not eligible for the federal Total Disability Discharge. However, a few private companies do offer loan forgiveness in some situations, including disability. To find out, contact your lender’s customer service department.
Managing your loans after an accident or injury
If you’ve been seriously injured, it’s important to take action right away to avoid becoming delinquent on your loans. By being proactive and reaching out to your lender about your options, you can give yourself the time you need to heal without stressing out about your loan payments.