student loan hardship

Student Loan Hardship: How to Use Financial Hardship to Lower Your Loan Payments

There is a growing problem in America. Student loans have gotten out of control, and more borrowers are suffering under student loan hardship.

It’s easy to see why. The student loan crisis is reaching a tipping point. People owe more in student loans than credit card debt.

There are 4.7 million borrowers in default of their student loans. You don’t need to be one of them. If you’re experiencing financial hardship, there are programs in place to be able to pay your loans without defaulting.

Keep reading to learn what you can do about your student loans when you’re experiencing financial hardship.

America’s Financial Problem

Between economic disparity and stagnant wages, it’s easy to see how we got to this point. In 2017, graduates left school with a degree and $37,000 in debt.

This amount of debt leaves recent graduates with a choice. Do they buy a home or do they pay off their student loans

They have little savings, have put off major life decisions like having children and getting married. They find that the weight of this burden is stressful.

It’s not just 20-somethings that struggle with student loans. People of all ages, even those in their sixties have reported having student loan hardship. That impacts their ability to save for retirement.

Repayment Options for Student Loan Hardship

There are options to repay your student loans if you’re experiencing financial hardship. It doesn’t need to be the end of the world. You just need to know your options.


You want to lower or temporarily stop your student loan payments when you’re dealing with financial hardship. You may be able to do that through forbearance. Your ability to apply will depend on your lender.

Those with a private student loan will have to check with their lender to see if this is a possibility. Federal student loans do offer forbearance as a temporary solution to financial hardship.  

If you see your student loan hardship as a temporary situation, you can apply for forbearance for two months. You won’t have to make payments during this time.

Forbearance is available for only 12 months out of the life of your loan. In a 20-year repayment plan, you want to use this option sparingly.

This could work for you if you’re in-between jobs and you know for sure that it’s a temporary situation. Under forbearance, you are responsible for the interest that accrues during the forbearance period, whether your loans are subsidized or not.


A deferment is similar to forbearance, but interest does not accrue on subsidized loans. With unsubsidized loans, the interest will accrue and that will be added onto the balance that is owed.

You can apply for an economic hardship deferment by contacting your lender. The deferment is good for up to three years. You’ll need to provide your lender with documentation to prove your financial hardship.

Both deferments are forbearance are short-term solutions to student loan hardship, ideally for six months or less.

Income-Based Repayment

Long-term solutions to student loan hardship can be used to lower your monthly payments. That could be enough to give you a little breathing room in your budget. These are called income-driven repayment plans or IDRs.

Income-based repayment (IBR) is one of the more popular options. Your repayment plan is 10-15% of your discretionary income. With this plan, you’ll go from a 20-year repayment plan to 25 years.

At the end of the 25 years, whatever the remaining balance left will be forgiven. Before you get too excited about that, know that the forgiven amount will be treated by the IRS as taxable income, leaving you with a huge tax bill that year.

Most federal loans are eligible for IBR. Your interest will accrue on unsubsidized loans, which can increase the balance of your loans over the repayment period.


Pay as you earn is similar to the IBR program, but there are more stringent requirements. You must have started borrowing on or after October 1, 2007, and you have borrowed through the Direct Loan program.

The main advantages are that your payments are capped at 10% of your discretionary income and interest can be limited.

PAYE may ask that come loans are consolidated before they’re approved. Under this program, your loans are forgiven after 20 years, instead of 25.

Employers Assist with Student Loans

Companies want to attract the best and brightest to work for them. They’re starting to recognize the stress that student loans have on their employees. That stress can impact how they do their jobs and impact productivity.

Employers are starting to offer student loan repayment as part of their benefits package. They’ll offer to make a monthly payment to student loans, while you make a monthly payment as well. That can save you a lot in payments.

As of right now, note that these payments are seen as taxable income by the IRS. While these payments can ease the burden of student loans, they can create another mess with the IRS.

There is a law pending in Congress that may allow these contributions to be tax-free. Contact your legislators to get your voice heard.

Help for Student Loan Hardship

Student loans have become a massive burden for Americans of all ages. With student loan debt skyrocketing to unprecedented levels, it has become more difficult for borrowers to repay their student loans.

You don’t need to default on your student loans. There are programs available if you’ve lost a job or have a student loan hardship. The best thing to do is to call your lender and work out a repayment plan that won’t be a massive burden on you.

Would you like more tips about handling debt under financial duress? Check out this article to learn the art of writing financial hardship letters.

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