What If Your Student Loan Payment Is Just Too Big?

Almost everyone starts off wanting to repay their student loans.  Not everyone gets there, though.  Some people succeed in getting a job, but just don’t make enough money to cover their entire monthly loan payment.  Some people get jobs that don’t pay much, but believe that if they pay their dues in a low level job, they will eventually make enough money to repay their entire loan.  Others find that the education they had such high hopes for didn’t actually open any doors, and they are stuck with big loan payments and no income.  What to do?

Try to figure out if you have both federal and private loans.  This is not always easy, as the payments on both are often bundled into a single bill.  See if you can find your loan documents and check.  If you can’t figure it out, call your lender and ask.  If you have both federal and private loans, ask how much of the monthly payment is for the federal loans.  There is much to be said for trying to work out something with the lender if you just can’t pay, and I will cover that in some detail in further posts.  If the choice is between going hungry or losing a place to live and repaying your loans, though, you should probably take care of yourself first.

Even so, if you have any money to pay on your loans, you should pay it on your federal loans.  The federal government has collection powers that private lenders don’t have.  It can garnish your wages without a judgment; it can seize your tax refund; if can seize portions of federal benefits such as Social Security; and it can deny you eligibility for new education grants or loans.  It also permits collectors to tack on big fees for their collection efforts.  That’s a powerful arsenal against individuals like us.

So, the lesson is this:  if you can repay some, but not all of your loans, repay the federal loans first.

Image credit:  Jomphong

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