When You Can't Pay Your Student Loans: Cancellation, Deferment, and Forbearance

How to defer your student loan payments, or cancel your loans altogether.

If you can't make payments on one or more of your student loans, don't panic. You may be able to get temporary or permanent relief from making payments.

It's important that you learn about your options rather than give up and slide into default. If you default on your student loans, your credit will be damaged and your loan balance will increase dramatically as collection fees are added to the pot. In the worst-case scenario, your loan holder will take aggressive action to get the loan money from you, including taking a portion of your paycheck and nabbing any tax refund to which you are entitled.

Your Options

If you are unable to make your loan payments, your possible options include:

  • postponing payments through deferment or forbearance programs
  • eliminating the loan altogether through loan cancellation
  • discharging the loan in bankruptcy
  • entering into an income-sensitive or income-contingent repayment plan, or
  • consolidating different loans into one loan.
Deferring Student Loans

You may be able to postpone making payments by obtaining a deferment. A deferment is a delay based on a specific condition -- such as returning to school, economic hardship, or being unemployed and seeking employment -- that excuses you from making payments for a set period of time.

For some types of loans, you can defer both principal and interest, meaning that during the deferment period, your loan balance will not increase because interest is not accruing. In other situations, you can defer principal only, which means that interest continues to accrue and your balance will go up during the deferment period. What type of deferment you can get depends on what type of loans you have and when you obtained them.

You can defer repayment of a student loan if you meet one of the conditions described below (see Conditions for Canceling or Deferring Student Loans, below) and you are not in default -- that is, you have made your payments on time, are in the grace period after graduation, or have been granted other deferments or forbearances. Occasionally, you may qualify for retroactive deferment -- a deferment that will cover past due payments short of default.

Deferments are never automatic. You must apply for them. To obtain a deferment, you must obtain the appropriate paperwork from the holder of your loan, complete it carefully, and follow up to make sure your request is processed correctly. This may sound like a lot of work, but if you're having trouble making your loan payments, it's worth the effort. A deferment can buy you some time when you need it most.

Start by contacting the holder of your loan. Tell your loan holder which deferment you think you qualify for and ask for the proper form. The loan holder's representative will generate the form or tell you where to download it online, and should note in your file that you've requested the form. This may help you keep the loan holder off your back if your payments are past due.

Obtaining a Forbearance

If you don't qualify for a deferment, you may be able to postpone your payments through a forbearance. When you obtain a forbearance, your loan holder gives you permission to stop making payments for a set period of time. Interest always continues to accrue during a forbearance, which generally makes forbearance less attractive than deferment, because your balance will go up during the forbearance period. But forbearances are easier to obtain, because they are not tied to the type of loans you have or the date you obtained them -- and they aren't governed by the picayune rules that make cancellations and deferments so hard to come by.

Forbearance on federal loans may be granted for a number of reasons, including poor health, unforeseen personal problems, inability to pay within the maximum repayment term (usually 10 years), or collective monthly payments totaling more than 20% of a borrower's monthly income. Forbearances are granted up to one year at a time. In some circumstances, a forbearance may be available even if you have defaulted.

To apply for a forbearance, contact the holder of your loan and explain your situation. You may be sent some forms to complete or you may be able to fill out a form online.

Discharging Student Loans in Bankruptcy

Another possible solution is to discharge your student loans in bankruptcy. However, this is hard to do. In general, you can discharge a student loan in bankruptcy only if you can prove that repaying the loan would be a severe hardship for you, which is a very difficult standard to meet. There are several factors that courts consider in making this determination, including your income and expenses, how long your financial problems are likely to continue, and how hard you've tried to repay your debt.

You'll have to file a separate court action in your bankruptcy proceeding to prove that you should obtain a discharge, and you'll probably need to hire an attorney to help you with the procedure.

Canceling Student Loans

In certain limited circumstances, you may be able to cancel your student loan -- meaning that you no longer have to pay it. Doing this is not easy; you'll have to meet specific conditions depending on the type of loan you have. (See Conditions for Canceling or Deferring Student Loans, below.) In some situations, you won't be able to cancel the entire loan, but you may be able to get rid of a portion of the loan.

To cancel a student loan or to determine if you qualify for cancellation, call your loan holder or the Department of Education's Debt Collection Services Office at 800-621-3115. A customer service representative will send you a cancellation application, which you will have to complete and return with any necessary documentation, such as a statement from a physician describing your disability.

Conditions for Canceling or Deferring Student Loans

The circumstances in which you may be able to cancel or defer a student loan are listed below. Read carefully: Some circumstances qualify you for cancellation only, some for both cancellation and deferment, and still others for deferment only.

Death of the borrower. If a former student borrower dies, the executor -- the person who collects and distributes the property left at death -- can cancel any federal student loan.

Permanent total disability. You can cancel any federal student loan if you are unable to work because of an injury or illness that is expected to continue indefinitely or result in your death. In most cases, you cannot have had the injury or illness when you borrowed the money, unless your condition has substantially deteriorated. To prove total and permanent disability, you'll need a statement from your treating physician on a form provided by the holder of your loan.

Temporary total disability. If you, your spouse, or one of your dependents is temporarily totally disabled, you can defer the payments on most loans obtained before July 1, 1993, for up to three years. The sickness or injury must make you unable to attend school or hold a job for at least 60 days. If your spouse or dependent is sick or injured, you must be unable to hold a job because he or she needs your caretaking for at least three months.

Enrollment in rehabilitation program for the disabled. If you are enrolled in a rehabilitation program for the disabled, you can defer payments on most loans. You must begin making payments six months after your training ends.

Unemployment. You can get a deferment on most loans if you are unemployed but looking for work. You must provide evidence of your eligibility for unemployment benefits or written documentation of your attempts to find a full-time job -- that is, a job for at least 30 hours per week in a position expected to last at least three months.

Economic hardship. You can defer payments on federal loans obtained after June 30, 1993 (though Perkins loans can be from any time period) for up to three years if you are suffering an economic hardship. You are automatically entitled to this deferment if you receive public assistance, such as welfare or SSI. If you don't receive public benefits, qualifying is based on a complex formula that's a mix of your income, the federal minimum wage, the federal poverty level, and your monthly or annual federal student loan payments. You will have to provide documentation of your income, such as pay stubs.

Enrollment in school. If you return to school to study at least half-time, you can almost always defer the payments on your student loans.

Membership in a uniformed service. Former students who currently serve the U.S. government wearing a uniform are grouped together for purposes of loan cancellation and deferment. If you serve in the U.S. military, the National Oceanic and Atmospheric Corps, or the U.S. Public Health Service, there are several situations in which you may cancel or defer your loans. Check with your supervisor or commanding officer.

Teaching needy populations. Teachers who serve certain needy populations -- including low-income or disabled students -- may be able to have their student loans canceled or their payments deferred.

Providing services other than teaching to needy populations. People who do not teach but who serve certain needy populations may be able to have their student loans canceled, depending on the type of loan and population served.

Performing community service. In many situations, you can partially cancel your student loans or defer your payments in exchange for performing community service. Opportunities range from serving in the Peace Corps to volunteering your time with an organization that assists low-income people in your community.

Working in the health care professions. Health care professionals, including nurses and physicians in their residency, sometimes can cancel their student loans or defer their loan payments.

Working in law enforcement. Full-time law enforcement and corrections officers can cancel some older Perkins loans.

Attended a trade school. Many former students were lulled into taking out student loans to attend a trade school, only to have the school doors close before they could finish the program. Other students were falsely certified by school officials as being able to benefit from the loan. If this happened to you, you may be able to cancel 100% of your federal student loan.

Victim of identity theft. If someone forged your signature on a loan application or promissory note, you should be able to get the loan canceled.

Withdrew from school but never received a refund. Students who withdraw from a school or sign up and never attend should generally receive a refund for the portion of the course they did not complete. This refund rule applies only to students who completed less than 60% of the course. If you were entitled to but never received a refund, you may cancel your loan up to the amount of the refund plus fees and interest.

Getting Help

If you need help with any of these programs, contact the Department of Education's Ombudsman at 877-557-2575 or visit its website at www.fsahelp.ed.gov. This office is available to assist people with student loan problems.

Contact Us