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.