When You Can't Pay: An Emergency Guide
Emergencies can happen to anyone, so try to stay prepared. But if things still go sideways, there are ways to stay out of trouble if you try to work things out with your lender.
What if your money will be a few days late, or you're waiting for approval of your Interest Relief or RAP application?
Call your student loan lender before your payment comes due! Explain. Ask the call centre clerk to please make a note on your record to postpone taking your regular payment until the money comes through. Be sure to also ask for the clerk's name and explain that you will write this down for your own records, with the date of your call.
If the clerk will not make such a note on your record, ask for the supervisor. Chances are you may get a break if you haven't abused such breaks in the past.
If they later claim you didn't call ahead to postpone payment, speak to a supervisor and give the name of the clerk (or suprervisor) who handled your request.
What if your lender won't co-operate?
You must find money for that payment. Borrow elsewhere or let a less critical bill go unpaid. Bottom line: stay eligible for student loan aid. See below for more options, and try another call to your lender if necessary, appealing to management if that's what it takes.
What if you can pay some but not all, due to a temporary problem preventing full payment?
Ask your lender if you could switch to interest-only payments on a temporary basis. These are normally set up for a six-month period, but you could ask for it to be just until your aid application goes through.
Interest-only payments are sometimes called 'principal deferment.' This means that, during this period, none of your money will go toward paying what you owe. You are simply staying out of trouble. Please see Interest-Only Payments below for more details.
What if you've run out of Interest Relief, you're not eligible for Debt Reduction or Loan Remission, and the payments are too much to handle every month? Try Revision of Terms.
Ask your lender to cut your monthly amount by extending your payment term. This is called revision of terms.
If your finances improve later, go back to the shorter time period. If that is not allowed, or if you're afraid to take that chance, stick with your longer term but make lump sum (extra) payments whenever you can. These extra payments will cut your debt faster by going directly on the principal, unlike regular monthly payments, which are partly lost on interest charges.
Here's why you want to avoid extended payment:
It adds 50% to the time you must pay, but only cuts about 25% off your monthly payment. So it is not in itself a good deal.
However, if your option is extended payment or falling behind on your payments, go with extended. This keeps you eligible for other aid, such as loan remission or future student loans if you must return to school.
What if you've Revised your Terms but still can't handle payments? More about Interest-only Payments...
This (also referred to above as "Principal Deferment" is where you only pay the interest owing on your debt. It may cut your monthly payment in half or less. Normally, they are normally granted in 6-month blocks, the same time period as Interest Relief.
Interest-only payments are normally allowed for student loans, but how often you can use them will depend on your province and lender. For example, BC allows interest-only payments on provincial student loans for up to 6 months per year. Other provinces normally only allow a six-month period of interest-only payments once in the lifetime of that loan. So call your student loan lender and learn what the rules would be in your case.
Even if you normally would not be allowed, explain that you are in a bind and ask for leeway. It's worth a try. Most lenders don't want the hassle of a defaulted loan, which then has to go through extra processing and collections, etcetera.
From a normal financial planning point of view, Interest-only Payments are even worse than Revision of Terms. That's because you must pay money without reducing your debt. So this is not a good strategy unless you have no other choice. But if you have no choice - and this keeps you in good standing for future student loan repayment aid - it certainly does make financial planning sense.
What if you run out of Interest-Only option or still can't manage? Adjust payments on your other debts.
If you've gone as far as you can in reducing your student loan payments and still can't keep up, examine your other debt payments. You can probably adjust payments on some of those.
For example, if you make regular payments on a loan or mortgage, your lender is likely to let you make one or more interest-only payments to give you breathing room.
Normally, it is a bad idea to make interest-only payments on any debt - student loans, credit cards, mortgage or loans. But if you are in an emergency, the rules change. It is generally a smart strategy if a short run of interest-only payments will keep you out of student loan default long enough to qualify for further student loan repayment aid.
What if you've cut your student loan payments, but see no way to budget further or shift your finances?
Talk to your friends, family, mentor or religious leader. Sometimes we just need another perspective.
There are also good books and websites to help you take control of your money. If you get your books from the library, this help won't cost a penny.
If that isn't enough, get advice from a counsellor specializing in finances, credit, debt or bankruptcy – whatever your situation calls for. Their staff should be able to tell you over the phone if you might benefit from their services.
The first consultation is usually free, and you could go elsewhere if it doesn't feel like the right service for you.
What if it you feel depressed or overwhelmed?
Go to a doctor without delay. There may be a medical factor; treatment could help.
But deal with your finances too. Sometimes, shifting money or making only the minimum payments will buy time and keep you out of trouble. If that won't be enough, get financial counselling before your problems get worse.