Student loans are a hot-button issue in today’s economy, especially with rising inflation, job market instability, and the lingering effects of the pandemic. Many borrowers have relied on deferment or forbearance to pause payments, but once these periods end, the risk of defaulting becomes very real. Defaulting on student loans can wreck your credit, lead to wage garnishment, and even affect future opportunities like buying a home or securing a job.
Here’s how you can avoid default and stay financially stable once your deferment period ends.
Understanding the Risks of Default
Before diving into solutions, it’s crucial to understand what default means and why it’s so damaging.
What Happens When You Default?
Defaulting on federal student loans occurs after 270 days of missed payments (for private loans, it can be much sooner). Consequences include:
- Credit Score Damage – Your score can drop significantly, making it harder to get loans, credit cards, or even rent an apartment.
- Wage Garnishment – The government can take up to 15% of your disposable income without a court order.
- Loss of Benefits – You may lose eligibility for future deferments, income-driven repayment plans, or loan forgiveness programs.
- Collections and Fees – Defaulted loans are often sent to collections, adding extra fees and stress.
Why Default Rates Are Rising
With the end of pandemic-related relief programs and economic uncertainty, many borrowers are struggling to resume payments. Inflation has increased living costs, while wages haven’t kept up, making loan repayment even harder.
Strategies to Avoid Default After Deferment
If your deferment is ending soon, don’t panic—there are multiple ways to stay on track.
1. Reevaluate Your Budget
The first step is to assess your financial situation.
Track Your Expenses
- Use budgeting apps like Mint or YNAB to see where your money is going.
- Identify non-essential spending that can be reduced (subscriptions, dining out, etc.).
Adjust Your Spending
- Cut back on discretionary expenses to free up cash for loan payments.
- Consider side hustles or part-time work to increase income.
2. Explore Repayment Plan Options
Federal loans offer several repayment plans, some of which can lower your monthly payments.
Income-Driven Repayment (IDR) Plans
- REPAYE, PAYE, IBR, and ICR – These plans cap payments at a percentage of your discretionary income (usually 10-20%).
- Loan Forgiveness – If you stay on an IDR plan for 20-25 years, the remaining balance may be forgiven (though it’s taxable).
Extended or Graduated Repayment
- Extended Repayment – Stretches your loan term up to 25 years, reducing monthly payments.
- Graduated Repayment – Starts with lower payments that increase over time (good if you expect income growth).
3. Consider Refinancing (But Be Cautious)
Refinancing can lower interest rates and monthly payments, but it’s not always the best move.
When Refinancing Makes Sense
- You have private loans with high interest rates.
- Your credit score has improved since taking out the loan.
- You can secure a lower fixed rate.
When to Avoid Refinancing
- You have federal loans—refinancing means losing protections like IDR plans and forgiveness options.
- You’re in a financially unstable situation (job loss, medical debt, etc.).
4. Communicate with Your Loan Servicer
Ignoring your loans won’t make them go away. If you’re struggling, reach out to your servicer immediately.
Ask About Temporary Relief
- Forbearance – A short-term pause on payments (interest still accrues).
- Deferment – Another postponement option (interest may not accrue on subsidized loans).
Negotiate a Settlement
If you’re already in default, you may be able to rehabilitate your loans by making a series of on-time payments.
5. Look Into Loan Forgiveness Programs
Depending on your career, you might qualify for forgiveness.
Public Service Loan Forgiveness (PSLF)
- Requires 10 years of qualifying payments while working for a government or nonprofit employer.
- Recent reforms have made it easier to qualify.
Teacher Loan Forgiveness
- Up to $17,500 in forgiveness for teachers in low-income schools.
State-Specific Programs
Some states offer additional forgiveness for healthcare workers, lawyers, and other professionals.
6. Avoid Scams and Predatory Help
Unfortunately, many companies prey on desperate borrowers.
Red Flags to Watch For
- Upfront Fees – Legitimate forgiveness programs don’t charge application fees.
- Guaranteed Forgiveness – No company can promise 100% approval.
- Pressure Tactics – Scammers often use urgency to push you into bad decisions.
Where to Get Real Help
- Federal Student Aid (studentaid.gov) – Official government resource.
- Nonprofit Credit Counselors (NFCC.org) – Free or low-cost advice.
Final Thoughts
The key to avoiding default is proactive planning. Whether it’s adjusting your budget, switching repayment plans, or exploring forgiveness options, there are ways to manage your loans without financial ruin. The worst thing you can do is ignore the problem—take action now to protect your future.