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If you’re struggling to pay your student loans, we understand. It’s a tough situation.
But it’s also one that we can help with! We know that sometimes life just gets in the way and makes it hard to keep up with your payments. If that’s happening to you right now, don’t worry—we’ve got your back.
Here are some of the most common reasons people find themselves in financial hardship:
-You have unexpected medical expenses.
-Your partner lost their job, or they’ve taken time off from work to care for a loved one who is ill or injured.
-A family member died unexpectedly, leaving you with funeral expenses and other costs associated with the loss of a loved one.
-You had an emergency repair come up on your home or car—and it wasn’t covered by insurance.
-You had an accident that left you unable to work for a period of time (maybe even longer than expected).
These things happen—but they don’t have to mean disaster when it comes to paying back your student loans! We’ll go over what financial hardship means in terms of repayment plans and how you can get assistance from us if any of these situations apply
Scholarshub Contents Table
student loan hardship deferment
Student loan deferment lets you stop making payments on your loan for up to three years, in some cases, but it does not forgive the loan.
You must apply (and qualify) for deferment unless you are enrolled in school at least half-time.
Interest on federally subsidized loans does not accrue during the deferment.
Interest on unsubsidized loans does accrue during deferment and is added to your loan at the end of the deferral period.
Deferment on private student loans varies by lender, and not all lenders offer it.
WHAT IS FINANCIAL HARDSHIP AND WHAT ARE YOUR RIGHTS?
You are in financial hardship if you have difficulty paying your bills and repayments on your loans and debts when they are due. Under credit law you have rights when you are in financial hardship.This page explains your rights and obligations under the law.
There are often two main reasons for financial hardship: 1. You could afford the loan when it was obtained but a change of circumstances has meant you can no longer afford the repayments; or 2. You could not afford to repay the loan when it was obtained. If this is the case, get legal advice immediately.
If you are behind with your loan or lease repayments, it can be stressful. For loans and leases for personal purposes (where the credit law applies), you have certain rights to ask for a financial hardship repayment arrangement.
The creditor is required to respond to your request and be reasonable about making a repayment arrangement.
What Is a Credit Card Hardship Program?
It’s a payment plan, negotiated via your issuer, that may temporarily lower interest and waive fees when a difficult circumstance hinders your ability to pay.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here’s how we make money.
Financial emergencies, setbacks and major life changes can come at you quickly, making it difficult to meet monthly financial obligations like credit card payments.
Before you fall behind, you can pick up the phone and ask your card issuer for help. Many lenders offer access to a credit card hardship program that can provide assistance to those who are struggling with circumstances beyond their control. After all, a bank wants to collect what it’s owed, and that’s less likely to happen if you default.
Hardship programs aren’t widely advertised — not all issuers offer them — and enrolling in one may still have consequences for your account and your credit scores. But if you need help, it may be an option.
What is a credit card hardship program?
A credit card hardship program is typically a payment plan that you negotiate with your card’s issuing bank. The bank may waive fees and/or lower interest rates over a specific time frame — often a short-term period such as three months or longer.
Terms vary depending on the financial institution, the circumstances of your hardship and the deal you agree to.
Note that different kinds of hardship programs exist for different products, including mortgages, student loans, personal loans and more. Banks may even refer to them by different names such as an “assistance program” or a “hardship case,” for example. (This is, of course, assuming the lender offers such programs at all.)
Where to find a credit card hardship program
While this is not a comprehensive list of such programs, major issuers such as American Express, Bank of America®, Capital One and U.S. Bank confirmed to NerdWallet that credit card hardship programs are available at their institutions. Discover also offers general information about its hardship program through its website.
But only a few were willing to comment on the specifics of their programs. For that, you’ll need to call your lender and begin the conversation.
“The earlier we can get to somebody, the more chances we have of being able to help them.”
Theresa Williams-Barrett, vice president of consumer loans and loan administration at Affinity Federal Credit Union in New Jersey
“We understand that some of our customers may be facing financial challenges as a result of a natural disaster or another disruptive life event, and we’re prepared to help customers manage through the difficulties they may face as they recover,” a Capital One spokesperson noted.
It can be a pride-wrenching task, but possibly an essential one to pay down debt.
“The earlier we can get to somebody, the more chances we have of being able to help them,” says Theresa Williams-Barrett, vice president of consumer loans and loan administration at Affinity Federal Credit Union in New Jersey.
Circumstances that may qualify for a hardship program
Every hardship is taken on a case-by-case basis. Examples of hardships that might qualify include:
Nerdy tip: Service members have other options to explore under the Servicemembers’ Civil Relief Act, a law that requires lenders to cap interest rates on debts incurred before active-duty service.
Jason Zook — co-founder of Wandering Aimfully, a membership community for creative entrepreneurs — qualified for hardship when his prior business, in T-shirt marketing, failed. By 2013, he and his wife shared $80,000 in credit card debt, the majority of it incurred from that business.
Zook enrolled in a hardship program for a few of his cards. He recalls American Express as being the most accommodating issuer, specifically on a card that was charging an annual percentage rate of 24%. At that rate, he was able to make only the minimum payment every month.
“They basically said, ‘For six months we’ll give you 0% APR,'” Zook says.
Zook notes the APR on the card increased incrementally from there. After those six months, he says it rose to 3%. Three months later, it increased to 9%. In the following year, the APR kicked back up to 18%, he says, and has since increased further.
But those initial lower interest rates made it possible for Zook to put a dent in his balance.
American Express confirms that it’s willing to work with cardholders faced with financial difficulties, but, of course, each case is different.
“We work with cardmembers to find the most equitable solution for their particular situation, which can include financial relief through reduced payments and interest rates and the waiver of certain fees,” an American Express spokesperson said via email.
Steps for getting into a hardship program
The steps for enrolling in a credit card hardship program may vary depending on your issuer, but here’s a brief outline of how to approach the process:
1. Get a grasp on your new budget
Before contacting your card issuer, make sure you understand the financial impact of your hardship, says Katie Bossler, a certified counselor at GreenPath, a nonprofit credit counseling agency that helps cardholders navigate their financial options, which may include hardship programs. That means building a budget based on your new reality: for example, your lower monthly income (due to a pay cut or illness) versus your expenses and bills.Nerdy tip: Regarding monthly credit card bills, remember that interest is a factor. The goal is to determine what you can afford to pay the issuer, and that requires knowing what you’re paying in interest on your card right now. That will be a key number in your negotiation. You can find your APR on your credit card statement. The average rate for accounts that incurred interest in 2018 was 16.04%.
If your issuer offers a hardship program, your revamped budget can help you better explain your circumstances to that lender as you negotiate. In some cases, an updated budget might even be a prerequisite for enrolling in a plan. If your issuer does not offer a hardship program, you’ve at least taken a key first step toward getting your finances under control.
2. Call your issuer
Now that you have a good idea of how your hardship will affect your ability to pay, your next step is to call the number on the back of your card. Your issuer may not offer a hardship program at all, but the only way to know for sure is to ask the representative. Be prepared to spend time being transferred or placed on hold, but remain polite and respectful. Remember: You’re asking the bank for a favor.
Once you reach the right department or representative, be clear and honest about your situation and your needs, based on your new budget. Explain that you want to be able to fulfill your payment obligation, but that you’re struggling at the moment and need assistance. If you have a long history of making on-time payments, the issuer may be more willing to work with you on a payment plan.
3. Agree only to terms you can afford
Don’t accept new terms just because your issuer offers a lower interest rate than what you’re paying now. Make sure it’s a rate you can actually afford. And if you share household expenses with a partner, consult that person, too.
“When someone is in these hardships, we’re not always thinking clearly and we might jump to whatever the creditor is offering without understanding fully what it is,” Bossler says. Depending on the issuer, failing to meet new terms by, say, missing a payment may cancel the arrangement, she notes.
If the new interest rate or timetable doesn’t work, you can attempt to keep the negotiation going. Ultimately, though, you don’t have to accept a deal.
“When someone is in these hardships, we’re not always thinking clearly and we might jump to whatever the creditor is offering without understanding fully what it is.”
Katie Bossler, Certified counselor at GreenPath, a nonprofit credit counseling agency
Potential hurdles and drawbacks of a hardship program
In addition to meeting hardship requirements, you might have other hurdles to clear, depending on the issuer, such as:
Proving your hardship, which may require documentation.
Meeting with a credit counselor or completing a debt management program.
Signing an agreement.
Setting up automatic withdrawals from your bank account.
At Affinity Federal Credit Union, for example, cardholders must prove their hardship by meeting with a credit counselor who will give them a budget. The credit union will then refer to that budget to work with them if they’re eligible, Williams-Barrett says.
Your credit card issuer may also take actions on your credit card account once you accept the terms of a hardship plan, including:
Freezing your credit card account.
Closing your credit card account.
Lowering your credit limit.
A closed account or a lower credit limit could hurt your credit scores by affecting your length of credit history and/or your credit utilization. But that alone shouldn’t keep you from using a hardship program if you need one. The impact on your credit won’t be as bad as the aftermath of defaulting on your bills.
Even if your credit card issuer doesn’t take any actions on your account when you enroll in a hardship program, you should abstain from using your credit card so that you can work toward paying it off.
Alternatives to a credit card hardship program
If your credit card issuer doesn’t offer a hardship program, or if its terms don’t work for you, consider some other avenues.
For credit scores of 690 or higher
A balance transfer credit card: When other issuers wouldn’t offer budget-friendly terms, Zook transferred debt from high-interest credit cards to low-interest credit cards. Like Zook, you may have to pay the 3% to 5% balance transfer fee generally charged by most cards, but it could be worth the short-term cost to get a long-term break on interest payments. The ideal balance transfer credit card has a $0 annual fee and a lengthy introductory 0% APR. You might even be able to find one that charges no balance transfer fees within a certain time frame.
Debt consolidation loans for multiple credit cards: If your debt is spread across multiple credit cards, it might be easier to explore a debt consolidation loan. It allows you to combine high-interest debts into one low-interest fixed payment, making it much easier to manage.
For any credit score
A debt management plan: For a fee, a debt management plan via a nonprofit credit counseling agency can potentially lower interest rates and waive fees for debt, typically giving you a period of between three and five years to pay it off. It’s worth the cost if it saves you money in interest over the long term.
Any options you choose will likely require effort and organization. For Zook and his wife, trimmed expenses, hardship programs and balance transfers helped them pay off their debt in 2015.
“It was humbling to make those hardship phone calls, and it was a process to sign up for those balance transfer offers,” Zook says. “It took work, but that work paid off.”
How to negotiate a repayment plan with your creditor
If you can afford to pay something Start paying the amount you can afford and get in touch with your creditor straight away to put a repayment agreement in place.
If you can’t afford to pay anything Call us on 1800 007 007 straight away for advice.
Contact your creditor
You can call, write to or email the creditor letting it know you cannot afford your repayments and that you want to make a repayment arrangement. If possible, contact your creditor’s hardship department. This is called a hardship notice.
When you give a hardship notice (for the first time in any three-month period) the lender must stop further enforcement or legal action until it responds. This requirement does not apply if the creditorhas a court judgment.
Your creditor can ask you for more information. The information must be relevant. Information that is relevant would include:
Details of your income
Details of your expenses
The cause of your financial hardship (and evidence of the cause if available, for example, a medical certificate)
– Keep details of how and when you told the creditor you were in financial hardship
– You must be having (or will have) trouble making your loan repayments because of reasonable cause (such as an illness or unemployment). There are many reasonable causes.
– You must be able to reasonably repay the loan if the variation is granted.
– You can ask for any type of repayment arrangement as long as it will reasonably repay the loan. For example, it could be a short-term reduction in repayments or a permanent change in repayments.
– You can request financial hardship even if the co–borrower does not agree or cannot be contacted.
If your creditor agrees to a repayment arrangement do your best to stick to the repayments.
Make the agreed repayments on the agreed date
If you are struggling to make the repayments contact your creditor again to talk about your options
If it is taking longer than you hoped to get back to making the scheduled repayments, talk to your creditor about extending the arrangement
What to do if you can’t agree
If the creditor will not agree to a repayment arrangement you have the following options:
Keep negotiating with the creditor
Lodge a dispute in the Australian Financial Complaints Authority. It is a free service that can review the decision of the creditor and make a decision. You do not have to accept the decision. If you do accept it, the decision is binding on the creditor.
Go to court. Get legal advice if you want to consider this option.
What happens to my credit report?
When you are behind in repayments, your credit report may be affected. There are two ways your credit report might be affected:
A default being recorded
Repayment history information being recorded
A default can only be listed on your credit report if:
You are in default (have missed repayments)
A default notice has been sent to you giving you at least 30 days to pay the default
A notice of intention to list the default on your credit file has been sent to you.
The creditor cannot list a default when you have asked for a repayment arrangement. The creditor can only list a default 14 days after it has rejected your request for an arrangement.
You are not in default if you are in an agreed repayment arrangement. So, the quicker you make an agreed repayment arrangement (and stick to it), the less likely that a default will be listed on your credit report.
Repayment history information (RHI) is information about whether you make your loan repayments each month. If you are up to date the payment is listed as “0”. Once you miss a loan repayment you have 14 days to catch up. After 14 days your credit report will note that you have missed one repayment. If you keep missing repayments, your credit report keeps recording the number of monthly missed repayments.
There is no requirement to give you notice that repayment history information will be listed on your credit report.
If you make a repayment arrangement (and keep to it), the RHI should reset to 0. Unfortunately, there is a lot of argument between industry and consumer advocates as to how and when the RHI should reset to 0. Further clarification is expected soon.
What if I am not eligible for a hardship variation under the credit law?
You should still contact the creditor and explain your situation. Ask for a reduction in (or postponement of) your repayments for period of time. If the creditor agrees, confirm the agreement in writing. Keep a copy of the letter. If the creditor will not agree, you should keep making some of your repayments (if you can) and get advice from a financial counsellor and/or make a claim to an external dispute resolution scheme if your creditor is a member. If the creditor will not agree to a change in repayments get advice. If court proceedings have commenced, you must get legal advice immediately.
Speak to one of our financial counsellors
If your problem still hasn’t been solved, or you’re feeling overwhelmed, call us on 1800 007 007 to speak with one of our financial counsellors.