If you're in over your head and you can't make payments on one or more of your student loans, don't panic. And don't just give up and invite 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 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.

Even if you are unable to make your loan payments and worried about default, all is not lost. But you must act quickly to find out your options. In certain limited circumstances, you may be able to cancel your student loans -- meaning that you are completely absolved from repaying them. You face no negative consequences if you cancel your student loans; however, it is not easy to qualify. You will have to meet specific conditions that depend on what type of loans you have and when you borrowed the money. In some situations, you may be able to cancel only a portion of your loans.

If you can't cancel your student loans, you can probably find a way to postpone making payments by obtaining a deferment or forbearance. A deferment is a delay based on a specific condition -- such as returning to school or being unemployed -- 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 goes up during the deferment period. Like cancellation, deferment depends on what type of loans you have and when you obtained them -- and you can never obtain a deferment if you are in default.

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.

Another possible solution is to discharge your student loan in bankruptcy. However, due to a 1998 change in the bankruptcy law, this is harder than ever 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. There are several factors that courts consider in making this determination, but suffice it to say, it's a very difficult standard to meet.

Conditions for Canceling or Deferring Student Loans

1. 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.

2. Permanent Total Disability. You can cancel any federal student loan if you are unable to work or go to school 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.

3. 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.

4. 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. You can defer repayment for up to three years if you obtained the loan before July 1, 1993 and up to two years if you obtained the loan after July 1, 1993.

5. Unemployment.You can get a deferment on most loans if you are unemployed but looking for work. You must provide 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. You can defer repayment for up to three years of you obtained the loan before July 1, 1993 and up to two years if you obtained the loan after July 1, 1993.

6. Economic Hardship. You can defer payments on federal loans obtained after June 30, 1993 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.

7. Parents With Young Children. Working mothers and mothers and fathers on parental leave can often defer their student loan payments.

8. 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.

9. Membership in a Uniformed Service. For reasons known only to Congress, 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.

10. 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 the payments deferred. For loan purposes, a teacher is defined as a professional employee of a school or school system who provides classroom instruction or related services as part of an educational program.

11. 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.

12. 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.

13. Working in the Healthcare Professions. Healthcare professionals, including nurses and physicians in their residency, sometimes can cancel their student loans or defer their loan payments.

14. Working in Law Enforcement. Full-time law enforcement and corrections officers can cancel some older Perkins Loans.

15. 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.

16. 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, a new cancellation program allows you to cancel your loan up to the amount of the refund plus fees and interest.

Applying for a Cancellation

Applying for a Deferment

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 holder's representative will generate the form, including your name, address and account information 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.

Applying for Forbearance

Getting Help

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