Are you behind on your student loans? Many single moms face this same struggle. When budgets are super tight, student loan payments drop out of the “necessity” column. Because, honestly, those payments aren’t nearly as important as food, clothing, shelter, and medical care.
And if you have federal loans, your lenders are hooked into the IRS. That means they can grab your income tax refund. They’re supposed to warn you – once – the first time they keep your money. It doesn’t matter whether you get their letter, only that they sent it. That’s all they need to do to take your refund.
But there are things you can do to make sure that doesn’t happen.
Don’t give them the opportunity
If you’re not getting a big refund, there won’t be anything for them to take. Plus, as a budget-conscious single mom, you need that money every month – not just in one big lump at the end of the year.
So, the first thing to do: Change your tax withholding right away – especially if your refund was more than $200.
Here’s what you need to do. Ask the HR department (or your boss/supervisor) for a new Form W-4.That’s the form that every employee fills out so their employer knows how much tax to take out of the paycheck. If your payroll stuff is online (like you enter your hours or time-off requests online), you may be able to make the change yourself.
The new version of this form comes with a little worksheet and instructions – and it can seem a little overwhelming.
The IRS does offer a calculator to help you figure this out. It asks a lot of questions. If you don’t know the answers exactly, just use your best guess. It will let you know if you’re on track for the year.
If you want to skip all the calculations (and stress), just take one allowance for you and each one of your kids, then add 2. So, if you have two kids, you’d take 5 allowances: one for you, one for each kid, plus 2 extra.
Whichever way you go here, make sure to do a withholding checkup in August or September. Use that same IRS Withholding Calculator. If it turns out that you’re getting too little –or still too much – taken out of your paycheck, change your Form W-4 again. (You can do this whenever you want during the year.)The goal is to either get back or owe just a little bit, under $100.
This strategy comes with a bunch of benefits:
- More money in every paycheck
- A closer match to your actual tax bill
- The flexibility to make changes if your financial situation changes
- No big refund for them to take because of student loans
Once you’ve taken this step, it’s time to turn your attention to your student loans. Ignoring them won’t make them go away. But contacting your lenders might let you at least pause them.
What happens when you stop paying student loans
If you’ve already stopped paying your student loans, you’re considered delinquent. That label goes from day 1.
If you haven’t made a payment in 270 days – 9 months – they officially move your loan into the default pile. That’s a bigger deal, and it’s harder to work with – but there are still things you can do.
Once you’re in default, your tax refund can be withheld from you. But that’s not the only potential consequence:
- The lender can start pulling student loan payments directly from your paycheck (that’s called garnishing your wages)
- You could lose your driver’s license (depending on what state you live in)
- You could lose your professional license (again, depending on what state you live in)
- The lender can sue you – and if they win, you’ll have to pay the full balance of the loan immediately
[All of these seem especially cruel and pointless to me. How can taking away someone’s ability to work and support their family make it easier for them to pay student loans? It’s really unconscionable.]
What to do if you can’t pay your student loans
If you can’t make your next payment – or you’ve already fallen behind – call your loan servicer as soon as possible. That is the most important thing to do to make sure you don’t end up in an even worse situation (like losing your job because you lost your license and can’t get to work).
Lenders want their money back for the least possible hassle on their side. So, they’re usually willing to work with you to help get things back on track. Sometimes that means slashing payments to a very minimal amount. Other times it’s letting you pause payments temporarily. Payment pauses – called deferment or forbearance – can last for up to three years. Click here for more details about these options. You may have to make some kind of payments until the deferment or forbearance kicks in, depending on your situation.
What to do today
Putting this off will only make it worse. It can feel embarrassing and scary to deal with it. But once it is dealt with, you’ll feel relief – one less thing to worry about.
So right now, today, do these two things:
- Change your withholding.
- Call your lender.
And if you need help with either of those things, contact me.