THE HELP DESK The Help Desk: Top Tips

Defaulting on your student loan?

Gerri Willis offers advice on new programs that may help you avoid defaulting on your student loan.

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By Gerri Willis, CNN personal finance editor

For more information on managing your largest investment, check out Gerri Willis' 'Home Rich,' now in bookstores.

NEW YORK ( -- An increasing number of students aren't making their student loan payments according to the Department of Education.

According to the recent data, student loan defaults are up to 6.9% from 5.2 percent a year earlier. We're talking here about federal loans, not private student loans.

Sallie Mae, one of the biggest private student loan providers, is reporting that private student loan defaults are up to 3.37% in 2008 from 1.47% in 2006. The increasing amount of student loans doesn't really come as a big surprise. During a recession, the job placement rate declines, so recent grads can't start repaying their huge debts says Mark Kantrowitz of

1. Know your options

If you're afraid you may not be able to make your federal loan payments, talk to your lender first. That's job number one.

There are programs out there that can help you. You may request a forbearance or a deferment. In both cases you can stop making payments for a little while. The debt doesn't go away, but interest does continue to accrue even if you don't make payments.

There is one exception: if you have a subsidized Stafford, the government pays the interest. If you're looking to get a deferment, you usually have to meet criteria, but if you're unemployed, you'll likely qualify.

2. Long-term solutions

If you are looking for a more permanent solution to paying your student loan debt -- maybe you're looking for a career that doesn't pay a lot like a teacher or a public defender -- then you may want to consider repayment options like an income-contingent repayment plan or an income-based repayment plan.

You can qualify for the income-contingent repayment plan now. This plan will peg your monthly payments to your income, family size and the amount of your loan.

Income-based repayment programs will be available this July. This will cap your monthly payments at a percentage of your discretionary income.

Check out the calculators at to see if either one of these programs can help you out. To top of page

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