Get a student loan reprieve

If you or your children have borrowed money for college through federal programs and are struggling to repay the loans, the last thing you want to do is throw in the towel and default. Federal education loans come with exceptionally flexible terms that can help you or your kids climb out of a hole without affecting your credit scores or access to future student aid.

In cases of unemployment or other economic hardship, for example, both you and your kids likely will qualify for a loan deferment, which can buy you a respite of up to three years. During that time, you won't have to make payments, and interest won't accrue on federal Perkins loans or subsidized Stafford student loans. (Interest will continue to accrue on Parent PLUS loans during a deferment, however.)

Eligibility for deferment depends on the economic status of the borrower -- your child, in the case of Perkins and Stafford student loans, or yourself, in the case of Parent PLUS loans.

You can also obtain relief by requesting forbearance on your loans, although interest will continue to accrue. Forbearance is basically a permission slip from the lender to halt payments for a certain period; you or your kids should qualify if a loan is not already in default. Lenders can grant forbearance for up to 12 months at a time, for a maximum of three years (call the U.S. Department of Education's Direct Loan Servicing Center at 1-800-848-0979 for information). Private loans, however, usually don't have such lenient terms. Contact your lender to find out your options.

If a loan is already in default, you may still have time to set things right. An official default on a monthly repayment schedule occurs when no payments have been made for 270 days. But lenders don't have to report the default to their guaranty agency for another 90 days, says Mark Kantrowitz of FinAid.org. If a payment is made before the lender reports a default, he says, "you'll still be delinquent unless you pay the debt in full, but it won't be recorded as a default."

 Call immediately to find out whether the grace period is still applicable in your case. If not, the situation isn't hopeless. Default will stay on your child's credit report for seven years -- and yours, if you co-signed the loan, or in the case of Parent PLUS loans -- and it prohibits eligibility for forbearance, deferment and further access to additional federal student loans. But it is also 100% fixable. Completing a loan-rehabilitation program will remove the blot and reinstate all those privileges. Loan rehabilitation involves making payments within 20 days of the due date for nine of 10 consecutive payment periods. Call the Department of Education at 1-800-621-3115 to begin rehabilitating your loan.