Post-college life

Do you need a break from paying your student loans? A guide to deferment and forbearance

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Post-college life


Sometimes, we can use a break from paying our student loans. Maybe you have recently completed your undergraduate degree and your entry-level salary doesn’t quite match the cost of living in your city. Perhaps you’ve made the decision to complete your graduate degree in order to progress in your career. Maybe you’re faced with an unexpected health challenge that is making it difficult to keep up with monthly payments.

These are all events that may have you asking how you can get a temporary break from making monthly payments on your student loans.

According to recent reports, the problem of paying student loans on time is growing. More than one million people default on their student loans every year. These are people who want to be responsible but need some support to help them achieve their goals.

The good news is that falling into default on your student loans is not necessary. The U.S. government offers options to help you reduce—or temporarily stop making—your monthly payments, at least until you get back on your feet.

Student Loan Deferment and Forbearance

Deferment and forbearance of your student loans offer you opportunities to either postpone your monthly payments or temporarily reduce them for a limited time period, provided you meet certain eligibility criteria. These are legitimate programs offered to student loan borrowers by the U.S. Department of Education. Either one of these programs can help you avoid penalties from late payments or default.

If you are having difficulty making payments on your student loans, these programs are designed to help give you the break you need and avoid falling into default. The main difference between deferment and forbearance is that you are not required to pay interest with some deferment programs, while forbearance requires you to pay interest.

Student Loan Deferment: A Closer Look

There are four major categories of life events that may make you eligible for student loan deferment:

  1. Financial hardship
  2. Going back to school
  3. Unemployment
  4. Military service

All of the deferment options described below are available to Direct Loan, Federal Family Education Loan (FFEL), and Perkins Loan recipients. Your loan servicer will be able to confirm which category of deferment works best for your situation. Here is a further breakdown of each deferment option.

Economic Hardship Deferment

You may qualify for the economic hardship deferment in any of the following situations:

  • You are on public assistance
  • You serve in the Peace Corps
  • You are working full-time for at least 30 hours per week, but make less than minimum wage for at least 3 months, or are at 150 percent of the poverty guideline for your family size

The U.S. federal poverty guideline is used to determine eligibility for certain federal programs, including the deferment program for student loan borrowers. To make this more clear, let’s use an example.

Janet is a single mother with two small children. She works 35 hours a week and makes $24,000 gross income per year. The U.S. federal poverty guideline for a family of three in 2018 is $20,780.

Based on qualifications for the deferment program under the poverty guideline, Janet cannot make more than $31,170 per year in order to be eligible for the program. Therefore, at $24,000 per year, Janet comes well under the income eligibility requirements to apply for deferment of her student loans.

The maximum amount of time allowable for the economic hardship deferment is a total of 36 months per loan program. You have the freedom to enroll in the program for 12 months (as an example), then stop the deferment process. You will then have another 24 months remaining for deferment, if needed, in the future.

In-School Deferment

U.S. student loan borrowers who go back to school after a six-month absence and are enrolled at least half-time at an eligible college or trade school may be eligible for an in-school deferment. Again, speak to your loan servicer for details on your specific situation.

Graduate Fellowship Deferment

If you are enrolled in an approved graduate fellowship program at a college or university, then you may be eligible for a graduate fellowship deferment.

Unemployment Deferment

If you are unemployed or are unable to find full-time employment for up to three years then you may be eligible for the unemployment deferment program.

Military Service and Post-Active Duty Student Deferment

You may be eligible for a military-related deferment if you are on active duty military service in connection with a war, military operation, or national emergency. You may also be eligible for the 13-month period following that service or until you return to college or career school on at least a half-time basis—whichever comes first.

Other Reasons for Deferment

There are a number of other reasons that deferment may be requested in cases where you may not be able to make your monthly payments. These include:

  • Domestic Volunteer Service Deferment: If you are a full-time, paid volunteer in the AmeriCorps VISTA program for more than one year, you may be able to defer your student loan payments. The maximum time limit for participation in this deferment is 36 months.

  • Service as a Full-Time Teacher in Teacher Shortage Area Deferment: Some teachers may qualify to defer their student loans if they teach in a designated teacher shortage area. The maximum amount of time allowed on this type of deferment is 36 months.

This program should not be confused with the Public Service Loan Forgiveness (PSLF) program. If you are making qualifying payments as a teacher towards PSLF, deferring your loans may interfere with your progress towards loan forgiveness. Talk to your loan servicing organization for more information.

  • Parental Leave Deferment: You may be eligible for parental leave deferment if you are pregnant, caring for a newborn, or adopting a child. Both the mother and father are eligible to apply. The applicant must have been enrolled in school at least half-time within the last six months and not currently attending school or working full-time. The maximum time allowable for this deferment period is six months.

  • Medical Internship or Residency Deferment: If you are working in a medical internship or residency program, you may apply for this deferment program for a maximum of two years. To qualify, you must be accepted into either a recognized internship or residency program that results in a degree or certificate from an institution of higher education, hospital, or health care facility that offers post-graduate training in a medical-related field.

  • Parent PLUS Borrower Deferment: Deferment isn’t just for student borrowers. There is relief for parents who borrowed money on their child’s behalf. If you are a parent who received a Direct PLUS Loan or FFEL PLUS Loan and your child is enrolled at least half-time at an eligible college or trade school, or you are currently in the six-month grace period after your child has left school, then you may be eligible for this kind of deferment.

  • Rehabilitation Training Program Deferment: If you are enrolled in an approved rehabilitation program for the disabled, you may be eligible for the rehabilitation training program deferment.

How is interest handled with student loans in deferment?

The following loans DO NOT accrue interest under deferment:

  • Direct Subsidized Loans
  • Subsidized Federal Stafford Loans
  • Federal Perkins Loans
  • Subsidized portions of Direct Consolidation Loans
  • Subsidized portions of FFEL Consolidation Loans

This means that the loan amount you started with before the deferment will be the same once the deferment period is over.

The following loans DO accrue interest under deferment:

  • Direct Unsubsidized Loans
  • Unsubsidized Federal Stafford Loans
  • Direct PLUS Loans
  • FFEL PLUS Loans
  • Unsubsidized portions of Direct Consolidation Loans
  • Unsubsidized portions of FFEL Consolidation Loans

Ideally, you should pay the accrued interest on your loan while your loan is in deferment. This will prevent the new interest from being added to the principal of your loan once the deferment period is over.

Student Loan Forbearance: A Closer Look

There are two main categories of forbearance—general and mandatory.

General forbearance covers those who are temporarily unable to make scheduled monthly loan payments for the following reasons:

  • Financial difficulties
  • Medical expenses
  • Changes in employment
  • Other reasons acceptable to your loan servicer (check for details)

General forbearance is available for Direct Loans, FFELs, and Perkins Loans. For loans made under any of these three programs, the U.S. Department of Education states that general forbearances may be granted for no more than 12 months at a time.

You are permitted to request an additional period of forbearance if you are still experiencing hardship after a period of forbearance ends.

For Perkins Loan borrowers, the U.S. Department of Education places a three year time limit on general forbearance. There is no fixed limit on general forbearance for Direct Loans and FFELs, but your loan servicer may set a limit on the maximum period of time you can receive a general forbearance.

The organization servicing your loan decides whether or not you should be granted forbearance and under which category forbearance should be granted.

If you have applied for deferment and were denied, there may still be an opportunity to place your student loans under forbearance. Certain circumstances—like working in an internship, being involved with certain types of community service, or experiencing financial hardship—may qualify you to postpone student loan payments with the forbearance program.

You are able to request a mandatory forbearance if you meet the eligibility requirements. The following is a breakdown of specific circumstances and events that may qualify you for a mandatory forbearance.

Active Military Duty

Borrowers serving in the National Guard not covered by the military deferment may request this forbearance.

To qualify for this forbearance, you must be a member of the National Guard (including a retired member), called to active duty while still enrolled in school or within six months after ceasing to be enrolled on at least a half-time basis, and performing active military state duty during a period when the governor activates National Guard personnel. Forbearance is granted in periods of  up to 12 months at a time.

Department of Defense (DoD) Loan Repayment Program

If you participate in the Department of Defense’s student loan repayment program, then you may qualify for forbearance. You will be required to provide a statement from an authorized DoD official proving your eligibility along with the dates of service. Forbearance periods last for up to 12 months.

Medical Internship or Residency

Students with a bachelor’s degree who are working in a medical or dental internship or residency may qualify for forbearance. If you are interested in requesting this forbearance, you will be asked to provide a statement from an authorized program official  (and possibly a state licensing agency certifying eligibility) along with the beginning and end dates of your program participation.

Reduced Payment

The reduced payment forbearance option allows you to choose a payment amount that fits in your budget. The minimum payment must cover the estimated monthly interest accrued. If you are currently delinquent on your loan, your loan servicer will process a hardship forbearance to bring your account current.

Student Loan Debt Burden

If your student loan payments are more than 20 percent of your gross monthly income, you may qualify for forbearance. To qualify, you will be asked to provide proof of income. Forbearance is granted in periods of up to 12 months at a time with a maximum time of 36 months.

Economic Hardship

This category is meant for those who do not qualify for the other categories of forbearance. Eligible borrowers intend to make payments, but temporary circumstances keep them from doing so. Forbearance can last up to 12 months at a time.

How is interest handled with student loans in forbearance?

It is important to note that all loans accrue interest during forbearance. If possible, it is a good idea to pay at least the monthly interest during your forbearance period to avoid the interest being added to your loan principal.

Applying for Deferment or Forbearance

In most circumstances, applying for deferment or forbearance on your student loans will require that you submit a form to your loan service organization in addition to documentation demonstrating that you meet the eligibility requirements.

If you decide to go back to school, your loan will be placed into deferment automatically. Please note that this only applies to those who have enrolled in a qualifying educational institution on at least a half-time basis.

The organization servicing your loan will be able to confirm that your deferment has been granted. If the deferment has not taken place, you should contact the school where you are enrolled and ask them to send notification of your enrollment to your loan servicer.

What’s Next? How Do I Choose Which Option is Right for Me?

As you can see, the U.S. government has provided a number of options to help steer you away from defaulting on your student loans. Deferment or forbearance may be the break you’ve been needing due to circumstances that are beyond your control.

The programs are designed for responsible people who have fallen into unexpected life circumstances that kept them from accomplishing their goals. Talk to your loan service provider for more information about which program is best suited to your needs.

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