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.
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.
There are four major categories of life events that may make you eligible for student loan deferment:
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.
You may qualify for the economic hardship deferment in any of the following situations:
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.
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.
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.
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.
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.
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:
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.
The following loans DO NOT accrue interest under deferment:
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:
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.