Managing Student Loans: Deferment and Forbearance

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With student loan consolidations lasting up to thirty years, there is an excellent chance you will find yourself in a tight financial position before you pay off your consolidation loan. Perhaps you suffer a period of unemployment, Maybe you will take maternity leave. Luckily, you have options that may help smooth the rough spots and keep you on track and out of default.

Student Loan Deferment

You may not realize this, but you’ve already enjoyed the benefits of deferment.

When you take out mortgage, car loan or virtually any other type of consumer loan, the terms of the loan will generally require you to begin payments within 30 to 60 days after signing on the dotted line. When you take out a student loan to pay your college tuition, chances are you didn’t have to start making payments right away. In fact, you probably weren’t required to make payments until you were six months or more out of school.  During the period when you were attending college at least “half” time, your loan was in deferment. Deferments are periods in which you enjoy a temporary cessation of payments pegged to some sort of challenge in the your life. Deferments are available for

  • Students who attend an eligible postsecondary school at least half time.
  • Full time graduate students
  • Borrowers in a full time rehab program for people with disabilities
  • Unemployment (or in some cases, underemployment)
  • Certain active duty military and National Guard member
  • Borrowers experiencing an economic hardship

How long will the deferment last?

As long as necessary, except that the unemployment and economic hardship deferments can total only 36 months over the life of the loan. Therefore, you could use up six months during one period of unemployment, then another six months the next year for maternity leave, six months recovering from an illness, etc., up to a total of 36 months.

You can request a deferment by contacting your loan servicer. Most loan servicers make it easy to apply by filling out a short form on the servicer’s website. You may be required to submit documentation to show that you are unemployed, on medical leave or otherwise suffering an economic hardship.

What about interest during deferment?

During your deferment, whether interest continues to accrue depends on the type of loan you have. Direct Subsidized Loans do not incur interest during the deferment but interest will be charged on Direct Unsubsidized, FFEL Unsubsidized and PLUS loans. You will not be required to pay the interest during the deferment period as it accrues. Instead, it will be capitalized, or added to the principal amount to be paid later.

At the conclusion of your deferment period, the servicer will recalculate and issue you a new payment schedule.

Student Loan Forbearance

If you are not eligible for a deferment, you may still be eligible for a forbearance. A forbearance is like a deferment in that you will be postponing payments for a period of time, but forbearance differs from deferment in at least two significant ways.

  1. You always accrue interest during a forbearance.

  2. Forbearance is available for certain life circumstances that deferment will not cover.

    You can obtain a forbearance when:

    • You are unable to make your regular payments because of financial hardship or medical issues.
    • You are in a medical or dental internship or residency
    • Your federally guaranteed student loan payments total more than 20% of your monthly gross income - reduced or no payments for a maximum of three years
    • You are serving in an approved AmeriCorps position.
    • You are a teacher and would qualify for loan forgiveness.
    • You qualify for partial repayment under the Student Loan Repayment Program
    • You are called to active duty in the U.S. armed forces.

    Like with deferments as we discussed above, you will apply for a forbearance with your loan servicer or the owner of the loan, You may have to supply adequate documentation to show the reason for your request.

    For lots more information on managing your student loans during difficult financial times, see our articles on the following issues:

    General Issues

    What Kind of Loans Do You Have?

    Your Options for Managing Student Loans in a Nutshell

    Glossary of Helpful Student Loan Terms

    When You Can't Make Your Payments

    Delinquency and Default

    Deferment and Forbearance

    Repayment Strategies During Tough Times

    Surviving a Student Loan Default

    Dealing with Student Loan Collectors

    Managing Private Loans

    Loan Forgiveness

    Loan Forgiveness for School Status

    Loan Forgiveness for Disability or Death

    Public Service Loan Forgiveness

    Student Loans in Bankruptcy

    Bankruptcy Discharge

    Discharging Private Loans

    Using Chapter 13 Repayment Plans