According to the Global Financial Literacy Excellence Center at the George Washington University School of Business, approximately 44 million Americans are burdened with student loan debt and 33 percent have also been delayed making any payment in the past one year.
It’s rough on top of the student loan payments to finance a rent, wedding, new child or medical bills. As such, seeking deferment and forbearance on your student loans can be enticing. Before applying for these options, be sure to consider the hidden expenses that can lead to an even higher, prolonged repayment.
Both federal and private student loan programs provide choices for deferment and forbearance. Such plans offer short term relief from your onerous monthly payments and might seem like a promising way to prevent delinquency or default.
Failure to make payments during the deferment and forbearance periods results in capitalizing the interest you incur, which ensures the loan principal would eventually increase. By doing that not only have you skyrocketed your monthly payments when you finally start making payments again, but now you owe even more than you did when you first took out the student loans!
Student Loan Deferment
To defer student loans means hold off payments due to a temporary situation and includes a list of conditions for the loan provider. The most popular forms are in-school deferment, postgraduate deferment, and military service deferment. With Parent PLUS Borrower loans, only parents receiving Direct PLUS Loans or FFEL PLUS Loans have access to it.
The deferments listed below are only available to beneficiaries of Direct Loan, FFEL System Loan, and Perkins Loan according to the Federal Student Aid Government Website. Forms of available deferments vary depending on the provider of your education loan, but there are similarities for all private student loan debts. Private lenders may provide deferment relaxation for up to 6 months, or in severe cases 12 months.
Deferment can apply to any of the following situations
- If you do not have a stable job or work lesser than 30 hours a week
- Serving actively in the Military services
- Financial hardships
- In rehabilitation
- Enrolled in a graduate fellowship program
Following are the different kinds of student loan deferment
- Graduate Fellowship Deferment Program
- In-School Deferment Request
- Unemployment Deferment Request
- Parent PLUS Borrower Deferment Request
- Rehabilitation Training Program Deferment Request
- Military Service and Post-Active Duty Student Deferment Request
- Economic Hardship Deferment Request
Student Loan Forbearance
When it comes to student loan forbearance, the financial responsibility starts with taking responsibility for your financial commitments and creating a reasonable budget. What would happen though, if you lose your job suddenly, or are unable to function for health reasons? Say you find yourself in financial difficulty, and you can switch to your student loan provider to pursue options for forbearance. As with deferment, each loan provider and form of loan has a specific set of criteria that apply for forbearance. Forbearance, unlike deferment, could theoretically impact your score. For the federal and private student loan programs, the requirements for applying for forbearance are different, so check with your loan providers and banks to see what forbearance options are accessible.
There are two forms of Forbearance for Federal Student Loans– General and Mandatory, as per the Federal Student Aid site.
General Forbearances is used when you can’t afford a monthly payment according to the government’s Federal Student Aid platform. Direct loans, FFEL loans, and lenders from Perkins Loan qualify for this kind of forbearance. Here are the forms of general forbearances
- Medical Costs
- Financial hardships
- Change of job
- Others reasons depending on the lender
If you meet this form of loan conditions, your loan servicer would be required to offer you a forbearance. Compulsory forbearance is given for 12 months only. If you still count, you must resubmit your details at the conclusion of the 12-month cycle. According to the Federal Student Aid section, Required Forbearance forms are listed here:
- Student Loan Debt Burden (Direct Loans, FFEL Program loans, and Perkins Loans)
- Medical and Dental Internship/Residency, Department of Defense Student Loan Repayment Program or National Guard Duty, (Direct Loans and FFEL Program loans only)
- Teacher Loan Forgiveness Forbearance Request
- AmeriCorps Forbearance
How Does Forbearance Differ From Deferment?
The distinction between a deferment and forbearance is that during the deferment period, you don’t have to pay the interest on many other forms of federal loans. A postponement helps you to delay payments on your loan and interest on a subsidized federal loan does not increase.
Forbearance is when the monthly payment for student loans is temporarily suspended or reduced, but debt is always adding up. You are liable to pay interest which rises on all forms of federal student loans during forbearance. You will read on the Department of Education website what the requirement for deferment and the requirement for forbearance is.
When you have a rough time managing your student loan debt then a deferment or forbearance could be the best option for yourself in a temporary. Another choice to examine is the revenue-driven repayment program focused on your earnings and family size. When you are struggling to make your student loan payments, please contact your loan servicer promptly.