There are two ways in which you can get temporary relief from student loan repayments if you are having trouble making payments. These are forbearance and deferment.
Deferment is a period of time in which your lender excuses you from making any payments due to special circumstances. These include unemployment, economic hardship, returning to school (gradschool) or military deployment.
Alternatively, if you do not qualify for deferment, your lender may choose to grant your forbearance. This will temporarily reduce or suspend your student loan payments for up to 12 months.
There may be a lot of similarities between the two, but there are significant differences you should be aware of before you apply for either of them.
– Both deferment and forbearance are temporary. Deferment can last up to 36 months, but forbearance lasts up to 12 months.
– Most federal loans like PLUS, Perkins and Stafford offer both programs and are often written into the terms of your loan. However, private lenders are not obligated to offer either of these programs. If you have a student loan with a private lender, you will have to contact them directly to find out whether you are eligible for either program.
– Once you apply for either deferment or forbearance, you must continue to make your student loan payments until your application has been approved. If you fail to do so you may default on your loan and your credit score will be negatively impacted.
– If you are in default on your student loan – you have not made a payment in 270 days – you will not be able to qualify for either deferment or forbearance.
Deferment is usually the first program people will apply for if they need help paying their student loans.
Depending on the circumstances in which you are applying for deferment, you can defer your payments in six month intervals for up to 3 years. During this time you are expected to improve your financial situation.
For example, if you become unemployed, you are expected to seek new employment during this time.
Common reasons why people choose to defer payments:
– Unemployment
– Returning to full-time education in an approved graduate fellowship program
– Enrolled as a part-time student
– Facing economic hardship
– Partaking in active military service (active war, military operation or national emergency)
If you re-enroll in college at least half-time, or you enroll in graduate school, your loan company will automatically place your loans in deferment once they receive verification of your enrollment status. If you wish to continue paying loans whilst studying, you can cancel deferment.
To request a deferment, contact your lender and fill out the application. Be prepared to provide evidence for your circumstances.
It can be more difficult to qualify for a deferment than forbearance, however, it’s worth looking into the option as you can make considerably bigger savings in interest.
If you do not qualify for deferment, you can apply for forbearance which will suspend or reduce your student loan payments for up to 12 months.
There are two types of student loan forbearance.
General Forbearance
General forbearance is at the discretion of your lender on the basis of unemployment, financial difficulty, significant reduction of income, or overwhelming medical bills.
If you qualify for general forbearance, you’ll be given either a suspension or reduction of payments for up to 12 months.
After 12 months, you may be able to request another forbearance period, however, some lenders may limit the total length of forbearance to a maximum of three years over the lifetime of the loan.
Mandatory Forbearance
Federal loan providers must accept your forbearance request if:
– Your loan repayments are more than 20% of your monthly gross income
– You are enrolled in a medical or dental residency or internship
– You are a teacher who qualifies for the student loan forgiveness program
– You serve in the AmeriCorps program, or any similar volunteer-based programs
– You serve in the National Guard
– You are enrolled in the Department of Defense’s loan repayment program
If your student loans are through the Federal Family Education Loan Program (FFEL) which no longer exists, or the Direct Loan program you may be eligible for deferment or forbearance.
Like noted earlier, if you use a private loans service you will need to check directly with them if you can apply and if you are eligible for the programs.
During both deferment and forbearance, interest will still be charged, but who pays the interest can vary.
If you have a subsidized federal loan, the government is required to pay the interest during a deferment period, however, they are not required to pay interest during forbearance periods.
If you take deferment or forbearance periods on any other loans (e.g. mortgage) you will be responsible for paying interest.
During a deferment or forbearance period, you may wish to make interest-only payments. If you don’t, the interest may be added to your principal balance, which will increase the amount you will have to pay in the future (your monthly payments may increase in price once the deferment/forbearance payment ends).
A common misconception is that using either deferment or forbearance for student loans will negatively impact your credit score.
But you do not need to worry about this as during the program period, your credit score will not be affected by student loan payments.
Student loan forbearance or deferment will be noted in your credit report, however, neither will hurt your overall score.
It’s worth mentioning that your credit score will be negatively affected if you are late or miss a student loan payment before your deferment or forbearance has been approved.
The Bottom Line
Loan forbearance can be a helpful means of protecting your credit score when you are unable to meet your monthly payments. For student loans, forbearance is a built-in option, so do not hesitate to use it when you need it.
