Getting your college degree is an expensive process. Tuition, fees, room and board added up to an average of anywhere from $18,391 at a public, in-state school to $40,917 at a private school for the 2013-14 school year, according to the College Board. With the cost of a college education so high, many graduates are overwhelmed by student loan debt at graduation. Before you fall behind on federal student loan debt, you have various options that can help you catch up, including forbearance and deferment. While both allow borrowers to stop paying on their loans for a while, a deferment can also stop interest from accruing.
Why to Avoid Delinquency
Deferment and forbearance have one key benefit in common – they prevent your loan debt from becoming delinquent, or past-due. Student loans are like other debts in that, outside of a special arrangement with the lender, they must eventually be paid off. Becoming delinquent on a student loan means you’ll accrue late fees, and it may even escalate to collections. Failure to meet federal loan requirements can have serious and extreme consequences, like seizing your income tax refund or garnishing your wages. In addition, late payments or defaults on a student loan show up on your credit report when you try to borrow from someone else, so it’s not a private debt that goes unseen by others.
A deferment allows for a period of time that you can halt making monthly payments on your federally subsidized loan. The government may even pay the interest during the deferment period. Deferments are available while you’re a student, if you go into the military, if you’re unemployed, or if you undergo an economic hardship that makes it difficult to repay the loan. To get a deferment, you must request it from your lender or, if still a student, go through your school’s financial aid office.
If you don’t qualify for a deferment, a forbearance might be another option. Similar to a deferment, a forbearance allows you to stop making payments for a period of time, however, the interest will continue to accrue. Lenders generally grant a forbearance under certain common types of circumstances: if you’re serving a medical or dental residency; owe more than 20% of your income in student loan payments; serve in national service; qualify for partial loan repayment from the military; or are a member of the National Guard who can’t get the military deferment. Lenders can also grant a forbearance for economic hardship or health issues, although these are at the lender’s discretion. In any case, forbearances are granted directly by your lender.
When you cannot qualify for a forbearance or a deferment, you still have options. You can work with your lender to establish a different repayment plan that may result in lower monthly payments. In very limited instances, the student loan can even be canceled. Typically this happens only when the school closes or does something illegal or fraudulent. It can also happen if you take a job – like teaching or serving in the military – that qualifies you for getting your loans fully or partially repaid.
Deferment, forbearance and alternate repayment plans are all features of federal student loan programs like direct loans or Perkins loans. If you take out a private loan, though, your options are based on what your lender chooses to offer. Private loans don’t have to offer deferment or forbearance programs and usually won’t have the same repayment plans as federal loans. They also rarely offer programs to forgive balances.
About the Author
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Lander holds a Bachelor of Arts in political science from Columbia University.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2014 ConsumerInfo.com, Inc. All rights reserved.