Forgo Deferment & Forbearance on Your Student Loans
June 11, 2018It’s tough to cover a mortgage, wedding, new baby, or medical expense on top of your student loan payments. As such, it can be tempting to request deferment and forbearance on your student loans. Before you apply for these options, be sure to understand the hidden costs that can lead to a much higher, much longer repayment down the road.
Both federal and private student loan programs offer deferment and forbearance options. These options provide you with temporary relief from your burdensome monthly payments and may seem like a good option to avoid a delinquency or default. Think again. Not making payments during your deferment and forbearance periods results in the capitalization of the interest you owe, meaning your loan principal will subsequently increase. Voila! Not only have your monthly payments ballooned when you inevitably start making payments again, but you now owe way more than you did when you first took out the student loans!
Deferment
Deferment is pushing back payments due to a temporary situation and your loan provider has a list of qualifications. The most common types are In-School Deferment, Graduate Deferment, and Military Service Deferment. For Parent PLUS Borrower loans, it is only available to parents who received Direct PLUS Loans or FFEL PLUS Loans. The deferments listed below are available to Direct Loan, FFEL Program loan, and Perkins Loan recipients only as per the Federal Student Aid government website. Types of deferments available differ based on your education loan lender, but there are commonalities between all private student loan debts. According to US News, private lenders can offer deferment relief for up to 6 months, or in extreme cases 12 months.
Federal Student Loan Deferment Types
- In-School Deferment Request
- Parent PLUS Borrower Deferment Request
- Graduate Fellowship Deferment Request
- Rehabilitation Training Program Deferment Request
- Unemployment Deferment Request
- Economic Hardship Deferment Request
- Military Service and Post-Active Duty Student Deferment Request
It sounds like a great deal, but remember – you’re increasing the principal balance of the loan and prolonging the inevitable. Let’s say that you chose to defer your loans. As per MarketWatch, the average undergraduate student comes out with $37,000 in student loan debt. Think the cost of an undergrad degree is a lot? The average cost for a law school student that graduated from a private college is $122,158 according to Forbes. Even more unbelievable is the average Medical School Debt at $189,165 as per Modern Healthcare. Check out our chart below to see the hidden costs associated with deferring your student loan payments. Calculations as per those listed in College Reviews.
Undergraduate Deferment Loan Costs
| Total Loan Cost | Interest Rate | Deferment Period | Loan Length | Total Debt After Deferment | Total Increase in Debt |
|---|---|---|---|---|---|
| $37,172 | 8.25% | 12 months | 10 years | $40,238 | $3,066 |
| $37,172 | 8.25% | 24 months | 10 years | $43,305 | $6,133 |
Graduate Deferment Loan Costs
| Total Loan Cost | Interest Rate | Deferment Period | Loan Length | Total Debt After Deferment | Total Increase in Debt |
|---|---|---|---|---|---|
| $140,616 | 9.50% | 12 months | 10 years | $153,974 | $13,358 |
| $140,616 | 9.50% | 24 months | 10 years | $167,333 | $26,717 |
| $161,722 | 9.50% | 12 months | 10 years | $177,085 | $15,363 |
| $192,449 | 9.50% | 24 months | 10 years | $167,333 | $30,727 |
Forbearance
Financial responsibility starts with taking charge of your financial obligations and developing a sound monthly budget. However, what happens if you unexpectedly lose your job or are unable to work due to medical reasons? You suddenly find yourself in financial hardship and may turn to your student loan provider to seek forbearance options.
Similar to deferment, each loan provider and loan type has a unique set of guidelines to qualify for forbearance. Unlike deferment, forbearance could potentially affect your credit. The guidelines for qualifying for forbearance are different for the federal and private student loan programs, so check with your loan servicers and lenders to determine what forbearance options are available. According to the Federal Student Aid site, there are two types of Forbearance for Federal Student Loans- General and Mandatory.
General Forbearance
According to the government Federal Student Aid site, General Forbearances are used when you cannot make a monthly payment. Direct Loans, FFEL Program loans, and Perkins Loan borrowers qualify for this type of forbearance. Types of General Forbearance as per the Federal Student Aid site.
- Financial difficulties
- Medical expenses
- Change in employment
- Other reasons acceptable to your loan servicer
Mandatory Forbearance
If you meet the requirements for this type of loan, your loan servicer is required to grant you forbearance. Mandatory forbearance is only provided for 12 months. If you still qualify at the end of the 12-month period, you must resubmit your information. As per the Federal Student Aid site, here are the types of Mandatory Forbearance:
- Medical or Dental Internship/Residency, National Guard Duty, or Department of Defense Student Loan Repayment Program – (Direct Loans and FFEL Program loans only)
- Student Loan Debt Burden (Direct Loans, FFEL Program loans, and Perkins Loans)
- AmeriCorps Forbearance (Direct Loans and FFEL Program loans only)
- Teacher Loan Forgiveness Forbearance Request) (Direct Loans and FFEL Program loans only)
Once you qualify for forbearance, there may be a time period in which you may need to reapply in order to continue receiving benefits, as well as a maximum time they’re available. Keep making your monthly payments until forbearance is granted by your lender, as a delinquency on your monthly payments can result in a negative hit to your credit score. Just like deferment, most student loans in forbearance will accrue interest which gets capitalized and added to the principal amount of your loan. Therefore, this seemingly attractive option to postpone your monthly payments during an unexpected financial hardship ultimately further enslaves you to your student loans.
Although deferment or forbearance may seem like a tempting option, it isn’t always the best path forward. Making even a partial monthly payment is better than making no payment at all. Watch your budget closely and get creative with the steps you can take to avoid deferment or forbearance.
Refinancing your student loans is another great option to consider, just be sure to find a reputable lender like Education Loan Finance. By consolidating private and federal student loans into one monthly payment, you may be able to reduce your student loan payments enough to help you afford that wedding or down payment on a home.
