Student Loans: What are Deferments and Forbearances?November 8, 2019
When you graduate from college with student loan debt, you typically have a 6-month grace period before you have to start paying off your loans. Once your grace period is over, however, you may not be in the best position to start paying them, such as experiencing economic hardship. In these situations, you may be able to request a deferment or forbearance that will adjust your loan payments to make them more manageable or delay them altogether.
What is a Deferment?
A deferment allows you to temporarily postpone or stop making student loan payments. You’ll want to be careful about requesting a deferment depending on the type of loans you have, because some will cover the interest during deferment, and some will make you responsible for paying the accrued interest during deferment. For Federal Subsidized Stafford Loans and Federal Perkins Loans, the government will pay interest during the deferment period, while they will not with Federal Unsubsidized Stafford Loans. Also, parents are responsible for paying interest on Federal PLUS Loans while in deferment.
There are various reasons why you could qualify for deferment, including:
- Experiencing unemployment
- Economic hardship
- Student enrollment
- Graduate fellowships
- Rehabilitation training
Technically, you are entitled to deferments – if you qualify for one and submit a request in a timely manner, your loan servicer is required to grant a deferment. However, this doesn’t mean you can stop paying once you submit the request – keep making monthly payments until the request is approved to avoid taking any knocks to your credit score. Once the deferment is granted, be sure to know when it ends, and be prepared to start making payments from that point forward, as that will be expected.
What is a Forbearance?
In the case that you don’t qualify for a deferment, you may have to request a forbearance on your student loans. When in forbearance, you can either make reduced payments or no payments at all for a limited period of time. In almost all forbearance cases you will be responsible for the interest that accrues on your student loan balance.
The two types of forbearances are discretionary and mandatory. Discretionary forbearances are up to your loan servicer to grant, but you can request them in cases of financial hardship or illness. For mandatory forbearances, if you meet the eligibility criteria for the forbearance, your loan servicer is required to grant the forbearance. You can request a mandatory forbearance if:
- Your federal student loan debt exceeds 20% of your gross income.
- You are serving in a medical or dental internship or residency.
- You are serving in a national service position for which you received a national service award.
- You are performing teaching service that would qualify for teacher loan forgiveness.
- You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
- You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
As with deferments, you must continue to make your monthly payments until the request for forbearance is approved by your loan servicer. Going into forbearance will not cancel out or erase any missed payments you have, so if you are in need of a forbearance, it may be better to request it quickly as to avoid any effects on your credit score.
Managing student loan payments isn’t always easy. If you’re having trouble making payments on your loan, you should contact your loan servicer immediately and learn about your options. It’s important for them to be aware of your specific situation so they can provide you with the appropriate information and help you avoid defaulting on your loans. If you default, you are not eligible for a deferment or forbearance.
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