How to Defer or Forbear Your Student Loans

Sam

Navigating the world of student loans can feel like trying to find your way through a dense forest without a map. But don’t worry! We’re here to guide you through the options of deferment and forbearance, which can be lifesavers when you’re facing financial difficulties. Let’s dive into how these options work, when to use them, and their impacts on your financial future.

What is Student Loan Deferment?

Deferment is like hitting the pause button on your student loan payments. During a deferment period, you can temporarily stop making payments or reduce the amount you pay.

Types of Deferment

  • In-School Deferment: Available if you’re enrolled at least half-time in an eligible school.
  • Unemployment Deferment: If you’re out of work and actively seeking employment, this option might be for you.
  • Economic Hardship Deferment: For those struggling to meet basic needs, including those in the Peace Corps.

Eligibility for Deferment

To qualify for deferment, you’ll need to meet specific criteria, such as being enrolled in school, facing unemployment, or experiencing economic hardship. Each type of deferment has its own set of requirements.

How to Apply for Deferment

Applying for deferment usually involves filling out a form with your loan servicer and providing proof of your eligibility. Make sure to keep up with your payments until your deferment is approved.

What is Student Loan Forbearance?

Forbearance allows you to temporarily reduce or suspend your student loan payments, but interest will continue to accrue.

Types of Forbearance

  • General Forbearance: Also known as discretionary forbearance, this is granted at the lender’s discretion.
  • Mandatory Forbearance: Lenders must grant this if you meet certain criteria, such as serving in a medical internship or residency.
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Eligibility for Forbearance

Eligibility for general forbearance is at the discretion of your lender, typically for reasons like financial difficulties or medical expenses. Mandatory forbearance has specific eligibility criteria.

How to Apply for Forbearance

To apply, contact your loan servicer and submit the required forms and documentation. As with deferment, continue making payments until your forbearance is approved.

Differences Between Deferment and Forbearance

While both options provide temporary relief, they have key differences.

Interest Accrual

  • Deferment: Subsidized loans do not accrue interest during deferment.
  • Forbearance: All loans accrue interest, which can significantly increase your total loan balance.

Impact on Credit

Neither deferment nor forbearance will hurt your credit score, but missed payments before approval can.

When to Choose Deferment

Deferment is ideal if you have subsidized loans and meet eligibility criteria, as you won’t accrue interest.

Benefits of Deferment

  • No Interest on Subsidized Loans: This can save you a lot of money in the long run.
  • Protection from Default: Keeps your loans in good standing while you sort out your finances.

Drawbacks of Deferment

  • Limited Availability: Not all borrowers will qualify.
  • Temporary Solution: Does not reduce your overall debt.

When to Choose Forbearance

Forbearance is a good option if you don’t qualify for deferment or need a quick fix for financial strain.

Benefits of Forbearance

  • Flexibility: Easier to qualify for than deferment.
  • Immediate Relief: Quickly reduces or suspends payments.

Drawbacks of Forbearance

  • Interest Accumulation: Can significantly increase your loan balance.
  • Temporary Relief: Doesn’t address the root cause of your financial difficulties.

How to Manage Loans During Deferment or Forbearance

Even though payments are paused, it’s crucial to manage your loans wisely.

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Track Interest Accrual

Keep an eye on how much interest is accumulating, especially during forbearance.

Make Interest Payments if Possible

If you can afford it, paying the interest can prevent your loan balance from ballooning.

Stay Informed About Your Loan Status

Regularly check in with your loan servicer and stay on top of any changes to your account.

Alternative Options to Consider

Deferment and forbearance aren’t your only options. Here are a few alternatives:

Income-Driven Repayment Plans

These plans adjust your payments based on your income and family size, potentially lowering your monthly payment.

Loan Forgiveness Programs

Some programs offer loan forgiveness after a certain number of payments, particularly for those in public service jobs.

Refinancing Your Loans

Refinancing can lower your interest rate, but it may extend your repayment period and reduce eligibility for forgiveness programs.

Potential Pitfalls to Avoid

While deferment and forbearance can provide relief, there are pitfalls to avoid.

Ignoring the Interest

Don’t forget that interest accrues, especially with forbearance. This can lead to a much larger loan balance over time.

Defaulting on Loans

Ensure you continue making payments until your deferment or forbearance is officially approved to avoid defaulting on your loans.

Not Exploring Other Options

Consider all your options before deciding on deferment or forbearance, including income-driven repayment plans and loan forgiveness.

How to Resume Payments After Deferment or Forbearance

Once your deferment or forbearance period ends, it’s time to resume regular payments.

Review Your Loan Terms

Check your loan terms to understand your new payment schedule and amounts.

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Create a Budget

Include your student loan payments in your monthly budget to avoid falling behind.

Contact Your Loan Servicer

If you’re struggling to make payments, contact your loan servicer to explore other options, such as adjusting your repayment plan.

Conclusion

Deferment and forbearance are valuable tools for managing student loan payments during tough times. Understanding the differences and knowing when to use each option can make a big difference in your financial journey. Remember, these are temporary solutions designed to provide breathing room, not permanent fixes. Keep an eye on interest accrual, stay in contact with your loan servicer, and explore all your options to find the best path forward. With the right approach, you can navigate your student loans without losing your way.

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