Student Loan Deferment: How it Works
Life is unpredictable and sometimes people need their student loans deferred, which simply means they need a temporary suspension of their loan payments. Reasons for deferment may include going back to school, losing a job, or an unexpected medical emergency. If you need to defer your loan payments for any reason, contact your lender right away.
Deferments for federal student loans, while not common, are definitely possible if you know where and how to ask and if you abide by certain rules.
First, you must apply for a deferment from your lender and keep making your payments until the deferment has been approved. If you simply stop making payments before the process is complete, you risk being tagged as delinquent or in default, both bad for your credit rating.
Also, pick up the phone and speak to your lender before the late fees hit. If you have a Perkins Loan, call your school or the loan servicer. If you have Stafford Loans, call the servicer. If you don’t know who your servicer is, check the U.S. Department of Education’s National Student Loan Data System.
Watch Out for Interest Payments
Be aware that interest still accrues during most deferments and, depending upon the type of loan it is, might still need to be paid. For example, with an unsubsidized Stafford or Direct Loan, you must still pay the interest during the deferment. However, with a subsidized loan or a Perkins Loan, you do not have to pay the interest during a deferment, even though it is still accruing. PLUS Loans are unsubsidized, therefore you’re still responsible for paying the interest during a deferment. You can always add the interest to the principal, called capitalizing, if you need to.
Types of Deferment and Other Debt Relief
Specific types of deferments are:
- Military Service. Direct, FFEL, and Perkins Loans are all eligible for deferment for borrowers who are in active duty in the military.
- Post-Active Duty Deferment. If you are in the National Guard or some other segment of the U.S. Armed forces and are called to active duty while enrolled at least half-time or within six months of being enrolled at least half-time, at an eligible school, you qualify for deferment during the 13 months after the conclusion of active duty or until you return to school at least half time.
- Economic Hardship Deferment. You may qualify for this deferment for up to three years if you are experiencing economic hardship as defined by the federal government.
There are other kinds of payment relief besides deferment, such as:
- Forbearance. This is a temporary reduction or deferment of payments due to financial difficulty. Even if you’re not eligible for deferment, you may be for forbearance. You lender may grant forbearance for up to 12 months and you must apply.
- Changing payment plans. The repayment plan you chose when you signed up for the loan may not be the best one for you after all. Your post-graduation financial situation might be a lot different that you had hoped and seeking a new plan may be wise. The Federal Family Education Loan Program allows you to change repayment plans once a year. Under the Federal Direct Student Loan Program, borrowers may change plans at any time just as long as the maximum repayment period under your plan is longer than the time your Direct Loan has been in repayment. Check with your lender for details.
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