Deferring payment on student loans is necessary when circumstances prevent a borrower from staying current on payments.
There are many types of deferments available depending on the kind of student loan and the situation.
For instance, deferments on private loans are completely discretionary to the lender.
If a private lender wants to grant or deny a deferment they can, without consequences.
But the lenders may also charge a borrower for seeking a deferment, For example, Sallie Mae often charges $150 for a three-month deferment.
For deferments of federal loans there are rules to be followed and made available to borrowers.
The most common deferment on a federal student loan is the “in school” deferment.
In other words, if a borrower is in school for at least half-time, payments on the federal loans will be deferred.
For Stafford loans there are also deferments available when a borrower is:
- in a rehabilitation training program
- on a graduate fellowship
- in the military service or following active duty
- temporarily totally disabled
- caring for a disabled spouse or dependent.
Deferments are also available for economic hardship.
Economic hardship deferment applications must be in writing and can be issued in one-year increments for a maximum of three years.
To qualify for an economic hardship deferment a borrower must show that they are:
- receiving federal or state public assistance
- are a Peace Corps volunteer
- have an economic hardship deferment on another loan
- working full time but still at 150% of poverty
An unemployed borrower seeking a deferment must be registered with an employment agency and must show proof of eligibility for unemployment benefits.
To obtain an economic hardship deferment on a Parent PLUS loan, all cosigners to the loan have to be unemployed.
In addition to deferments, borrowers can verbally request a discretionary forbearance for causes such as poor health or other personal problems.
While a forbearance may be needed for a short-term crisis it’s important to remember that when a forbearance ends, all interest is capitalized, creating a long-term significant increase in the amount of the student loan debt.
Although deferments and forbearances provide immediate relief to borrowers struggling to make payments, they are not as advantageous as getting onto income based repayment plans. A deferment or forbearance doesn’t provide long-term relief and can actually lead to even more hardship when the interest is capitalized and there’s no long term repayment plan in place. Borrowers should be cautious then about requesting either a deferment or forbearance without having a long term strategy for addressing the student loan balance.