When finances get tough, student loans might be an expense you choose to ignore, but there are other options better than defaulting on that student loan.
Nearly half of recent graduates wish they'd taken on less student loan debt, according to a survey from Student Loan Hero. And with recent economic changes, shifts in circumstances can make it difficult to make your student loan payments. There are a variety of options available to student loan borrowers who are having trouble making payments, both related to coronavirus legislation and that are regularly available.
A deferment or forbearance, for instance, will temporarily suspend your federal student loan payments, which can be helpful when circumstances warrant it.
What Is a Student Loan Deferment or Forbearance?
If you’re struggling with your federal student loan payments due to a temporary financial situation, you can request a deferment or forbearance from your student loan servicer.
With a deferment, you won’t accrue interest on subsidized federal loans or on the subsidized part of direct consolidation loans or FFEL Consolidation Loans. Interest would accrue, however, on any unsubsidized loans. With a forbearance, you’ll accrue interest on all loans, whether they’re subsidized or unsubsidized. Qualification for each situation is different.
If interest is accruing, you have the option of making interest payments during the time your monthly payments are suspended. If you don’t, the interest will be added to your loan balance, which can increase your monthly payments once you start paying again.
It’s also important to note that if you’re working toward student loan forgiveness, your period of deferment or forbearance won’t count toward your forgiveness requirements.
How Has COVID-19 Affected Student Loan Payments?
For now, if you’re a federal student loan borrower, your loans have been placed automatically in an administrative forbearance from March 13 until September 30, 2020, and the interest rate has been set at 0%. That means you don’t have to make payments at all during that period, although you can continue to make payments if you wish, and no interest is accruing. If you’re not sure if this applies to you, call your lender to find out.
If you’re still having trouble (or anticipate having trouble) making payments after September 30, you’ll have to request a deferment or forbearance from your student loan servicer.
Who Qualifies For a Deferment?
Deferments are available to federal student loan borrowers who meet one of the following criteria:
- Economic hardship: If you receive a means-tested benefit, such as welfare, if you’re working full-time but earn less than 150% of poverty guidelines in your area, or if you’re serving in the Peace Corps.
- Graduate fellowship deferment: If you’re enrolled in an approved graduate fellowship program, such as those for doctoral students.
- In-school deferment: If you’re enrolled at least half-time at an eligible college or career school.
- Military service and post-active duty student deferment: If you’re on active duty military service or if you’ve completed active duty service and any applicable grace period.
- Parent PLUS borrower deferment: If you’re a parent who received a Direct PLUS Loan to help pay for your child’s education, and the student is enrolled at least half-time at an eligible college or career school.
- Rehabilitation training deferment: If you’re enrolled in an approved rehab program (such as those providing vocational, drug abuse, mental health or alcohol abuse rehab treatment).
- Unemployment deferment: If you receive unemployment benefits or you’re seeking and unable to find a full-time job.
Who Qualifies For a Forbearance?
If you don’t qualify for a deferment, you can request a forbearance due to financial difficulties, medical expenses, a change in employment, or other reasons that may depend on your loan servicer’s rules.
There are also situations in which your lender may be required to grant a forbearance. These situations include:
- Serving an Americorps position for which you received a national service award
- Serving in a medical or dental internship or residency program
- Qualifying for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program
- Being a member of the National Guard, activated by a governor but not eligible for a military deferment
- Owing 20% or more of your total monthly gross income toward federal student loan payments, for up to three years
- Performing teaching service that would qualify you for teacher loan forgiveness.
How Long Can You Suspend Payments?
The length of your deferment will depend on the reason you're requesting it. A deferment for financial hardship, however, can be no longer than three years. A forbearance for financial hardship can be granted for no more than 12 months at a time. You can request an additional forbearance, but you're limited to three years of forbearance in total.
If you request a deferment or forbearance for circumstances with other timing, such as a deferment because you're enrolled in a graduate program or because you're serving in a medical residency, the suspension of payments will match your time in those circumstances.
What If You Have Private Student Loans?
Your deferment and forbearance options will depend on your private lender. Many private student loan lenders have made allowances for hardship due to coronavirus, making national disaster forbearance available. Reach out to your lender to see what your options are.
Are There Other Options Available?
If you have federal student loans and your income is low enough, you may be able to drop your payments to $0 (or a much lower amount) via an income-based repayment plan. Income-based repayment plans take into account your income and family size to determine a student loan payment that makes sense for your circumstances. Your loan servicer can help you figure out if this is the right path for you.