Understanding Student Loans Deferment and Forbearance

What is Student Loans Deferment?

Student loans deferment or forbearance is the arrangement that allows you to temporarily suspend the repayment of your student loans with or without interest being accrued for a specified period. Student loans deferment and forbearance are applicable to Federal Student Loans. Some people use the terms “student loans deferment” and “student loans forbearance” interchangeably. But unfortunately, the two terms are not the same. While the two arrangements help you to postpone the payments of your student loans for a specified period, student loans deferment may not accrue interest during this period while forbearance will definitely accrue interest. However, it has to be noted that it is not all student loans deferment that will not accrue interest. If interest accrues on your student loans during deferment or forbearance period, you have the option of paying the interests as they accrue every month or you allow the interest to accumulate. The accumulated interest will then be added to your loan balance. This is known as capitalization of interest. However, if you have Perkins Loans, any unpaid interest will not be capitalised. Capitalization will make your loan balance to increase. The monthly interest will also increase as a result of the interest you capitalised.

Do you pay interest during deferment or forbearance?

How would you know whether your student loans will attract interest or not? I have already mentioned that all student loans accrue interest during forbearance period. But during deferment period, certain types of student loans will not accrue interest while some will do. Below is the list of student loans that don’t accrue interest during deferment period:

  • Direct Subsidized Loans
  • Subsidized Federal Stafford Loans
  • Federal Perkins Loans
  • Direct Consolidation Loans (Subsidized Portion)
  • FFEL Consolidation Loans (Subsidized Portion)

Read Also: Student Loans: How to Minimize Your Student Debts

On the other hand, if your student loans fall in the categories listed below, interest will accrue during the deferment period.

  • Direct Unsubsidized Loans
  • Unsubsidized Federal Stafford Loans
  • FFEL PLUS Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans (Unsubsidized Portion)
  • FFEL Consolidation Loans (Unsubsidized Portion)

If you think you want to postpone the repayment of your student loans, you will need to apply through your loan servicer. You are expected to fill the application form accurately. Any false statement or misrepresentation on the form will attract penalties that may include fines, imprisonment, or both. You are expected to continue making your monthly payment until your loan servicer inform you that your application has been processed and approved. Otherwise, you may be delinquent. Your loan servicer may require certain documentation from you to ascertain your eligibility.

Read Also: Student Loan Consolidation Facts You Need to Know

Why Student Loans Deferment or Forbearance?

Student Loans Deferment and Forbearance are designed to help those people that find it difficult to pay their student loan indebtedness. The reason for the inability to pay may be due to loss of job, unemployment, under-employment, sickness. On the other hand, it may be that the borrower is going back to school. This arrangement will prevent their loans from going into default which is capable of damaging their credit score.

Different Student Loans Deferment Options

  • Parent PLUS Borrower Deferment: Parent PLUS Borrower Deferment is available for parent borrowers of a Direct or Federal PLUS Loan that was first disbursed on or after July 1, 2008 or who has an outstanding balance on a FFEL Program loan first disbursed before July 1, 1993, or had a balance on a FFEL Program loan first disbursed before July 1, 1993 or when you obtained a Direct or Federal PLUS Loan on or after July 1, 1993. If your loan was first disbursed before July 1, 1993, the student must be a dependent student during the deferment period. To qualify, the student on whose behalf you borrowed the PLUS Loan must be enrolled full time or be enrolled at least half time, but less than full time, unless you had a balance on a FFEL Program loan first disbursed before July 1, 1987 when you obtained a Direct Loan or FFEL Program loan that was first disbursed on or after July 1, 1987. Parent PLUS Borrower Deferment also allows you to defer repayment for the six months following the date that the student on whose behalf you borrowed ceases to be enrolled at least half time if your Direct or Federal PLUS Loan was first disbursed on or after July 1, 2008.
  • In-School Deferment: This deferment applies to you if you are enrolled full time at an eligible school. You are also eligible if you are enrolled at least half time, but less than full time, at an eligible school (only if you are a Direct Loan borrower, a Perkins Loan borrower; or a FFEL Program borrower who did not have an outstanding balance on a FFEL Program loan that was first disbursed before July 1, 1987 when you obtained a loan on or after July 1, 1987. Federal PLUS Loans that were first disbursed on or after July 1, 2008 are eligible for this deferment regardless of prior borrowing in the FFEL Program.
  • Unemployment Deferment: You qualify for this Student Loans Deferment if you are unemployed and diligently seeking but unable to find full time employment. You must be receiving unemployment benefits and should be able to submit documentation showing your name, address and Social Security Number. Also, you will need to demonstrate that you are still eligible to receive the benefits for the period of time for which you are requesting for deferment. Eligible student loans include Federal Direct Loan (Direct Loan), Federal Family Education Loan {FFEL) and Federal Perkins Loan (Perkins Loan)
  • Graduate Fellowship Deferment: This Student Loans Deferment is meant for students who enrolled in an approved graduate fellowship program. To qualify for Graduate Fellowship Deferment, you must have a bachelor’s degree. You must have been accepted or recommended by an institution of higher education for acceptance into a graduate full time basis. Your graduate fellowship program must provide sufficient financial support to allow full time study for a period not less than six months. Your program must require you to submit periodic reports, project or any other evidence of your progress. If you are studying at a foreign university, your program must accept the course of study from the foreign university towards completion of the fellowship program. If your graduate fellowship program does not require a written statement from you that explains your objectives before the awarding of financial support, this alone can disqualify you. Eligible student loans include Federal Direct Loan (Direct Loan), Federal Family Education Loan {FFEL) and Federal Perkins Loan (Perkins Loan).
  • Rehabilitation Training Program Deferment: To qualify for this student loan deferment, your program should be licenced, approved, certified or recognized as providing rehabilitation training to disabled individuals by the Department of Veterans Affairs or a state agency responsible for vocational rehabilitation, drug abuse treatment, mental health treatment, or alcohol abuse treatment. It should provide services under a written, individualized plan that specifies the date the services will end. You should be able to demonstrate that the program requires substantial commitment of time and efforts by you. Eligible student loans include Federal Direct Loan (Direct Loan), Federal Family Education Loan {FFEL) and Federal Perkins Loan (Perkins Loan)
  • Economic Hardship Deferment: This Student Loans Deferment applies to borrowers with monthly income (your gross income from all sources or one-twelfth of the adjusted gross income from your most recent federal income tax return) less than 150% of the poverty guideline for their family size and state of residence. Eligible student loans include Federal Direct Loan (Direct Loan), Federal Family Education Loan {FFEL) and Federal Perkins Loan (Perkins Loan)
  • Post Active Duty Student Deferment: You are eligible for this Student Loans Deferment is you are on active duty military service. This student loans deferment will end the earlier of the date you resume enrolment at an eligible school on at least a half-time basis or 13 months following the completion date of you active duty service and any applicable grace period.Eligible student loans include Federal Direct Loan (Direct Loan), Federal Family Education Loan {FFEL) and Federal Perkins Loan (Perkins Loan)
  • Military Service Deferment: You are eligible for this Student Loans Deferment is you are on active duty military service. The Military Service Deferment will commence the date you begin performing the military service and end 180 days following completion of your qualifying military service. Eligible student loans include Federal Direct Loan (Direct Loan), Federal Family Education Loan {FFEL) and Federal Perkins Loan (Perkins Loan)

Read Also: Debt Free Living-How to Live a Debt Free Life

Different Student Loans Forbearance Options

Generally, there are two types of student loans forbearance namely voluntary and mandatory deferment. Voluntary forbearance is a type of forbearance that your loan servicer voluntarily offers you. However, you still need to apply for it before you can be granted. It is also called discretionary forbearance. Mandatory forbearance is the forbearance that your loan service is under obligation to grant you as long as you meet the eligibility requirements. Available Student Loans Forbearance options are listed below:

  • National Guard Duty Forbearance: To be eligible for this student loans forbearance, you must be a member of the National Guard and be engaged in active state duty for a period of more than thirty consecutive days because governor activated you based on state statute or policy or with the approval of the President or the U.S. Secretary of Defence. You must be activated no more than six months after the last date on which you were in school at least half time.
  • Medical or Internship Internship/Residency Forbearance: You are eligible for this student loans forbearance if you have been accepted into an internship/residency program and you do not qualify for a medical or dental internship/residency deferment.
  • Teacher Loan Forgiveness Forbearance: This is student loan forbearance for those who are performing qualifying teaching service as a full-time teacher at an elementary or secondary school or for an educational service agency.
  • Student Loan Debt Burden Forbearance: This student loans forbearance is for those who currently have no taxable income or the total amount they owe is month on all their student loans is twenty per cent or more of their monthly gross income.
  • Department of Defence Student Loan Repayment Forbearance: To be eligible for this student loans forbearance, you must be performing service that qualifies you for a partial repayment of your loans under any Department of Defence Student Loan Repayment Program.

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