Although there are several repayment plans available to fit many situations, you still may not be able to make your student loan payments due to many different circumstances. If this is the case, you could be eligible for a deferment or forbearance. There are many circumstances that may inhibit your ability to make your student loan payments, either temporarily or permanently. This is why there are a variety of deferments and forbearances available for you to use to your advantage. Let’s take a look at the most common available options.
What Are Deferments?
A deferment gives a student the option to temporarily stop making their loans payments. The lender has the discretion to grant the deferment, and the length of the deferment will vary. Most lenders will also require paperwork to prove the student is eligible for the designated deferment. The deferments mentioned below are some of the most common types of deferments available. Although there are a very few that are not mentioned, the deferments listed below apply to the majority of people.
In-School Deferment
Do you have student loans, but want to go back to college? Almost every lender grants the in-school deferment so that you can go back to school without worrying about making loan payments from any previous student loans. Students going back to school must maintain at least half time status. Although half-time status varies from school to school, it is usually 6 hours for undergraduate students and 4 hours for graduate students. Once you are enrolled in school, ask your lender for an in-school deferment and fill it out according to your lender’s instructions.
Economic Hardship Deferment
If you are working, but not making enough money, you could qualify for the Economic Hardship Deferment. In 2007, the passage of the College Cost Reduction and Access Act changed the definition of economic hardship. Now economic hardship is determined as your total monthly gross income compared to 150% of the poverty line. To put it simply, let’s consider the following example:
Annual federal government poverty line for a typical family of four is currently $23,050
150% of the poverty line = $34575
If your gross annual income falls below $34575, then you qualify for the Economic Hardship Deferment. Under this deferment, the government can pay the interest on any federal subsidized loans you may have. This could help you by lowering your monthly payment, and allow you to pay more on the principal. However, if you are like most people, you can take advantage and defer making any payments until you are financially able to do so. The interest on any subsidized federal loan is still paid by the government so your loan balance will not grow substantially, if any at all. For most government loans, the Economic Hardship Deferment has a three-year limit. Private loans may follow different guidelines for defining economic hardship and have different limits for the length of time you can take the deferment.
How Does the Economic Hardship Deferment Differ From the Income Based Repayment Plan?
You may have noticed that both plans use 150% of the poverty line and family size to calculate a formula, but there are differences in the two. You can defer your payment under the Economic Hardship Deferment if your income falls below 150% of the poverty line for your designated family size. If your income doesn’t qualify, you could qualify for the IBR plan. In this plan, your monthly payment is based on 15% of your income that is above the 150% poverty line. Consider the following example:
| Person A (Family of 4) | Person B (Family of 4) | ||
|---|---|---|---|
| Gross Annual Income | $34,000 | Gross Annual Income | $40,000 |
| Poverty Line at 150% | $34,575 | Poverty Line at 150% | $34,575 |
| Person A Qualifies for Economic Hardship | Person B Does Not Qualify for Economic Hardship | ||
Person B has options under the Income Based Repayment Plan
IBR Calculation = (Gross Annual Income- 150% of poverty line) x 15% = (Annual Contribution / 12) = Monthly Payment
IBR calculation = ($40,000 – $34,575) = $5,425 x .15 = ($814 / 12) = $68
While person B makes $40,000 per year and doesn’t qualify for economic hardship, 15% of the difference between $40,000 and $34,575 equals a monthly IBR repayment of $68.
Federal Poverty Guidelines
For more information about where you and your family are placed according to the federal poverty guidelines, visit the following website:
https://aspe.hhs.gov/poverty-guidelines
Other Student Loan Deferments You May Be Eligible For:
Unemployment
If you aren’t working or are working less than 30 hours per week, you could qualify for the Unemployment Deferment. There are two different ways that you can show that you can prove you are unemployed and therefore eligible to receive the Unemployment Deferment. The first way is to be actively seeking a job. If possible, registering with an employment agency is also necessary. A second way to prove eligibility is to show that you can receive unemployment benefits. If you are currently receiving unemployment benefits, then you are eligible to receive an Unemployment Deferment. These deferments can be taken for 6 months at a time, but cannot go beyond 3 years.
Temporary or Total Disability
If you are disabled, either temporarily or permanently, you can qualify for the Temporary or Total Disability Deferment. There are several criteria for the disability deferment.
- Your first FFEL loan must have been taken before July 1, 1993
- You must not have been disabled prior to taking out the student loan.
- You cannot apply for the deferment for an “uncomplicated” pregnancy
- You must be unable to work or go to school for at least 60 days while you are recovering from your injury or illness.
- Your illness or disability must be certified by a doctor and recertified every six months.
- You can also qualify if your spouse is disabled and you are caring for them in a manner that prevents you from working full time.
As with many other deferments, the temporary or total disability Deferment can only be used for a maximum of three years.
Money Saving Tip 1
- If you can afford to do so, pay off all or some of the interest that accrues on your student loan while it’s in deferment. If left unpaid, this interest gets added to the principle, which increases your monthly payment in the end as well as the overall interest accrued over the life of the loan.
Money Saving Tip 2
- Did you know that the maximum period of time for any deferment, except the in-school deferment, is three years? Use these deferments wisely and begin paying as soon as you can. In this way, you can always use the remainder of your deferment period should you need them again.
Military Service
Are you currently serving on active duty in the military or National Guard? If so, then you can qualify for the military service deferment provided that you meet the following requirements:
- You must be on active military duty, not attending training or enrolled in a military school.
- You must be performing active National Guard duty, which can include training that is more than 30 days long in preparation for going to war.
- Deferment is for student loans that were disbursed on or after July 1, 2001.
- Maximum deferment period is three years.
Public Service
Persons that work or volunteer in certain public service organizations can qualify for a public service deferment. These organizations include:
- Public Health with the U.S. Department of Public Health Service
- NOAA with the National Association of Oceanic and Atmospheric Administration
- Tax Exempt Organizations, as defined by the IRS code, that serve low income and impoverished communities with a variety of social services. This includes serving as a volunteer or making a salary that is below the federal minimum wage.
- Peace Corps- serving full time for at least one year.
Each organization has different criteria when applying for the public service deferment. Generally speaking, much of the required paperwork will need to include signatures from supervisors and other officials and include the dates of service. Maximum deferment period is three years.
The Bottom Line on Deferments
Although there are a number of deferments available to you, they all have a maximum deferment period of three years. The interest is also accruing and compounding on the loan too. Therefore, it’s important to use a deferment only when it is absolutely necessary. Your lender will also be able to explain each deferment in greater detail and give you the necessary paperwork to fill out. Although most deferment forms are identical, they could differ slightly from lender to lender.