If you’re considering forbearance or deferment for your college loans, then chances are you struggle with making the minimum monthly payment. Don’t feel bad. There are a lot of borrowers out there that are in the exact same situation.
Unfortunately, student loan debt has become one of the most out-of-control credit obligations in the United States. The primary reason behind this the aggressive collections methods used against those who default on their student loans. Perhaps the biggest mistake you can make when it comes to your student loans is simply not making a payment.
The Difference Between Deferment and Forbearance
The unfortunate reality is that your lender only cares about whether or not you continue making your student loan payments. It’s no concern of theirs whether you are able to or not. Whatever you do, don’t make this worse by ignoring the payments. If you discover that you are unable to pay what you owe each month, reach out to your loan servicer and discuss your options.
Typically, you’ll have two options from which to choose, Forbearance or deferment. These are the two most encouraged options, and while they are similar, they are not the same. Let’s take a look at the differences between them.
Forbearance is your best option when you don’t qualify for the deferment, which we’ll get to in a second. When you have an account in forbearance, you can stop or lower your monthly payments, and you won’t have any late charges or penalty fees piling up. This can last as long as 12 months.
The key difference between a forbearance agreement and deferment is that with the latter, you’re still accruing interest. This is the case whether your loan is subsidized or unsubsidized. Deferment is preferable, but that usually depends on what type of loan you have, along with your stated reason for wanting to defer.
When your account is in deferment, you are officially able to quit making payments on your student loan. This means you are free from any penalties or late fees, and your account will continue to be in good standing with your loan servicer. Keep in mind that deferment is only temporary, and eventually you will be expected to continue making payments on your student loans.
One item to note is that the vast majority of student loans are going to continue to accrue interest while they’re in deferment. Subsidized federal loans mean that the government will cover the interest on your student loans, which is a nice benefit to have. Unfortunately, if you do not have a subsidized loan, the interest you owe will continue to accrue and be added to your balance.
Consequences of Not Making Payments
As was mentioned previously, the last thing you want to do is quit making payments and default on your student loan obligations. Here are just a handful of consequences you’ll see if you stop making payments:
- Increased loan balance
- Legal suits against you
- Wage garnishment
- Income tax return withheld
- Ruined credit
There is a good chance there are additional negative repercussions aside from the ones on this list. It’s important to do your due diligence and reach out to your loan servicing representative if you can’t make payments.
Forbearance and deferment are both options if you are in danger of defaulting on your student loan. You have to qualify for both, but it’s better to let the loan service know that you are having trouble than to quit making payments. More often than not, the servicer will work with you to establish a situation that works for both parties.
Type of Forbearance
Two types apply to reduce or postponing student loans. Let’s take a look at each type, along with the necessary qualifications for them.
Discretionary forbearance occurs when the lender decides to allow you one based on their own criteria. Most often you can gain approval if you can show that a financial hardship or illness is making it difficult for you to meet your financial obligations.
When it comes to mandatory forbearance, you are in a specific situation that requires your loan servicer to grant you one. An example of this type of forbearance is if you’re doing an internship or residency (dental or medical), if you were in a national service position and received a national service award, or if you qualify for teacher loan forgiveness because of your teaching profession.
You could also qualify for mandatory forbearance if you meet the requirements of the US Department of Defense Student Loan Repayment Program, or if you are actively serving in the National Guard. Additionally, you may meet the criteria for mandatory forbearance if the monthly payments of your student loan total more than 20 percent of your gross income each month.
Tips When Reducing or Postponing Student Loan Payments
So you’ve qualified for forbearance, now what? Let’s take a look at some ways you can continue to address your student loan debt during this time. We’ll also offer some tips on how to be ready to make full payments when this period ends.
First, if you can, try paying the interest accruing on your loan each month. If your loan is subsidized, the United States government takes care of these payments for you. But if it’s not, interest is accruing on your loan.
If you aren’t making payments, your balance at the end of your forbearance is going to be considerably larger than it was before. So do your best and at least attempt to pay down the interest on your loan while you’re in forbearance.
Second, do your best to live a frugal lifestyle. The purpose of this article is to discuss forbearance, not tell you how to live. However, if you can change your lifestyle while you’re in forbearance, it will carry over. That means you’ll have additional finances to put toward your student loan.
Lastly, be ready when your forbearance ends. Do your due diligence on repayment options and plans available to you. Relief from making payments is temporary, so when it ends, you want to have the knowledge and information needed to be ready. If all else fails, reach out to the loan service provider and ask your questions. Then you’ll have the answers you need and know what to expect when it ends.
Is Forbearance the Right Choice?
If we’re honest with ourselves, the option to not make payments on a hefty bill can be very tempting. However, doing so may not be the best decision. Before you decide whether or not to move forward with forbearance, consider a few questions:
- What is the primary reason for delaying payments?
- Do you want a long-term or short-term solution?
- Would deferment make more sense?
- Would a federal repayment plan provide more relief?
In addition to these questions, you might take a close, hard look at your budget. Sometimes there are places where you can make cuts. They are never pleasant or fun cutbacks, but usually, they are there.
Take a moment to consider why you want to pursue forbearance. It’s not always easy to determine whether or not it’s the right course of action for you. Reach out to your loan servicer and ask questions. Let them know your situation. More than likely, they’ll work with you to provide a path forward that makes the most sense for everyone involved.
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