Student Loan Deferment, Forbearance, & Forgiveness Options
Student loan debt is a problem in the U.S. It has surpassed $1 trillion, and even surpassed credit card debt for the first time ever. I do not carry any student loans, but my wife and I are still paying off her original loans. Recently, she has decided to change careers and has gone back to school to get a second degree. In the process, she has learned a thing or two about student loans and put together this guest post. If you have any student loans or are considering a new degree, you should find some value.
My Student Loan Automatic Withdrawal Payments Stopped
Last year, as I started my second degree, I noticed that my automatic withdrawal of student loan payments (from my previous degree) had stopped. I had not requested this, so I called my loan service provider, Sallie Mae, to inquire.
What I found was that I did not have to make payments as long as I was enrolled in school for at least half time. And they had automatically enrolled me. This had me wondering if there were any other life circumstances which would grant student loan repayment relief, so I did a bit of research.
If you find yourself in a complicated life situation now or in the future consider some of these student loan repayment relief options: deferment, forbearance, and forgiveness. I’ll highlight each in more detail.
Student Loan Deferment
Student loan deferment is a period during which repayment of the principal balance of your loan is temporarily delayed. Interest will not accrue on subsidized loans during the deferment period. Since my loans were subsidized, they were automatically deferred.
I was a returning student, but there are other circumstances that could lead to deferment. Who is eligible for deferment?
According to Federal Student Aid, a U.S. Dept. of Education resource, you are eligible for deferment during the following life circumstances;
- You return to school and are at least half-time enrolled in a college, university, or career school
- You study in an approved graduate fellowship program or in an approved rehabilitation training program for the disabled
- You are unemployment or unable to find full-time employment for up to 3 years
- You experience a period of economic hardship (includes Peace Corps service) for up to 3 years
- You are under active military duty during a war, military operation, or national emergency
- It has been within 13 months following the conclusion of qualifying active duty military service, or until you return to enrollment on at least a half-time basis, whichever is earlier
You can apply for deferment online through your lender. If you are enrolled in school you will probably want to contact your school’s financial aid office at the start/end of each semester. Do not assume they will automatically enroll you (or un-enroll you).
Unbeknown to me, my deferment period incorrectly ended this spring when I completed a “milestone” in my degree program. The financial aid office made it appear that I had completed my degree, so Sallie Mae removed me from loan deferment and I didn’t find out until large sums of money suddenly began withdrawing from my bank account automatically.
Student Loan Forbearance
There is another option for relief of student loan repayment if you do not qualify for deferment – student loan forbearance. According to Federal Student Aid forbearance allows you to stop making payments or reduce your monthly payment for up to 12 months.
There are two types of forbearances – discretionary and mandatory.
Who is eligible for forbearance?
Discretionary forbearance: under these circumstances, your lender decides if you are eligible for forbearance:
- Financial hardship
Mandatory Forbearance: under these circumstances, your lender is required to grant forbearance:
- You are serving in a medical or dental internship or residency program, and you meet specific requirements
- The total amount you owe each month for all the student loans you received is 20% or more of your total monthly gross income (additional conditions apply)
- You are serving in a national service position for which you received a national service award
- You are performing teaching service that would qualify for teacher loan forgiveness
- You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program
- You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment
Receiving loan forbearance does not happen automatically. You need apply by making a request to your lender.
Deferment vs. Forbearance
With both deferment and forbearance, your payments are delayed. The difference is that with deferment, your interest on subsidized loans does not accrue. With forbearance, your interest will continue to accrue on unsubsidized AND subsidized loans. This makes deferment the better of the two, if you qualify for it.
Note that if you are in default on your loan, you are not eligible for either deferment or forbearance.
Student Loan Forgiveness, Discharge, & Cancellation
If you are a public employee, have a low income, or meet certain other criteria, it is possible that your loan debt could be forgiven, discharged, or cancelled.
There are many different criteria for each. I won’t go into full detail here, rather, just give you a list and link to some resources for you to dig in to deeper.
- Permanent Disability
- Your School Shuts Down
- False Certification of Student Eligibility
- Teacher Loan Forgiveness
- Public Service Loan Forgiveness
You may also want to look in to income based repayment, which allows you to legally cap your student loan payments at 15% of your income.
To become eligible for the income based repayment plan you must prove partial financial hardship as defined by your lender. But, it is possible to be making a substantial salary, even into six figures, and still qualify for Income-Based Repayment depending on your debt level. If you’re a public employee for 10 years, your loans could be forgiven after 10 years of repayment. After 25 years or 300 payments you could be granted loan forgiveness regardless of your career choice.
Student Loan Deferment, Forbearance, & Forgiveness Discussion:
Have you ever been granted deferment, forbearance, or forgiveness? Share your story!