For example, a private lender may place some of your student loans in a hardship forbearance if they do not qualify for deferment. In March , all federal student loans owned by the Department of Education were automatically placed in administrative forbearance. Loan payments are scheduled to resume on February 1, But, there are also several general eligibility requirements that apply to all deferments and forbearances.
In particular, the borrower must not be in default on his or her federal student loans. Borrowers who are in default on their student loans lose eligibility for deferments and forbearances. So, it is best to exhaust eligibility for deferments and forbearances before defaulting on your federal student loans.
Forbearances may be requested by telephone, but written confirmation of the forbearance must be sent within 30 days. Wait until you get written confirmation of a deferment or forbearance to stop making payments on your student loans.
Otherwise, your student loans might go into default if the deferment or forbearance was not approved or the paperwork was lost. Since interest may continue to accrue during a deferment or forbearance, it is usually better to continue making payments on the student loans. The capitalized interest causes the loan to grow during the payment deferral, making it more difficult for the borrower to repay the debt after the deferment or forbearance than before.
But, a long-term period of non-payment, especially if the borrower stacks multiple deferments and forbearances or uses consolidation to reset the clock on 3-year deferments and forbearances, can significantly increase the amount of debt.
Borrowers who are in a medical or dental internship or residency are no longer eligible for the economic hardship deferment, so their main options are forbearances and income-driven repayment plans. Not only can an income-driven repayment plan with non-zero monthly payments prevent the loans from growing too large, but an income-driven repayment plan may be a better option than a forbearance if the borrower intends to qualify for public service loan forgiveness.
The process to apply will be different for each servicer. Federal student loan deferment also freezes your loan payments, but it comes with more perks than forbearance. Interest will accrue on other types of federal student loans in deferment, though. Similar to forbearance, deferment options for private student loans vary from servicer to servicer. Check with your private student loan servicer to determine your options for private loan deferment.
To apply for private student loan deferment, contact your lender to ask about options and to see if you qualify. But before taking the next steps, make sure that you qualify for deferment or forbearance. You also must meet specific requirements for deferment or mandatory forbearance. Check the criteria before pursuing these options. Student loan forbearance and deferment are temporary solutions that can help you through a short-term hardship.
But there may be other options that are better for your situation or that will help you make a plan for the long term. Income-driven repayment plans also come with loan forgiveness. Another option is refinancing your federal student loans into a private loan. A strong credit history can help you qualify for a lower interest rate, which can lower your monthly payments. However, you give up all of the borrower protections that come with federal student loans, including income-driven repayment plans and the current period of administrative forbearance for COVID Examine your monthly expenses to see if you can eliminate any expenses to make more room for your student loan payment.
Things like rent, utilities, your cellphone plan and groceries are critical. But things like cable bills, streaming services and gym memberships are not. You might also consider making bigger changes, such as moving into a cheaper apartment or getting a part-time job to earn more money. Student loan deferment and forbearance both allow student loan borrowers to hit the pause button on payments.
Deferment sometimes offers more perks than forbearance, so check this option first. But these are short-term solutions, and you might need to find other ways to make room in your budget for student loan payments. How We Make Money. Kim Porter. Written by. Kim Porter is a personal finance expert who loves talking budgets, credit cards and student loans. In addition to serving as a contributing writer for Bankrate, Porter also writes ….
Edited By Chelsea Wing. Edited by. Chelsea Wing. Chelsea has been with Bankrate since early She is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. Share this page.
Bankrate Logo Why you can trust Bankrate. With forbearance, you typically repay the paused amount in one lump sum after the forbearance period ends. So if you paused payments for three months, at the end of the three-month period you'd pay everything you owe at once.
Your lender might require you to repay the amount over time so your monthly payments increase, or your payments could be added to the end of your loan term. So if you have a year mortgage and deferred payments for three months, your term length would change to 30 years and three months.
Many people mix up forbearance and deferment under normal circumstances. As more and more mortgage relief programs are created during the coronavirus, you're bound to hear the two words used synonymously. But the option is for homeowners to pay back the deferred amount in one lump sum when they sell, refinance, or pay off their home completely. Usually, mortgage deferment takes place over an extended period of time, not all at once. Why isn't the FHFA deferral option being referred to as forbearance, then?
It's hard to say. Maybe because people can repay at the end of their loan term rather than at the end of the forbearance period. Some banks are also using the terms deferment and forbearance interchangeably on the COVID relief pages of their websites. Or they claim to offer one or the other, but the description of the relief program doesn't match the typical definition of either word.
Because the differences between forbearance and deferment are so murky right now, be sure to ask your lender about the terms of your mortgage relief program before enrolling. Don't assume that interest will be paused just because you're deferring or that you'll repay in one lump sum just because you're enrolling in forbearance. In general, try to get as much information as possible before accepting mortgage relief during the pandemic.
Mortgage deferment and forbearance can be helpful, but you don't want any surprises down the road that could cause long-term problems. Disclosure: This post may highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you.
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