By Attorney Sophia Dean
The Student Debt Crisis in Numbers
There are various reasons which prevent people from being able to make their student loan payments. As of 2019, Americans collectively owe over $1.56 Trillion in student loan debt. This is spread out by nearly 45 million individuals who are paying back their student loans.
Out of this increasingly large group, there are, of course, individuals who will find themselves in circumstances which will prevent them from making their payments. These people are not alone. In fact, there are roughly 3.7 million student loans in deferment and 2.6 million in forbearance. The good news is that there are deferment and forbearance options which can alleviate some of this stress and allow you to get back on stable ground.
What to Know About Deferments and Forbearances
While there are several options for individuals who are experiencing difficulty paying back their student loans, like income-based repayment, we commonly see deferments and forbearances. On the surface, these options may seem similar, but they actually have several differences which can make them more or less suitable for certain situations. Both allow you to temporarily stop making federal student loan payments or temporarily reduce the amount you pay.
A key reason to look into these options is to help to avoid defaulting on your loans, which can cause significant consequences.
Based on the type of loan you took out, your interest may accrue during this time. Because this will add to the total cost of the loan, it is important to be clear about these details. It is also important to make sure that you have completed the steps necessary to attain an active deferment or forbearance so you don’t miss payments and negatively affect your credit score.
The important question is, Which choice is right for you?
What are the Differences Between Deferments and Forbearances?
The most important thing to know about deferments and forbearances is that they are not one and the same.
A Deferment can be an excellent solution for people experiencing certain circumstances. On particular loans, you may not be responsible for paying the interest that accrues during this period.
Your lender or loan servicer may offer different deferment options based on your particular situation. For example, federal loans have the following deferment options:
● Economic Hardship Deferment
● Graduate Fellowship Deferment
● In-School Deferment
● Military Service and Post-Active Duty Student Deferment
● Parent PLUS Borrower Deferment
● Rehabilitation Training Deferment
● Temporary Total Disability Deferment
● Unemployment Deferment
A Forbearance is a period during which your monthly loan payments are temporarily suspended or reduced. If your particular situation includes financial hardship that prevents you from making loan payments even though you are willing, your lender may grant you a forbearance. During this period of time, the principal payments are postponed. The one caveat is that interest continues to accrue.
You could potentially qualify for a forbearance if you are temporarily unable to make scheduled monthly payments for the reasons listed below:
● Financial difficulties
● Medical expenses
● Change in employment
● Other reasons acceptable to your loan servicer
Because the loans continue to accrue interest during the forbearance term, it is smart to continue paying at least the monthly interest. This method is helpful as it resolves any delinquency on the account.
There are also two different kinds of forbearance—General and Mandatory.
Also known as a “discretionary forbearance”, a general forbearance can be requested due to financial difficulties, medical expenses, change in employment, and/or other reasons acceptable to your loan servicer. It is at the discretion of the loan servicer whether to honor this request or not, hence the name. These can be granted for periods of no longer than 12 months but can be requested again when this time expires.
Mandatory forbearances MUST be honored by loan servicers as long as the individual meets the eligibility criteria. There are more options for eligibility for mandatory forbearances and each one has more specific qualifications and stipulations attached, but the major requirements are;
● If you are serving in a medical or dental internship or residency program
● If you are participating in a teaching service which would qualify you for teacher loan forgiveness
● If the amount owed on your student loan is equal to or greater than 20% of your total monthly income
● If you qualify for partial repayment of your loans under the Department of Defense Student Loan Forgiveness program
● If you are a recently activated member of the national guard but are not eligible for military deferment
As with discretionary forbearances, a mandatory forbearance is granted for a maximum of 12 months. However, this may be extended as long as you continue to meet the eligibility requirements.
Postpone or Reduce Student Loan Payments Next Steps–How to Seek Out a Deferment or Forbearance
Both deferments and forbearances are excellent options for people struggling to pay their student loans due to temporary financial hardships. However, if your financial woes are likely to continue for an extended period of time, it may be a better option to change to an income-driven repayment plan. These are based on your discretionary income, size of your family and multiple other factors. If your loan is not repaid after 20-25 years, you may also qualify for student loan forgiveness as well.
If your circumstances are likely to improve within a reasonable amount of time, it would be a good idea to consider a deferment or forbearance. It is important to remember that your loan servicer does not work for you. The best course of action is to use an outside source such as a well-versed attorney with expertise the variety of student loan options. They will assist you in deciding if a deferment or forbearance is the most applicable in your individual case. Having someone to trust can drastically help reduce the stress and worry associated with dealing with student loan debt.
For the past ten years, The Orlando Law Group has earned a reputation as the Orlando-area law firm that cares about its clients and the communities it serves. Offices located in Waterford Lakes, Altamonte, Lake Nona, and Winter Garden. For more information, visit www.TheOrlandoLawGroup.com.