Deferment and Forbearance at a Glance as Repayment plans

"Deferment and Forbearance at a Glance as Repayment plans" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012

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Changing times demand changing repayment options, and federal student loans of all kinds, including federal student loan consolidation, offer flexible repayment options, including deferment and forbearance. Events like losing a job, getting sick, and having financial trouble can create many challenges. In such situations, making on-time student loan payments may not be a priority. These periods don’t count toward the length of time you have to repay your loan. You can’t get a deferment or forbearance for a loan that is already in Default.

Forbearance is a temporary reprieve from making your agreed upon payments due to financial difficulty. During forbearance, the lender allows you to temporarily postpone repaying the principal, but the interest charges continue to accrue. You must continue paying the interest charges during the forbearance period. Forbearances are granted at the lender's discretion, usually in cases of extreme financial hardship or other unusual circumstances when you do not qualify for a deferment. You cannot receive a forbearance if your loan is in default.

Deferment and forbearance are both preferable to missing loan payments. But, because forbearance increases the amount you owe, try to first qualify for a deferment. Also, before postponing repayment, see if it makes sense for you to lower your payments with a different repayment schedule. This can save you money and preserve your deferment and forbearance eligibility for situations when you really need it. There are limits to how much deferment and forbearance time you can use.

Deferment and Forbearance at a Glance

Code Definition Borrower is eligible if… In increments of… Maximum amount life of loan…
SCH In School Attending school at least half-time OR Student for whom a PLUS was borrowed is attending at least half time * Unlimited Unlimited
UNEM Unemployed Working less than 30 hours per week AND 1.- Registered for full-time work with public/private agency OR 1.- Eligible for/Receives unemployment Benefits 6 months 24 months ** Or 36 months ***
HRD Economic Hardship Receives nontaxable income: # TANF used to be termed Aid to Families with Dependent Children (AFDC) # General Assistance (GA) # GA used to be termed General Relief (GR) # Food Stamps Supplemental Security Income (SSI) # Peace Core VolunteerEarns 150% or less of federal poverty line based on family size for the state you live in 1-12 months at a time 36 months ***
MO Military Active (includes National Guard) duty during war, National emergency or Military operation Unlimited Unlimited
FB Forbearance Personal Financial Reasons 1-12 months at a time Lenders Discretion

Number of Sign(*) denotes:
* For loans disbursed on or after 7.1.2008
** Outstanding Loans prior to July 1, 1993
*** All loans taken out on or after July 1, 1993

Before missing any payments, though, know that under certain circumstances you can temporarily suspend your payments with deferment and forbearance. Find out about the important differences between these postponement options—and find the option right for you. Here is a quick summary of common loan payment management solutions:

Deferment

Deferment temporarily puts your student loan payments on hold. If you meet certain criteria and you have loans through the Federal Family Education Loan Program (FFELP) or the Direct Loan program (DL), you cannot be denied a deferment.

A deferment is a period of time during which no payments are required and interest does not accrue (accumulate), unless you have an unsubsidized Stafford Loan. In that case, you must pay the interest. To qualify for a deferment, you must meet specific eligibility requirements. Deferment is an entitlement that postpones payments. If you qualify, you must be granted a deferment. In deferment, no interest accrues on subsidized loans. Unsubsidized loans accrue interest. At the end of the deferment, any accumulated interest is added to your loan. During a deferment, the federal government pays any interest that accrues on your subsidized loans—but not on unsubsidized loans. Unsubsidized interest on deferred loans can increase the amount you owe overall.

How do I qualify for a deferment?

The most common loan deferment conditions are enrollment in school at least Half-time, inability to find full-time employment (for up to three years) and economic hardship (for up to three years).

Deferment Options for Stafford (Direct and FFEL) and Perkins Loans

Deferment Condition Stafford Loans Perkins Loans
Direct Loans*,  ** FFEL Loans *, ***
At least Half-time study at a postsecondary school YES YES YES
Study in an approved graduate fellowship program or in an approved rehabilitation training program for the disabled YES YES YES ****
Unable to find full-time employment Up to 3 Years Up to 3 Years Up to 3 Years
Economic hardship (includes Peace Corps Service) Up to 3 Years Up to 3 Years Up to 3 Years
Engages in service listed under discharge/cancellation conditions NO NO YES ****
Active Military Duty (for loans first disbursed on/after July 1, 2001; while borrower is on active duty during a war or other military operation, or national emergency) Up to 3 Years Up to 3 Years Up to 3 Years

Number of Sign(*) denotes:
* For PLUS Loans and unsubsidized Stafford Loans, only principal is deferred. Interest continues to accrue.
** A Direct Loan borrower who had an outstanding balance on a FFEL Loan first disbursed before July 1, 1993, when the borrower received his or her first Direct Loan, is eligible for additional deferments.
*** Applies to loans first disbursed on or after July 1, 1993, to a borrower who has no outstanding FFEL or Federal Supplemental Loans for Students (Federal SLS) loan on the date he or she signed the Promissory Note. (Note that the Federal SLS Program was repealed beginning with the 1994-95 award year.) Different deferments are available for borrowers with pre-July 1, 1993 loans.
*** More information on teaching and other types of service deferments and cancellations can be found online at www.FederalStudentAid.ed.gov. At the site, click on “Students, Parents and Counselors.”

Forbearance

If you don’t meet the criteria for a deferment, you may qualify for forbearance. Forbearance is a discretionary plan that postpones payments. Unlike a deferment, in forbearance both subsidized and unsubsidized portions of your loan continue to accrue interest.In most cases, forbearance is granted solely at the discretion of your lender or servicer. Forbearances are usually reserved for cases of financial hardship or illness. Forbearance is optionally granted by the lender based on many factors, including your payment history and loan status. In forbearance, interest accrues on all loans regardless of type. At the end of the forbearance, accumulated interest is added to your loan. Forbearance may also require a small interest-only monthly payment. Forbearance increases the amount you owe. Forbearances are available at the discretion of the lender for both federal and private loans.

Applying for deferment or forbearance

Receiving deferment or forbearance is not automatic. You or your parents must apply for it.
Federal Perkins Loans—Contact the school that made your loan or the school’s servicing agent.
Direct Loans (includes Direct PLUS Loans)—Contact the Direct Loan Servicing Center at: 1-800-848-0979. TTY users should call 1-800-848-0983 or go to: www.dl.ed.gov.
FFEL Loans (includes FFEL PLUS Loans)—Contact the lender or agency holding your loan.

Regardless of which type of federal student loan you have, you must pay the interest that accrues (accumulates) during any period of forbearance. Although several deferments are available for all federal student loan borrowers, some are only available based on loan type and oldest outstanding debt. If you’re not sure if you qualify for a deferment.

The Loan Deferment Summary Chart shows Stafford and Perkins Loan deferments for loans disbursed on or after July 1, 1993. For information on deferments for loans received before that date, Direct Stafford and PLUS Loan borrowers should contact the Direct Loan Servicing Center at 1-800-848-0979. TTY users should call 1-800-848-0983. Or, go online at www.dl.ed.gov. FFEL Stafford and PLUS Loan borrowers should contact their lender.

The College Cost Reduction and Access Act, enacted on Sept. 27, 2007, makes college more affordable for many students. For the latest information, and to see how the new law affects deferment options, visit www.FederalStudentAid.ed.gov, click on “Students, Parents and Counselors.” You’ll find the information you need in the “Announcements” section. For more information on deferments, contact your lender or the financial aid office at your school.

You may also be eligible for a deferment based on qualifying active duty service in the U.S. Armed Forces or National Guard. Refer to the MPN for your loan or contact the Direct Loan Servicing Center for more information about specific qualifications for deferment based on military service.

In most cases, you need to submit a deferment request to the Direct Loan Servicing Center along with documentation of your eligibility for the deferment. Visit their website for more information: https://www.dl.ed.gov/borrower/BorrowerWelcomePage.jsp

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