When a college graduate experiences difficulty making repayments due to unemployment, ill health or personal circumstances, it is normally possible to defer student loan repayments. Whilst not a panacea, it gives the borrower time to get back on their feet.
Deferred Student Loans
Most graduates will be aware that they will face difficulty making repayment, yet fail to contact their loan servicer or school for student debt help. Defaulting on a loan will disqualify the borrower from both forbearance and deferment. Don't let things get to this stage before seeking assistance.
Defer Student Loans
- Subsidized federal loans: It is possible to defer student loan repayments without interest accruing. This includes Perkins loans and subsidized Stafford loans due to the means test.
- Unsubsidized federal loans: Whilst a borrower can delay making repayments, interest will continue to accrue. A Stafford loan taken out before July 1, 2006 will attract a variable rate of interest. Should one have been signed-up to after this date, the interest rate will be fixed.
- Private loan deferment. Deferred student loans may be possible, but it will be necessary to contact the lender directly as each one will have a completely different internal policy.
How Long is it Possible to Defer Student Loan Payments?
- Unable to find full-time employment - three years.
- Financial and economic hardship - three years.
A deferred student loan will not mean that the borrower has less time to repay the loan. If someone defers a 10 year loan for a period of three years, they will still have 10 years to make the necessary repayments. It may also be possible to get a student debt consolidation loan so repayments can be spread over a term of up to 30 years.
Student Loan Forbearance
Provided that someone isn't in default, it may still be possible to defer student loan payments for a period of 12 months. The maximum period of time that forbearance can last is three years. Interest will continue to accumulate during the period that repayments aren't being received. It is important to get written confirmation of the terms that were agreed to.
Deferred student loans that are subsidized will continue to attract interest, but can provide a degree of respite in the event of financial hardship. It is not a permanent solution but can give the borrower up to three years to get their life back in order. Remember that there are a number of alternative ways to pay off student debt, but it is imperative to make contact with the school or loan servicer.
Sources
"Postponing repayment." Federal Student Aid.
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