What Options Are Available For Deferring Education Loan Payments
What Options Are Available For Deferring Education Loan Payments.Education loans are considered as the source of hope for most of the students who would otherwise not be able to afford their further education. However, as soon as students complete their studies or drop out of school, they are left with the daunting task of paying these loans. This can be exhausting in terms of finance, especially when they have no job, or other liabilities to feed, pay bills among others. In such types of situations, it will be very effective if one is able to delay the payment of education loans. Loan forbearance stops your loan payments for a while, giving you some time to handle your situation. Read this article to find out types of deferment of education loans, the conditions an individual needs to fulfill before asking for deferment and what one needs to know about deferment of education loan.
What is Education Loan Deferment?
Education loan deferment is the suspension or the reduction of loan repayments on an education loan that is normally given to borrowers under certain conditions. In the process of deferment, the borrower does not need to make monthly payments to the principal or interest on his loan depending on the type of loan that is taken. Sometimes, the interest may be compounded while the loan is in deferment, implying that the principal balance may go up by the time the deferment period is over.
To sum up, Education Loan Deferment has been defined and classified based on different criteria as presented above in the passage.
1. In-School Deferment
In-schooldeferment is one of the popular type of deferment which is an automatic type and it can be obtained by any student who is enrolled as a half time or more in a qualified institution. This option enables students to defer their loans meaning that they do not need to worry about their loans while in college. Federal loans including Direct Subsidized and Direct Unsubsidized Loans can be deferred while a student is in school. It should also be noted that while private loans may be paying off the same kind of deferment services, it may be different loan issuer by loan issuer.
Eligibility Requirements:
Attending an eligible school and enrolled at least half-time.
Many federal student loans are eligible, but private student loans may require additional applications.
Things to Consider:
Fees may still be charged in unsubsidized loans/Interest may still be charged on unsubsidized loans.
Some of the lenders may allow borrowers some time of up to one year before they can start repaying the loan.
2. Graduate Fellowship Deferment
If you wish to enroll in a graduate fellowship program, then you can request for a graduate fellowship deferment. This is quite beneficial for those carrying out their complex studies, often internships, or residencies that come with unpaid or low wages.
Eligibility Requirements:
Eligibility to enroll in an accredited fellowship program.
It has to be done in accordance with the requirements set down by the federal government or other private financial institutions.
Things to Consider:
In most cases, graduate fellowship deferment applies to the federal loan.
It is important to note that interest may still accumulate in the subsidized loan during the deferment period on unsubsidized loans.
3. Economic Hardship Deferment
If you appear to be in a situation whereby obtaining money has become hard or getting a stable job after graduation, then you can apply for an economic hardship deferment. This type of deferment is for three years and is for federal loan borrowers only who qualify for the condition.
Eligibility Requirements:
If the family was receiving federal or state public aid such as the food stamp or welfare.
Those earning less than the set income level normally equal to one and half time the federal poverty level.
being employed or employed less than 30 hours per week but for low wages and receiving wages that could barely support full-time work.
Things to Consider:
Accumulation of interest on the unsubsidized loans during period of deferment.
Economic hardship deferment is a short-term one that must be renewed every year.
4. Unemployment Deferment
While some borrowers may secure employment immediately after leaving school, others may struggle to find employment thus an unemployment deferment offers a break from having to make payments on the loan. For federal loan borrowers, the option is available for up to three years.
Eligibility Requirements:
Currently, seeking employment on a full-time basis but still unable to secure a job.
Applying for a state employment agency or providing proof of unemployment.
Things to Consider:
Interest will be charged on the unsubsidized loan.
You have to renew the card after six months depending on the circumstances of the particular case.
5. Military Service Deferment
Most of the deferment is granted to borrowers who are enlisted to active duty in the US military. As a result, student loans do not have to be paid off while a person is in active military service thus helping to ease the burden.
Eligibility Requirements:
Employed in the Armed Forces or within thirteen (13) months after being released from active military duty.
Some of the features of Federal and some private loans include military service deferment.
Things to Consider:
Interest on the amount borrowed in the unsubsidized loans will continue to be charged.
Certain lending companies provide reduced interest rates to military personnel in active duty.
6. The interest rates for each type of loan is as follows; Parent PLUS Borrower Deferment is given below.
Another form of deferment that is available is for Parents who have borrowed Parent PLUS loans to help finance his/her child’s education. Borrowers of Parent PLUS loan can defer repayment for as long as their child is in college at least half time, and for six months after their child graduates.
Eligibility Requirements:
It is also important that the student is at least half-time student in a school.
Late: Must apply for deferment through the federal loan servicer or private lender.
Things to Consider:
Interest will be charged to the Parent PLUS loans during the deferment period.
What Options Are Available For Deferring Education Loan Payments
Deferral Option of Private Student Loans
Private education loan options for deferment depend on the borrower’s lender and which type of private education loan the borrower has, fixed interest rate or variable interest rate. Though a large number of private lenders allow deferment during the periods of studying, not all of them for economic hardship or joblessness. We have to always speak to the specific lender about the deferment rules and regulations and details on qualifying for them. There are, however, private lenders who might allow borrowers to go for forbearance; this also halts payment but comes with more rigid conditions.
Alternatives to Deferment
1. Loan Forbearance
Another method is forbearance where borrowers can either put on hold or even decrease their loan payments. Forbearance on the other hand, allows interest to be charged on both subsidized as well as unsubsidized loans during the period of non- payment. The deferment is usually given when one is financially struggling, sick among other reasons till when may last for a maximum of one year.
2. Income-Driven Repayment Plans
Income contingent repayment plans help you to make your monthly repayments based on your income and household. These plans are especially useful in case one cannot afford to make full payments but would like to avoid interest accumulation during periods of deferment or forbearance. Income contingent repayments can be even $0 in case your income is low enough and income contingent loans can be discharged after 20-25 years of affordably low repayments.
Pros and Cons of Deferment
Pros:
Low interest rates, loan renewals and sometimes even washed out when certain conditions like hardship or going to school are met.
So, as long as you are in contact with the loan servicer you don’t experience any negative effect on your credit score.
May create time to look for a job or put one’s financial affairs in order.
Cons:
Interest may continue to be charged on unsubsidized loans meaning that you could be charged more to cater for the balance.
They deferment is not the permanent process and one needs to apply for such deferment each and every year or based on the period that is set to such deferment.
It is important to note that not all loans or lenders offer deferment, especially when it comes to private loans.
Education loan deferment refers to the delay of student’s education loan repayment for a given period of time Education Loan Deferment Eligibility & Benefits
When it comes to the deferment process, it works differently depending on whether you are dealing with federal student loans or private student loans. For federal loans, the deferment can be done with the help of the loan servicer, on the basis of a specific agreement, filled in with a deferment request form. Borrowers of private loans need to consult their lender and explain their situation in order to get deferment.
One should notify the loan servicer or even the lender before he or she misses any payment. It is important to point out that any failure in the payment of dues without the right safeguards being taken to defer such payments are likely to result in delinquency and adverse effects on your credit rating.
Conclusion
Loan deferment may be useful for borrowers encountering financial difficulties or those who need to continue education. But, it is pertinent to acknowledge the various types of deferment, the qualifying conditions that an applicant must meet, and the repercussions of deferred payments, one of which is the accrual of interest. However, the deferment should not be the first option to consider, instead you should try to learn about forbearance and other repayment plans that are suited to your situation. The Education Loans should also be repaid in the right manner in order to avoid default and work towards attaining financial liberty.