Student Loan Deference vs. Forbearance
For many people, the period right after graduation can be full of uncertainties. Looking for your first “real job” can take some time, or you might find yourself overwhelmed with a number of other financial obligations; such as rent, household expenses and credit card debt.
If any of this describes your situation, or you’re in a financial bind, you have options. Among them is the opportunity to set your student loans aside for a while with a deference or a forbearance.
What’s the Difference?
The primary financial difference when it comes to student loan deferment or forbearance is the handling of interest payments. Deferment is usually the better choice because interest continues to accrue during a forbearance period, where it does not during a deferment.
While both are available for all Federal Loans, private lenders consider them on a case-by-case basis. However, we’d be remiss if we didn’t say it isn’t a common occurrence. In fact, it’s rare to see either one applied to a private student loan.
Repayment of the principal balance of your student loan is suspended during a deferment period. In some cases, the government will also step in to cover interest payments—depending upon the nature of your loan.
Payments can be deferred in six-month intervals for up to three years. In most situations, qualification is automatic when you’re enrolled half time or more at an eligible post-secondary school, unemployed, undergoing cancer treatments, have minimal income or are serving in either the army or the community.
With that said, you must make a formal request. You can’t expect your lender to keep track of your situation and respond accordingly. You have to submit an application to the financial aid office at your school, or directly to your lender (sometimes both).
For all other situations, you’ll be looking at forbearance. In this scenario, your lender will allow you to stop making payments or grant you a reduced payment for up to a maximum of 12 months at a time. If you’d like to extend the period, you’ll need to apply again.
It’s important to note interest will continue to accrue during the forbearance period. While forbearances are more liberally granted (they have fewer requirements) you will ultimately wind up paying more than with deferment. Additionally, a forbearance application must be made directly to your lender.
When to Apply
The best time to apply for either is at the first sign of impending trouble, or when your situation suddenly dictates the necessity of suspending payments. The last thing you want to do is allow your loan to go into default. Once a loan goes into default, you’ll qualify for neither form of relief. The good news is if you do it right, neither method will have a detrimental effect on your credit score. Be sure to continue making payments until you have your deferment or forbearance agreement in hand, signed and authorized.
Other Forms of Relief
If you’re also saddled with overwhelming credit card debt, medical payments or other forms of unsecured obligations, you might also consider working with a debt solutions company like Freedom Debt Relief. While federal student loans are out of their purview, they can help with certain private loans. They can also offer a host of solutions for your other debt including consolidation, counseling, and settlement. Look for background information like these Freedom Debt Relief reviews to find the best company for your situation.
You may also be able to get a personal loan without a payslip. This helps for those who are unemployed or work off the books. A lot of these loans come with risks and are done online, which also poses its own host of risks, but if you are drowning in debt from student loans and you would rather pay them off and worry about paying off another loan instead, look for these types of loans and help protect yourself.
Whatever your situation, there are always solutions available. The key is to get out as far in front of the situation as possible, so you’ll still have the most favorable relief options available to you.