Recent statistics suggest that the typical graduate from college emerges with just under $40,000 in unpaid loan monies. In fact, a full 60 percent of borrowers state they can't even project when they might be able to pay back their student loans.
Not surprisingly, student loan deferment and student loan forbearance are popular topics in this worrisome financial climate. If you are one of the estimated 40 million graduates who owes a percentage of the $1.2 trillion in outstanding debt, this article will offer insight into these two debt management tools and how they might be able to provide some relief.
The concept of a loan deferment is simple. For a period of time, you will be granted a break from paying back either the principle or interest on your student loans.
The way deferment works depends largely on what type of student loan you have. If you have any of these types of loans, the federal government may step in to pay accruing interest on your loan principle during your deferment period:
However, if you have a student loan that is unsubsidized, you will be responsible for paying both the principle and accrued interest on your loan after the deferment period ends. In this case, it can be better to at least pay the accrued interest even during your deferment if you can manage it.
Before making a decision about whether or not to pay the accrued interest during the deferment period, ask your lender if the unpaid interest will be added to your principle or not. If so, this can raise the total amount you owe.
Regardless of the type of student loan you hold, you can qualify for deferment if you meet any of these conditions:
Each lender will have their own loan deferment application process. It is critical to continue paying what you owe on your loan until you receive approval.
Deferment is not an option to consider lightly. However, under the right circumstances, a loan deferment can make a real difference in your financial situation.
In its simplest form, a student loan forbearance is a longer version of a loan deferment. In this case, your break from making loan payments can last for up to 12 consecutive months. As well, as with deferments, your unpaid interest will continue accumulating during the break period.
As with loan deferments, it is important to get to know your lender since there is more than one type of forbearance. The two main types of forbearance include:
As the name suggests, the first is a break your lender is required to grant you so long as you meet all of the criteria for eligibility. There are a number of situations under which your lender must give you a mandatory forbearance:
The second type of loan forbearance can be granted to you at the discretion of your lender. Here, you only have two options to qualify:
Each individual lender will have their own application process that can take some time to be approved. So, it is important that you continue paying down your loan monthly to the best of your ability until you hear that your application has been approved and its start date.
As with loan deferment, there are both pros and cons to applying for loan forbearance, and it is something to consider carefully.
In the bigger picture of managing finances post-graduation, the overall effect of both deferment and forbearance is ultimately a positive one.
This is because neither impacts your credit score, and because using either at the right time can help you avoid going into delinquency or defaulting on your loan.
Technically, anyone who holds a federal student loan and can meet the criteria is eligible to apply for a deferment or forbearance. However, as noted here, it may be up to your lender whether or not to approve your application.
If you are experiencing personal financial duress, any break from making loan repayments will be a huge relief as well as an aid to replenishing your bank account. Ultimately, this is why both tools are there to serve those who need them.