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Questions You Should Ask Before Applying for Student Loan Forbearance

Aug 6, 2014 Jennifer Williamson, Distance Education.org Columnist | 0 Comments

If you’re struggling to pay back your student loan, you’re not alone. Every year, thousands of people with student debt go into default. Before you take that drastic step, however, there’s another option—forbearance. This option allows you to stop making payments on your student loan for up to a year. However, forbearance can sometimes cause more harm than good. With forbearance, your student loan interest continues to accrue during the period you are not paying back your loan—so your bill will be bigger when you reach the end of the period. Here are a few things to think about when deciding whether to put your student loans in forbearance.

The type of forbearance you need or qualify for

There are two types of student loan forbearance: mandatory and discretionary. With discretionary forbearance, your lender decides whether or not to grant you the forbearance. Usually, you can get a discretionary forbearance if you have fallen into financial hardship or are suffering from an illness. With a mandatory forbearance, the lender is required to give you forbearance. There are many reasons why you might qualify for a mandatory forbearance, including:

  • You are enrolled in an internship or residency program in medical or dental school.
  • The amount you owe for all your student loans adds up to 20% or more of your monthly gross income.
  • You are a member of the National Guard or are working in a government position with a national service award.
  • You are a teacher and qualify for student loan forgiveness.
  • You qualify for a partial loan repayment under the US Department of Defense Student Loan Repayment Program.

How long you will be in your current financial situation

If you know your financial situation is temporary, forbearance may be a good option. However, if it is more permanent—for instance, if you just accepted a new job you plan to stay in, but it comes with a pay cut—you may want to consider renegotiating your loan terms on a more permanent basis. There are other alternative repayment options in this case, such as graduated or income-based repayment plans.

Whether or not you qualify for deferment

Deferment, like forbearance, allows you to stop paying your loan for a set period of time. However, deferments have better terms than forbearance if you have a subsidized Stafford loan, because in this case the interest will not accrue while you’ve stopped paying. You have to qualify for a deferment, as with a forbearance, but the situation can be better.

Whether or not you really need a deferment

A deferment can be just what you need in times of financial hardship—but it can also be an expensive solution. Because your interest continues to accrue, your student loan will be bigger at the end than it was at the beginning—and your monthly payments may be higher. Before you enter into deferment, take a careful look at your finances to see if there are any other ways you can change your budget to continue making student loan payments.

Deferment can be an option if you’re struggling to make student loan payments for a traditional or accredited online degree, but it should be used as an option of last resort. Investigate whether you qualify for a deferment instead; decide whether a new income-based repayment plan might be a better option, and assess your expenditures and budget to see if you can make some sacrifices to continue paying your loan. Hopefully, you won’t have to take a deferment—and have a bigger student loan bill at the end than when you started.

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