Only a couple more options to get through on the student loan front – today, we are going to focus on some of the last resorts. If you are in the depths of financial despair, with little to no cash flow, you may be able to take advantage of one of these alternatives.
Both deferment and forbearance allow you to stop making payments towards your student loans for a set amount of time. While you may not be responsible for paying accrued interest during that period of time when requesting a deferment, a period of forbearance means that interest continues to accrue during the period you are not paying off your loans – and you will have to pay that off!
Deferment and forbearance are options usually only available for US federal student loans. There are some types of federal loans that accrue interest under both deferment and forbearance; there are others that do not. Click here for the full list of US federal student loans eligible for these programs, as well as details as to whether or not the interest continues to accrue.
If you go back to school, your federal student loans are likely to be put into automatic deferment – this includes half-time enrollment.
If you fulfil the eligibility criteria (here) – deferment is definitely a more advantageous alternative to forbearance.
Forbearance comes in two flavors – general and mandatory. General forbearance is a request made to your federal student loan servicer which, if granted, would allow you a period of twelve months respite from paying off your student loans. The reasons for which you can justify such a request include things like medical bills, financial difficulties, getting fired (or taking a huge pay cut) or other similar circumstances. You may be asked to provide evidence of any of these – including proof that your income is too low to cover your student loans and your living expenses.
Mandatory forbearance are grace periods for certain types of loans and loan recipients – for example, if you are working as a doctor and are still a resident, you may qualify for mandatory forbearance. If you are working with AmeriCorps or qualify for teacher loan forgiveness programs, you may also qualify for mandatory forbearance. Click here for all the details and to check your eligibility.
But please, please, please, pretty pleeeeeease – think of this as a last resort. As we talked about previously – the interest will continue to be calculated daily and added to your principal balance. Imagine a full year of interest, compounded daily, being added to the total balance of your loan… ugh – the worst. This should only be used in cases of serious, serious financial difficulties. And remember, if you are facing short-term difficulties, these may be the right way to help you get through a challenging time. If the circumstances are going to last longer than a few months or a year at most, you may be better off thinking about income-driven/based repayment plans, which most federal loans provide.
Think carefully about the potential consequences of these options (ummm interest – more debt) and remember – they should be treated as last resorts!
Sincerely yours in harmonious fun and fiscal responsibility,