Deferment, Forbearance and Consolidation of Student Loan Debts


September 2001

Higher education is expensive. After leaving school, many former students find it hard to meet their monthly student loan payments and it is easy to fall behind. A lot of former students do not know that there are alternatives out there that will help to either reduce or stop student loan payments before they fall behind. This article will address some of these solutions.

A Student Loan Deferment allows a borrower to postpone making payments for a certain period of time. In a deferment, it makes a difference whether a student loan is subsidized or unsubsidized. A subsidized loan is a student loan in which the Government paid the interest while the student was in school. With an unsubsidized loan, the interest is either paid by the borrower as it is accrued from the day it is dispersed or added to the balance of the loan.

During a deferment, the Department of Education pays the interest on the subsidized portion of the student loan that is deferred. Interest earned on an unsubsidized loan will be added to the balance on the loan. Borrowers will have the option of paying the unsubsidized interest as it accumulates. Deferments are granted for specified periods of time. There are many types of Deferments such as: Medical Deferment, In School Deferment, Unemployment Deferment, Temporary Disability Deferment, Military Deferment, and Pregnancy or Newborn Child Deferment, just to name a few. As long as you qualify, you can get any deferment except the "In School Deferment," for a lifetime maximum of three years. This means a borrower can get one three-year deferment or multiple shorter deferments as long as they do not exceed the lifetime maximum for that deferment. The "In School Deferment" is different because there is no lifetime maximum. You can get an "In School Deferment" as long as you are enrolled at least half-time in an accredited program.

A borrower who is unable to make his or her payments and does not qualify for a deferment may qualify for a forbearance. A forbearance, like a deferment, is a postponement of payment. However, unlike a deferment, all interest, regardless of whether a loan is subsidized, will be added to the balance of the loan during the months payment does not have to be made. A Forbearance is granted in yearly increments. Unlike the deferment, a forbearance does not have a three-year limit. A forbearance can be granted year after year as long as the borrower meets all other forbearance requirements.

Hardship can be a reason to get either a deferment or a forbearance. There are a lot of reasons a borrower might qualify for a hardship forbearance. This forbearance is called the General Forbearance. To qualify for this forbearance a borrower must simply be willing, but unable to make their payments. This is a potentially good tool for low-income borrowers to look into. A Hardship Deferment is similar to the General Forbearance. However, with a deferment a borrower must remember that there is the three year lifetime maximum. At the end of this article there is a telephone number and web address where information on loan deferment and forbearance, as well as other student loan information, can be found.

In order to qualify for a deferment or forbearance student loans must not be in default. Default is the term used when student loan payments are more than 270 days late. A defaulted loan is not eligible for a deferment or forbearance of any kind. The only payment relief available to a defaulted borrower with two or more loans is a loan consolidation.

In a loan consolidation through Direct Loan Services, the United States Department of Education will pay off both the lenders of your Stafford and Perkins loans and create one new loan. The amount you owe will remain the same, but you will now only owe one payment each month to Direct Loan Services. In a consolidation, it does not matter that your loan is in default. The object is to reduce the monthly payment. If your payment is reduced there is a higher probability that you will be able to pay.

When a defaulted loan is consolidated, the defaulted loan is paid off. After consolidation the borrower has a completely new loan. Because only loans not in default are eligible for deferment or forbearance, an otherwise ineligible borrower may now be eligible for a deferment or forbearance.

If you choose to consolidate the loans, you will have new payment options. There are four basic types of loan repayment plans: Standard, Extended, Graduated, and Income Contingent. These payment options may allow you to reduce your current loan payments. That would make them more manageable. With a few exceptions, consolidated loan borrowers are free to move from one repayment plan to another as their needs change.

Forms for a loan consolidation can be obtained by calling Direct Loan Services at 1-800-557-7392, or by going on line. Their web address is:

Deferment and forbearance information and applications can be obtained by calling Direct Loan Services at 1-800-848-0970, or by going on line as well. The web address for the servicing center is:

Last Review and Update: Jan 02, 2008

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