Postponing Student Loan Payments
If your student loans are part of the debt causing you stress during the recession, you may be glad to know there are loan options that can help you with postponing your student loan payments until you are financially back on your feet.
Job lay-offs, unemployment, and the mortgage and credit crisis are all examples of economic hardship that can qualify for postponing student loan payments. There are two postponement solutions, loan deferment and loan forbearance. There are some differences between the two programs, but both allow you to postpone or reduce your student loan payments while you are job-hunting.
With a deferment, your loan is temporarily frozen. You don’t need to make any payments and no interest accumulates (accrues), except on unsubsidized federal Stafford loans. If you qualify for the deferment program, the government will pay the interest that accumulates on any subsidized federal student loans you have. You must continue paying the interest on unsubsidized loans, however.
Another benefit of a loan deferment is that it has no effect on your credit score. Your credit is still in good standing, even though you are postponing your student loan payments.
If you’re not eligible for a deferment, you may qualify for another kind of loan payment postponement called a forbearance. Postponing your student loan payments with a forbearance also allows you to temporarily reduce your student loan debt, but you’ll still have to pay the interest that accumulates—even on a subsidized federal loan. Any accrued interest you don’t pay off during your forbearance period gets added to the balance of the loan, so if you can’t keep up with the required interest payments, you may end up owing a lot more than you intended when the forbearance expires and you return to making regular loan payments.
Nevertheless, if you are financially strained, forbearance can help you avoid defaulting on your loan, which helps you to maintain a good credit rating.
Check directly with your lender to see if you qualify for a student loan deferment or forbearance. With the Obama administration putting pressure on banks to meet customers’ needs in these difficult economic times, most lenders may look for new ways to help you with postponing your student loan payments.