Student loan | Student Loans: Deferment Or Forbearance? | Bankrate.com

Student Loans: Deferment Or Forbearance? | Bankrate.com

Posted: 02 Nov 2015 04:00 PM PST

student loans

By Michele Lerner â€¢ Bankrate.com

Female college graduate, $100 bill in background Â© TheSupe87 - Fotolia.com

If you'reÂ 1 of the 40 million consumers with student loans, you may have doubts about ever being able to repay your debt in full or even make a single payment.

Thankfully, both the federal government and private lenders have options you can explore when you're broke and in debt. You can defer your loan payments or request forbearance, both of which pause your payments while you look for a way to rebalance your cash flow.

A deferment is a period during which repayment of your student loan principal and interest is temporarily delayed.

With forbearance, you may be able to stop making payments or reduce your monthly payment for up to 12 months. But, interest will continue to grow.

Missed a student loan payment already? See how that impacts your credit with a free credit report at myBankrate.

Borrower beware

But before you jump at the first seemingly simple solution to your dilemma, remember there are consequences to any financial decision.

"It's easy to enroll in a program to delay your loan payments, but you need to realize that you are on a slippery slope and could be sliding into a bigger hole than when you started," says Andrew Josuweit, founder and CEO of Student Loan Hero, a company that helps borrowers manage their student loan debt.

Josuweit knows exactly the danger you could be in. He graduated from college with $70,000 in student loan bills and opted to defer and forbear his payments. He ended up amassing an additional $30,000 in debt from accumulated interest.

Defer or forbear?

As a college grad, you typically have a 6-month grace period after graduation before your 1st loan payment is due. After that, if you're unemployed or underemployed, you can explore your repayment options.

Defer your loans. "You can usually defer your loan repayment for up to 3 years," Josuweit says. "If you have a government loan such as a Perkins loan or a subsidized Stafford loan, the government will pay your interest during the deferment."
Private lenders have different terms and conditions for deferment, but typically either your interest will accumulate and be added to the principal or you can make interest-only payments.
Request forbearance. "Forbearance is usually limited to a particular time period, often in 1-year-long increments," Josuweit says. "There's no interest subsidy with forbearance, so the interest accrues and is recapitalized to your balance and you end up owing more money."
Private lenders sometimes limit forbearance to 6-month increments, he says.

Qualifying for student loan repayment delays

Josuweit says that private lenders often require you to complete a budgeting exercise to compare your income and expenses to determine whether you can make payments. Federal loans are more discretionary in their evaluation of borrowers. Either way, you have to prove that you have a financial hardship.

"Ideally, you want to just repay your student loans, but if you can't, deferring a government loan is your best option because the interest will be repaid," he says. "In the worst-case scenario, you can request forbearance, but it's best to get out of that as quickly as possible and get back to making payments."

I'm Drowning In Student Loan Debt And It's Depressing ...

Posted: 02 Nov 2015 05:30 AM PST

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Unless I win the lottery, rob a bank or am somehow excused from having to pay back the money I borrowed to fund my post-graduate education, I don't know how I'll ever get the massive debt monkey off my back. It's not an impossible feat, mind you, but I am realistic about what it will take to make that happen. I just wish that realism was alive and well when I decided to borrow the money in the first damn place.

If I could go back and do it all over again, I would have borrowed only what I needed to pay my school fees. While that seems both obvious and logical, I made a conscious decision during that time not to work while I was earning my degree. I wanted to be laser-sharp focused and fully immersed in honing my craft. I planned to take advantage of every class and internship of interest and spend all of my free time writing, rewriting and then writing some more. If ever there were a perfect time to be selfish and to alleviate some of the responsibilities and burdens that come with being an adult, grad school was it. So I borrowed enough money to attend school full time and pay my bills without having to work a 9 to 5 or any other shift. When will I ever have it this good? I thought.

But there's nothing good about being knee-deep in debt. And the crazy thing is, I didn't borrow an unreasonable or astronomical amount of money to fund everyday living expenses. Even if I received only what I needed to pay for school, I would still be singing the student loan version of Angie Fisher's "I.R.S." song. I also had a naïve understanding of the harsh realities of being a writer and, more importantly, the reality of having a master's degree in a creative, non-doctor, non-engineer or similar field of study where an advanced degree is required, field. Nobody cares. And the second you move that graduation cap tassel from the right side to the left, they might as well hand you your first student loan bill payment.

It took several months after graduation to land a job, but that, of course, didn't keep student loan payments from rushing in. And with that job, I didn't make enough money to afford the payments established for me. While there are different repayment options and plans available that supposedly cater to your financial needs, they don't take a lot of factors into consideration and often end up being infeasible. So you fall behind in payments, you defer, or you declare forbearance – all temporary solutions that delay the inevitable and pile on interest. If you're overwhelmed, you might even completely ignore your student loan payments when they come in the mail or appear in your inbox. I've done all of the above.

And don't let your account be in default or delinquent. That's giving permission to creditors to call you and anyone you've ever known incessantly. I get incensed whenever I receive a call from Navient talmbout, "Would you like to make a payment to bring your account up to date?" Uh, yeah, let me write a check for $11,000 real quick.

And it's the seriousness with which they pose such a stupid question that makes me angry. Anyone who can afford to make such a payment probably wouldn't have borrowed the money to begin with.

There are times when the amount of money I owe is debilitating and downright depressing. Other times, I can see the light at the end of the student loan debt tunnel. But no matter where my thinking rests, interest on my accounts accrue and option number two (robbing a bank) looks more and more likely.

In all seriousness, I sometimes wonder whether my education was worth the stress and a lifetime of loan repayment. What I learned in grad school, the friends I made – all of that is invaluable. But being saddled with debt somewhat undercuts the promise of higher education.

Our economy has drastically changed. Having a degree, advanced or not, doesn't guarantee employment, nor does it guarantee that you won't be underemployed or unemployed, for that matter. Former students who have loans to repay are in debtors' prison. Because of it, they're unable to get regular consumer credit and purchase homes. Some are even delaying marriage. This is no doubt a crisis, one that will take decades to solve, let alone reform. But I'm no Marty McFly. I don't have Doc or a flying DeLorean to transport me back in time so I can avoid the reality I now face. All I can do is make smarter choices and hopefully educate people along the way about what it's like living with lots and lots of student loan debt.

Student Loan

Tuesday, 3 November 2015