Douglas Olsen
There are several options for postponing student loan payments, including grace periods, deferment, and forbearance. Grace periods typically last six months after graduation, withdrawal, or dropping below half-time enrollment. Deferment eligibility is based on loan type and circumstances, such as financial hardship, medical treatment, or military service. Forbearance is granted for similar reasons, as well as for AmeriCorps service or medical internships. While postponing payments provides temporary relief, interest often continues to accrue, increasing the overall cost. Therefore, it is essential to carefully consider all repayment plan options, including income-driven plans, before opting for deferment or forbearance.
| Characteristics | Values |
|---|---|
| Grace period | 6 months to start repaying after graduation, leaving school, dropping below half-time enrollment, or withdrawing |
| Deferment eligibility | Based on loan type and when the loan was obtained; circumstances include being in school, financial hardship, medical treatment, or military service |
| Forbearance | Granted by servicer for financial hardship, medical expenses, serving in AmeriCorps, internships, or if monthly payment exceeds 20% of gross income |
| Interest accrual | Interest typically continues to accrue during paused payments, increasing the balance owed |
| Credit rating impact | Delinquency on payments for 90 days impacts credit rating; default on federal loans after 270 days results in garnished wages, intercepted tax refunds, and loss of repayment plan choice |
| Income-driven repayment plans | Eligibility for $0 monthly payments based on income |
| COVID-19 Payment Pause | Ended on September 1, 2023, with an "on-ramp" period until September 30, 2024, to prevent delinquency for borrowers |
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What You'll Learn
Grace periods
A grace period is a common option for postponing student loan repayment. Typically, there is an automatic grace period of six months after graduation, dropping below half-time enrollment, or withdrawing from school, before your student loan payments begin. This grace period is designed to give you some time to get on your feet financially before you need to start making payments.
During this grace period, you are not required to make any payments toward your student loans. However, it's important to note that interest may still accrue during this time, depending on the type of loan you have. This means that even though you are not making payments, your loan balance may be growing.
If you are nearing the end of your grace period and are concerned about your ability to make payments, you may have the option to request an extension of your grace period. This is typically done through your loan servicer, and the requirements and availability of this option may vary depending on your loan type and other factors.
It's important to carefully consider your options before requesting an extension of your grace period. While it can provide temporary relief from making payments, it may also result in higher costs in the long run due to accrued interest. Additionally, it's worth exploring other options, such as income-driven repayment plans, which may offer more sustainable solutions for managing your student loan debt.
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Deferment
A deferment allows you to temporarily reduce or postpone payments on your loan(s) if you're returning to college, going to graduate school, or entering an internship, law clerkship, fellowship, or residency. When you request a deferment, you won't have to make principal and interest payments, but interest will continue to accrue, increasing your total loan cost.
Eligibility for deferment is based on the type of loan and when the loan was obtained. There are also various circumstances that may qualify you for a deferment, such as being in school, experiencing financial hardship, receiving cancer treatment, or being on active military duty. In-school deferments are usually automatic, while other circumstances require an application.
You can apply for a deferment in increments of up to 12 months, with a maximum of 60 months for undergraduate student loans and 48 months for certain graduate school loans. You can re-request a deferment every 12 months until you reach your maximum allowed months.
Before opting for a deferment, it's important to consider all your repayment plan options and the potential consequences, as the longer you wait to start repayment, the more you will pay due to accruing interest. Additionally, if you have defaulted on your loans, you are generally not eligible for a deferment.
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Forbearance
To be eligible for forbearance, individuals must contact their loan servicer and apply. It is important to note that forbearance is not usually granted if the individual has defaulted on their loans. A loan is considered defaulted if it has been delinquent for 270 days or more, and the consequences include wage garnishment, interception of tax refunds, and negative impacts on credit ratings.
Before opting for forbearance, individuals should consider other alternatives, such as income-driven repayment (IDR) plans. IDR plans can offer $0 monthly payments for those with zero or low income, providing an affordable alternative to forbearance. While forbearance provides temporary relief from payments, it does not contribute to loan forgiveness, whereas IDR plans offer credit towards forgiveness, even with $0 payments. Therefore, while forbearance can provide a necessary pause in payments, it should be considered as a last resort, with other options explored first.
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Interest accrual
The longer you postpone paying your student loans, the more interest will accrue, increasing your total loan cost. Interest capitalization can occur at certain points, such as the end of a grace period or forbearance/deferment period. Capitalization adds the accrued interest to the loan's principal, leading to interest calculations on this new, higher amount. This process significantly contributes to the overall loan cost.
To minimize the impact of interest accrual, consider making small additional payments or paying off accrued interest before it capitalizes. This strategy can help keep your total loan cost down. Additionally, if you qualify for an income-driven repayment (IDR) plan, you may be able to make $0 monthly payments while still earning credit towards IDR loan forgiveness.
It's important to carefully review your loan agreement and disclosure documents to understand the interest rate and potential for interest accrual and capitalization. Federal student loans typically offer a fixed interest rate, while private student loans may provide a choice of fixed or variable rates.
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Eligibility
Grace Period
You usually get a six-month grace period after graduation, leaving school, or dropping below half-time enrollment status or withdrawal, before your student loan payments begin. This period helps you get on your feet and prepare for repayment.
Deferment
- Being enrolled in school, which is typically an automatic qualification.
- Experiencing financial hardship, such as being temporarily unemployed.
- Receiving cancer treatment.
- Serving on active military duty.
For some deferment qualifications, you must contact your servicer and apply, as they may not be automatic.
Forbearance
A servicer can grant a forbearance for financial hardship, medical expenses, or other reasons. You may also be eligible for a forbearance if:
- You are serving in AmeriCorps.
- You are doing a medical or dental internship.
- Your monthly payment exceeds 20% of your gross income.
Income-Driven Repayment (IDR) Plan
Before considering deferment or forbearance, check your eligibility for an IDR plan, which could result in $0 monthly payments. Being on an IDR plan is preferable to deferment or forbearance because you will earn credit towards IDR loan forgiveness, even with $0 payments.
It is important to note that postponing student loan repayment can have consequences, such as accruing interest, which may result in a higher balance when you begin repaying. Additionally, if you have defaulted on your loans, you are generally not eligible for deferment or forbearance.
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Frequently asked questions
There are a few options to postpone paying your student loans, including grace periods, deferment, and forbearance. Grace periods are typically automatic and give you six months to start repaying after graduation, leaving school, or dropping below half-time enrollment. Deferment and forbearance are temporary pauses on your loan payments that you may be eligible for if you meet certain criteria, such as financial hardship or medical expenses.
Deferment and forbearance are both temporary ways to pause student loan payments, but they have some key differences. With deferment, you may not have to pay interest on your loans during the deferment period, depending on the type of loan you have. Forbearance, on the other hand, typically allows you to stop or reduce your payments for a set period of time, but interest will continue to accrue.
Yes, postponing your student loan payments can have some potential downsides. The longer you wait to start repayment, the more you will pay overall due to accruing interest. Additionally, postponing payments may impact your credit score and eligibility for future deferments or repayment plans. It is important to carefully consider all your options and make an informed decision.
