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Under certain circumstances, if a borrower is unable to make loan payments on time owing to temporary financial complexities, he/she may qualify for a period of forbearance or deferment. During this period, a debtor is temporarily allowed to reduce or postpone payments for the federal student loan availed. This helps in avoiding credit defaults to great degrees.\nJoin me on http://brucemesnekoff.com
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Under certain circumstances, if a borrower is unable to make loan payments on time owing to temporary financial
complexities, he/she may qualify for a period of forbearance or deferment. During this period, a debtor is
temporarily allowed to reduce or postpone payments for the federal student loan availed. This helps in avoiding
credit defaults to great degrees.
So, what exactly is a deferment or forbearance and under what circumstances a person is granted this discretion?
This blog attempts to throw light on these interim repayment suspensions options to help readers understand the
necessary requirements to qualify for such programs, if and when required.
Deferment: This option entitles a borrower having short-term problems in repaying federal student loan to
postpone his/her monthly principal payment for an explicit period of time. The alternative enables a person to
protect his/her credit for a given time. Besides, if a student entails Direct Subsidized Loans, he/she is further
discharged from paying interests on the loan all through the deferment period. However, interest would be
persistently charge don FFEL Unsubsidized as well as PLUS loans, which if not paid, would be capitalized at the
conclusion of the deferment period.
A student, in general, may be eligible for a deferment if:
He/she has put down his/her name at a qualified post- secondary school (at least half the time)
He/she has completed a full-time course in a fellowship graduate program
He/she was a part of an appropriate full-time rehabilitation program for people with disabilities
He/she remained unemployed or was unable to acquire a full-time job for a maximum period of 3 years
He/she is experiencing a certain kind of economic hardship as distinguished by the federal regulations for
a maximum period of 3 years
He/she is serving military operations or any other national emergency services before or after October 1,
2007, for a period greater than 180 days following the completion date of the qualifying service
He/she has played an active role as a member of the U.S. armed forces or National Services for at least
50% of his/her time at a qualified school or institution
Forbearance: It is a period in which a borrower’s monthly loan instalments are either reduced or suspended
temporarily. It is considered as a costly alternative due to the fact that the interest accrued on loan is not
suspended for the given time. It is recommended to avail this option only after carefully exploring and evaluating
other income-driven loan repayment plans. Besides, it is further advised that people applying for a forbearance
option for a period of 12 months should, if possible, elect to exit the status, once their financial situation improves.
An individual is granted a forbearance option if he/she meets any one of the requirements as mentioned below:
If a debtor is not able to timely make the scheduled loan
payments due to reasons involving, but not restrained to,
illness and financial hardships
If a person is working as a dental or medical intern or is
fulfilling a residency program and essentially meets certain
If the aggregate amount that an individual is obligated to
pay every month for Title IV student loans he/she has
received is greater than or equal to 20% of the gross
monthly income for a consecutive period of more than
If a borrower is working in a qualified AmeriCorps firm
If a person is serving as a teacher in a capacity that qualifies
for loan forgiveness requirements under the Teacher Loan
If an individual is eligible for a partial repayment of loan
underneath the Student Loan Repayment Program, which is
administered by the country’s Defense Department
If a debtor is actively participating in the operations of the
U.S. armed forces
How Making Payments During a Forbearance or Deferment Period Makes Difference?
Managing loan payments with forbearance or deferment alternatives provides a grace period to the borrower. In
deferment option, this greatly lowers the overall amount that needs to be paid over the entire span of loan life as
interest is not charged during the grace period. And so, any loan payment made in this period reduces the total
principal balance. Besides, even if an individual chooses to avail forbearance option and makes any payment
during this period then as the interest commences to accrue, it would be based on a relatively lower balance. And
so, the total interest required to pay on the loan reduces by a significant amount.
It is, therefore, recommended by the financial advisers, as a general thumb rule, to make payments in the
deferment or forbearance period for it reduces both the principal balance as well as interest accrued on the loan.