Deferment, Forbearance and Default
Under certain conditions, you can receive a deferment or forbearance on your federal loans, as long as the loan is not in default. You must contact the lender or agency that holds your loan to request a deferment or forbearance. Details can be found on the Federal Student Aid website.
A deferment allows you to temporarily postpone payments on your loan. If you had a subsidized loan, you won’t be charged interest during the deferment. If your loan is unsubsidized, you’ll be responsible for the interest. You can pay the interest as it accrues (accumulates), or it will be capitalized and the amount you’ll have to repay will increase. Some reasons for deferments include:
- At least half time study at a postsecondary school
- Study in an approved graduate fellowship program or in an approved rehabilitation training program for the disabled
- Unable to find full-time employment
- Economic hardship
If you’re temporarily unable to meet your repayment schedule, but you’re not eligible for a deferment, your lender might grant you forbearance for a limited and specified period. During forbearance, your payments are postponed or reduced. Whether your loans are subsidized or unsubsidized, you’ll be charged interest during a period of forbearance. If you don’t pay the interest as it accrues, it will be capitalized.
Being in default is failing to make payments on your student loan according to the terms of your promissory note. The financial institution that made or owns your loan, your loan guarantor, and the federal government may take action to recover the money you owe. Here are some consequences of default:
- National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house.
- You would be ineligible for additional federal student aid if you decided to return to school.
- Loan payments can be deducted from your paycheck.
- State and federal income tax refunds can be withheld and applied toward the amount you owe.
- You will have to pay late fees and collection costs on top of what you already owe.