It seemed so far away when you started school. Loan payments were as hard to comprehend as putting on a suit and going for your first post-graduate job interview.
But now that day is here, or maybe that time has come and gone and you’ve been faithfully making payments. But now, you are not having as much luck landing that job as you’d hoped, or circumstances have pulled your financial resources to more pressing concerns.
You probably vaguely remember warnings written on your loan documents, and possibly spoken by your loan officer, but now you really want to investigate deferment programs.
What should you look into?
First, it's very important to remember the differences between deferment, forbearance and cancellation.
Deferment is a means of staving off your payments for a while, with the understanding that they will resume at a fixed time (usually six months or less). The lender may or may not assess the interest charges to the principal not paid during this time; federal loans do not typically assess the interest so the balance will not increase.
A forbearance is also a temporary reprieve from making payments, but usually means interest is allowed to accrue. A forbearance might grant a longer period than a deferment in which the loan recipient does not have to pay, but the recipient will still be responsible for the interest accrued from this time and during the rest of the loan period.
A cancellation is when the loan company permanently forgives all or part of your loan. It’s very rare to qualify for this cancellation – usually it happens when death or permanent disability happens to the borrower, or if he or she takes a job teaching in very needy geographical areas.
Back to deferments: your lender can grant you a temporary delay of repayment of your loan based on certain conditions, like unemployment, returning to school full-time or temporary disability. You are usually limited in the number of deferments a lender will allow over the life of the loan.
Besides the above conditions, some private lenders and most federal have recently instituted deferments based on military service. The applicant has to meet stringent guidelines, such as serving on active duty during conflict or other military operation, a national emergency or performing National Guard duty. The borrower is then only given deferment based on the time he or she is serving, and usually there’s a cap of three years on this deferment.
The most important thing to remember when looking into student loan deferment plans is that only the loan company can make this decision and institute it – simply ignoring the situation or making your own payments on your own timeframe will only make you eligible for credit trouble and higher fees.