Making student loan payments can be challenging, especially when life doesn’t go as planned. Whether you’re struggling to secure a full-time job after graduation or facing unexpected financial setbacks, understanding your options to pause or reduce student loan payments is crucial.
If you’re having trouble meeting payments, you’re not alone—and there are solutions. For most federal loans, various programs can relieve the strain of monthly payments, providing temporary relief during tough times.
According to the Consumer Financial Protection Bureau (CFPB), millions of Americans have paused their student loan payments using deferment or forbearance. These options can be lifelines when you’re unable to meet your monthly obligations.
Let’s explore the most common options and how they can help you take control of your loan payments. Please review the member library's Repayment Success section for more detailed descriptions.
What is a Deferral?
A deferral allows you to temporarily suspend your loan payments for a specified period. Federal student loans may be deferred for various reasons once you leave school, including:
- Unemployment: For those unemployed or unable to find full-time work.
- Economic Hardships: For borrowers meeting specific income and asset criteria.
If you have subsidized federal loans, the government pays the interest during deferment periods. Otherwise, interest continues to accrue and will be added to your principal balance, increasing the amount you owe.
How Do I Qualify?
To apply for a deferment, you need to contact your loan servicer for each loan you wish to defer. The process can take some time, so starting early is important. Here's how to do it:
- Identify Eligible Loans: Not all loans qualify for deferment. Check if your loans are federal and eligible for the type of deferment you need.
- Gather Required Documentation: Depending on the deferment type, you may need to provide proof of enrollment, unemployment, or financial hardship.
- Submit a Request: Complete the necessary forms through your loan servicer's website or by contacting them directly.
- Await Approval: Processing times can vary, so apply as soon as you know you need assistance.
Note: Borrowers with Perkins Loans should contact the school that issued the loan for deferment options, as these loans are no longer issued but remain eligible for certain deferment programs.
What If I Don't Qualify for a Deferral?
If you’re ineligible for deferment, forbearance might be an option. Forbearance allows you to pause or reduce your loan payments for up to 12 months, though interest continues to accrue on all federal loans, regardless of type.
Types of Forbearance
- Discretionary Forbearance: Granted based on your eligibility and your loan servicer's discretion. Common reasons include financial hardship, medical expenses, or other emergencies.
- Mandatory Forbearance: Required by law under specific circumstances, such as active duty military service or in certain cases of economic hardship.
Forbearance can sometimes be renewed, but it’s intended for temporary relief and should not be a long-term solution.
Another Option: Income-Driven Repayment Plans
If you’re looking for a more sustainable way to manage student loan payments, consider an income-driven repayment (IDR) plan. These plans adjust your monthly payments based on your income and family size, potentially reducing them to as little as $0.
Types of Income-Driven Repayment Plans
- Income-Based Repayment (IBR): Caps your payments at 10-15% of your discretionary income.
- Pay As You Earn (PAYE): Caps your payments at 10% of your discretionary income.
- Revised Pay As You Earn (REPAYE): Caps your payments at 10% of your discretionary income.
- Income-Contingent Repayment (ICR): Caps your payments at 20% of your discretionary income or what you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income.
Note: The maximum required payment for these plans will never be more than you would pay under the 10-year Standard Repayment Plan.
Benefits of Income-Driven Repayment Plans
- Reduced Monthly Payments: Align payments with your current income, making them more manageable.
- Loan Forgiveness: After making 20-25 years of qualifying payments, the remaining loan balance may be forgiven.*
- Interest Caps: Some plans offer caps on how much interest can accrue over time.
* The loan forgiveness feature of these plans is being challenged in court, so there is some uncertainty moving forward. Further, the new SAVE Repayment plan is also undergoing legal challenges, which is why it's not mentioned here.
How to Apply
- Complete the Application: Fill out the IDR application form on the Federal Student Aid website.
- Provide Documentation: Submit proof of income and family size, such as tax returns or pay stubs.
- Stay Enrolled in an IDR Plan: Continue to recertify your income and family size annually to remain in the plan.
Avoiding Default
Doing nothing is the worst possible course of action for struggling borrowers. Defaulting on your loans can lead to severe consequences, such as:
- Damaged Credit: Defaults appear on your credit report, reducing your ability to secure loans or housing.
- Wage Garnishment: Your wages may be withheld to repay the debt.
- Loss of Eligibility: Defaulting can eliminate eligibility for future financial aid and relief programs.
By taking advantage of deferment, forbearance, or IDR plans, you can manage your student loans effectively and maintain your financial health.
The Takeaway
Managing student loan payments is a critical aspect of maintaining your financial health. Whether you pause payments through deferment, seek temporary relief with forbearance, or lower your monthly obligations via income-driven repayment plans, resources exist to help you navigate tough times.
If you’re feeling overwhelmed, don’t wait to act. Contact your loan servicer, explore your options, and create a plan to get back on track. Remember, these programs are designed to provide relief – use them to safeguard your financial future.
