Student Loans and Financial Hardships

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There are times in everyone’s lives when finances become tight and it becomes difficult to make ends meet. Most student loan lenders are aware of this and have options available to you during times of financial hardship. Deferment and forebearance options may be available to you depending upon your circumstances.


Deferment

Derferment refers to postponing your loan payments for a certain amount of time. If you still remain in school at least half-time, most lenders will automatically defer your student loan until six months after you’ve stopped taking classes or you’ve graduated. Difficulty finding a job and economic hardship are two more reasons a lender may allow you to defer your loan payments.


Interest continues to accrue on your loan even when it is being deferred. You have the option of paying this interest if possible. Keep in mind that if you don’t pay interest, it will be added to the balance of your loan, usually when the deferment period ends. If this happens, you may end up owing more than you orginally borrowed.


Forebearance

Another option available to help you in times of financial hardship is loan forebearance. There are several types of forebearance avaialble:


1. Reducing your loan payments allows you to make lower monthly payments on your loan. If these payments aren’t enough to cover the interest, it will capitalize periodically. When this happens, it is addded to the balance of the loan, making the amount owned higher.


2. Extended payments will lengthen the term of your loan, thereby making the monthly payments lower. By extending the length of your loan, you will end up paying more in interest over the life of the loan than you would have if you stayed with the shorter term.


3. Temporary postponement of payments is similar to derferment. You and your lender agree on a period of time that you will be allowed to stop making payments. Interest will continue to accrue during this time.


Various lenders will have different requirements for deferment and forebearance. Some will require a fee for the convenience, while others may require you to fill out forms verifying your financial circomstances.


If you find yourself having difficulty making your monthly loan payments, the best option is to contact your lender immediately to avoid defaulting on the loan. If you don’t, you may forfeit your derferment or forbearance options.

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