Student Loan Deferments Explained
Deferments & grace periods explained
Under guidelines provided by the U.S. Department of Education Federal financial aid program, borrowers struggling to make their student loan payments after college have options to postpone repayment – deferments and forbearances.
A deferment is a temporary postponement of payments on a loan. There are a variety of reasons a borrower is granted a deferment. If the loan is subsidized, including Perkins Loans, the borrower is not charged interest during the deferment. Unsubsidized loans, though, do continue to accrue interest. If the interest isn’t paid as it accrues, it will capitalized and increase the amount the borrower owes on the student loan.
When a borrower is unable to make student loan payments to unforeseen personal reasons but doesn’t qualify for a deferment, forbearance can be granted. A forbearance is a postponement or reduction in the student loan payments. Unlike deferments, the borrower is responsible for interest during this time period even if it is a subsidized loan. Again, if you don’t pay the interest it will capitalize. Some reasons a borrower may be granted forbearance is inability to pay due to poor health or other personal problems. Graduates serving in a medical or dental internship or residency can also qualify.
To be granted a deferment or forbearance, you have to contact the Direct Loan Servicing Center. Borrowers with an FFEL Loan must contact their lender or agency directly to apply. Perkins borrowers should contact the school that issued the loan. Each program requires documentation to support the deferment or forbearance request. If you apply for either, you must continue to make payments until relief is officially granted and you receive notification from the lender or agency. Failing to make payments can cause a strike on you credit rating.
To learn more about deferment and forbearance programs available to you, contact the U.S. Department of Education Direct Loan Servicing Center or visit www.ed.gov. To explore private student loans options for college financial aid, visit our Student Loans home page for info on different private student loan lenders.