if you have student loans and you can’t afford to make your monthly payments. you may want to consider delaying your repayment. The two main ways to delay payment on your student loans are through Deferment and Forbearance.
With both methods you are basically putting off making payments on your loan. The difference is that deferment can cost less than forbearance.
Deferment of Student loans
first let’s look at deferment you may have the option to defer your federal loans if you’re back in school in the military or if you’ve become unemployed and have a financial hardship. These aren’t the only scenarios you can take a closer look at student aid to see which situations qualify.
In any case let’s start with a standard 10-year repayment plan where you’ve got $30,000 in loans with $15,000 subsidized and $15,000 unsubsidized at a %4 interest rate on a standard 10-year plan.
You would be paying about $305 a month. let’s say you decide to continue your education and will be studying full-time. Since you won’t be making an income during this time you decide to defer your loans for one year so during this year you don’t have to make monthly payments.
But your subsidized and unsubsidized loans will behave a bit differently interest won’t accrue on your subsidized loans because the government will pay the interest on these for you. so at the end of this period you’ll still only owe $15,000 with no interest however interest will accrue on $15,000 of unsubsidized loans you have.
Which might work out to be around $600 over the course of a year and that $600 gets added to the principal on this loan so that extra $600 begins to accrue interest as well. Now you do have the option of paying the monthly interest while you’re in school but for this example let’s say you don’t. Your year is up and you’ve still got $15,000 in subsidized loans and $15,600 on your unsubsidized loans leaving you with a balance of $30,600.
Now if you get on a 10-year plan you’re going to pay a slightly higher amount than in your original 10-year plan perhaps around $310 dollars a month. what’s that look like over the next 10 years you may pay $7,180 in interest over the life of the loan in comparison to the $6,450 on the original non-postponed loan.
10-year plan with 1 year Deferment
forbearance of Student loans
There are two types of forbearance of student loans
- discretionary and
You can apply for a discretionary forbearance from your lender if you have a financial hardship or suffer from an illness but it’s up to your lender to decide to grant it to you.
if you qualify for a mandatory forbearance your lender is required to grant it. A common qualification for mandatory forbearance is financial hardship but other circumstances might qualify you as well.
In forbearance you don’t have to make any monthly payments but interest will accrue on both your unsubsidized and subsidized loans so let’s look again at our example and see what happens if you need to put your loans in forbearance for one year.
Now with interest accruing on both your unsubsidized loans and your subsidized loans you might be paying closer to $1,200 in interest in this period, $600 for each of your loans .
but just like deferment you can choose to pay your interest during forbearance. But again let’s say you don’t and you let it accrue when you get out of forbearance that interest will be added to your principal and when you get back on a 10-year plan after a year.
Your new monthly payment might be about $315 , $5 more than our deferment example and $10 more than your monthly payment. If you hadn’t delayed repayment at all and over ten years you might pay $7,910 in total interest in comparison to $6,415 total interest on the original non-postponed loan.
10-year plan with 1 year forbearance
Of course both these options are intended to be temporary. you typically can’t be in forbearance for longer than 12 months and the length of time you can keep your loans in deferment can vary depending on your circumstances and the types of loans you have. So if you find yourself in a situation where you need to postpone repayment deferment or forbearance can be decent options. But like everything else there are trade-offs and it’s good to keep in mind that delaying payment can come at an additional cost.