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How Paying Off Student Loans Works


Deferment and Forbearance
Though a difficult financial situation may make those student loan payments seem scary, you may be able to defer your payments until you're better able to pay them off.
Though a difficult financial situation may make those student loan payments seem scary, you may be able to defer your payments until you're better able to pay them off.
© iStockphoto.com/AleksandarNakic

When you can't make your student loan payments, and forgiveness programs aren't an option, you may have an opportunity to postpone payments until a time when you're better able to make your payments. These options can keep you from missing payments and going in default, which could impact your credit rating and subject you to debt collection actions such as wage garnishing.

Most loans targeted to covering your college expenses allow you some type of deferment while you're enrolled in school at least half-time. Unless the loan interest is subsidized, such as for some Stafford Loans, it's still added to your loan balance each month throughout the deferment. To prevent your balance from going up, you might choose a payment plan during your deferment that lets you pay the loan interest while leaving the principal balance the same.

At the end of your deferment, you'll have a grace period before you have to start paying back the loan. Private loans may have grace periods of as little as 15 days, while federal loans allow you six or nine months before your first payment. If you re-enroll later, such as to finish a degree program or start graduate school, you can defer your loans again. Deferment requirements will probably be the same as when you were enrolled before, and you'll probably have the same grace period afterward.

For some loans, you might also qualify for deferment while you're in military service or going through an economic hardship. Check the terms of your loan to see if your loan qualifies for this type of deferment. Also, contact your lender to see if they have any additional deferment options for you that aren't stated in the terms of your loan.

When deferment isn't available, you can ask for a forbearance to help you through a rough financial situation, like being laid off from your job. Forbearance lets you delay payments on your loan without penalty while you get back on your feet again. Forbearance periods vary in length, lasting anywhere from a few months to three years. When you apply for forbearance, you may need to explain your circumstances in your request, and you must continue your payments until the application is approved. Interest will accrue during your forbearance, so your balance will be larger when your payments resume.