Pros and Cons of Deferments and Forbearance
There's a tremendous amount of information available concerning student loan repayment, but it still comes down to four choices: start paying now, don't pay at all, reduce monthly payments or postpone them. How do you choose which is right for you?
You need to contemplate your personal situation. There are several circumstances in which deferment or forbearance could benefit you.
Are you capable of making the loan repayments as scheduled? You could consolidate multiple loans, which might lower your payments enough to make them manageable. If career and lodging plans aren't shaping up, or you don't have an abundance of available funds as you transition from college to the world outside academia, then deferment or forbearance can ease a less-than-optimum process.
Also, if you are in a temporary setback -- whether form sudden health issues, a downturn in the economy, getting laid off or something else -- these kinds of things can negatively impact you in the short term. They may even arise long after graduation but within the loan repayment period. If you find yourself in this situation, getting a break on student loan payment might alleviate stress to some degree.
If you're considering loan default as an option, know that it could affect your credit rating, impact your salary (wage garnishment), encroach on your tax refund and result in penalties. Deferment or forbearance could prevent such things from happening.
On the other hand, there are disadvantages to deferments and forbearance; you have to weigh these consequences as well:
- How long will you need to postpone payment? Deferment or forbearance is usually for one year or less. You may be able to apply for extensions, but you usually won't be able to delay reimbursement for more than a few years.
- Are you willing to increase the total amount you owe? In the case of deferment of unsubsidized loans and for all forbearance, any unpaid accrued interest is added to the capital.
- Do you want to pay up front for the service? Private loans may have a fee for deferment or forbearance.
Deciding the best way to pay off your student loans is not easy, but you have facts to aid you in making an informed decision. Still looking for more input? Read on for links to lots more information about deferment, forbearance and student loans.
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More Great Links
- College Scholarships.org. "Life after College: Your Forbearance Options." 2009-2010. (March 4, 2010) http://www.collegescholarships.org/loans/forbearance.htm
- Duncan, Arne. "Move our Money from Banks to Students." February 22, 2010. (March 3, 2010) http://www.huffingtonpost.com/arne-duncan/move-our-money-from-banks_b_471038.html
- Federal Student Aid. "Deferment Forms." (March 3, 2010) https://www.dl.ed.gov/borrower/DefermentFormList.do?cmd=initializeContext
- Federal Student Aid. "Did You Know…" (March 5, 2010) https://www.dlssonline.com/borrower/ForbearanceCounseling.do
- Federal Student Aid. "Facing Loan Default." (March 6, 2010) http://www2.ed.gov/offices/OSFAP/DCS/default.html
- Federal Student Aid. "Federal Perkins, Defense and National Direct Student Loan (NDSL) Deferment and Cancellation." (March 5, 2010) http://ed.gov/offices/OSFAP/DCS/perkins.deferment.cancellation.html#SampleDeferment
- Federal Student Aid. "Forbearance Forms." (March 4, 2010) https://www.dl.ed.gov/borrower/ForebearanceFormList.do?cmd=initializeContext
- Federal Student Aid. "Loan Cancellation and Discharge." (March 3, 2010) http://www2.ed.gov/offices/OSFAP/DCS/loan.cancellation.discharge.html#Bankruptcy
- Federal Student Aid. "Loan Consolidation." July 14, 2009. (March 10, 2010.) http://studentaid.ed.gov/PORTALSWebApp/students/english/consolidation.jsp?tab=repaying
- Federal Student Aid. "Loans." 2009-2010. (March 4, 2010) http://studentaid.ed.gov/students/publications/student_guide/2009-2010/english/typesofFSA_loans.htm
- Federal Student Aid. "National Student Loan Data System." (March 5, 2010) http://www.nslds.ed.gov/nslds_SA/
- Federal Student Aid. "Postponing Repayment." January 7, 2010. (March 4, 2010) http://studentaid.ed.gov/PORTALSWebApp/students/english/difficulty.jsp
- Federal Student Aid. "Public Service Loan Forgiveness (PSLF)." February 16, 2010. (March 8, 2010)http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp
- Federal Student Aid. "Repaying your Student Loan." 2009-2010. (March 4, 2010) http://studentaid.ed.gov/students/publications/student_guide/2009-2010/english/postponeloanpayment.htm
- Federal Student Aid. "Repayment Information." January 6, 2010. (March 4, 2010) http://studentaid.ed.gov/PORTALSWebApp/students/english/repaying.jsp?tab=repaying
- Federal Student Aid. "Stafford Loan Forgiveness Program for Teachers." February 20, 2009. (March 4, 2010) http://studentaid.ed.gov/PORTALSWebApp/students/english/cancelstaff.jsp
- FinAid. "Direct Loans vs. the FFEL Program." 2010. (March 4, 2010) http://www.finaid.org/loans/dl-vs-ffel.phtml
- FinAid. "Economic Hardship Deferment Calculator." 2010. (March 3, 2010) http://www.finaid.org/calculators/economichardship.phtml
- FinAid. "Private Student Loan Consolidation." 2010. (March 10, 2010). http://www.finaid.org/loans/privateconsolidation.phtml
- National Center for Educational Statistics. "Fast Facts." 2009. (March 3, 2010) http://nces.ed.gov/fastfacts/display.asp?id=31
- National Student Clearinghouse. "Simplifying Loan Deferments for Students." 2010. (March 5, 2010) http://www.studentclearinghouse.org/students/deferment_process.htm
- StaffordLoan.com. "Federal Loan Deferment Options." 2010. (March 4, 2010) http://www.staffordloan.com/repayment/deferment.php
- Student Loan Network. "Federal Perkins Loan Program." 2010. (March 5, 2010) http://www.studentloannetwork.com/federal-student-loans/perkins.php
- Student Loan Network. "Federal Student Loan Deferment." 2010. (March 4, 2010) http://www.studentloannetwork.com/federal-student-loans/deferment.php
- USA Funds. "Deferment and Forbearance Forms." 2010. (March 4, 2010) http://www.usafunds.org/lenders/forms/deferment_forbearance.htm