Forbearance

If you find you can’t meet your repayment schedule but you’re not eligible for a deferment, you might be granted forbearance for a limited and specified period. During forbearance, your payments are temporarily postponed or reduced. Forbearance can also be an extension of the time you have to repay your loan. Unlike deferment, whether your loans are subsidized or unsubsidized, you’ll be charged interest during forbearance. If you don’t pay the interest as it accrues, it will be capitalized. In order to lessen your interest, debt consolidation might be the best option.

As is true with deferment, you aren’t automatically granted forbearance automatically; you must formally request one from your loan holder. You might have to provide documentation to support your request.

You might be granted forbearance if you are:

• Unable to pay due to poor health or other unforeseen personal problems.
• Serving in a medical or dental internship or residency.
• Serving in a position under the National Community Service Trust Act of 1993 (excluding a PLUS Loan).
• Obligated to make payments on certain federal student loans that are equal to or greater than 20 percent of your monthly gross income.

Unlike deferment, which you’re entitled to receive, the loan holder does not have to grant forbearance except in certain mandatory circumstances (check with your loan holder for details). In most cases, however, lenders are willing to work with you if you show you’re willing but temporarily unable to repay your debt.

Loan Deferment

Deferment is a postponement of repayment under various, specific circumstances. It is best to pay loans as soon as possible to improve your credit. Debt consolidation may be able to help reduce your monthly payments enough that deferment isn’t necessary.

For Federal Perkins Loans, subsidized FFEL Stafford Loans, and subsidized Direct Stafford Loans, you don’t have to pay principal or interest during deferment.

For unsubsidized FFEL Stafford Loans, unsubsidized Direct Stafford Loans, FFEL PLUS Loans, and Direct PLUS Loans, you can postpone paying principal, but you (or your parents, for PLUS Loans) are responsible for the interest. You can pay the interest during the deferment period, or the loan holder can capitalize the interest when the deferment ends. Remember that capitalization will increase the loan balance.

Schools must automatically defer your Federal Perkins Loans during the time you perf perform any service that qualifies you for loan cancellation. In most cases, you aren’t just granted a deferment automatically; you must formally request one through the procedures your loan holder has established. Often, you need to complete a deferment form. You’ll need to provide documentation showing you’re qualified for the deferment you’re applying for. Make sure all your paperwork is in order and make sure the loan holder receives it.

Here’s one of the most important things to remember: You must continue to make payments on the loan until you’ve been notified the deferment has been approved. Sometimes borrowers apply for deferment and don’t hear anything back and assume things are fine. Or, as soon as they send a deferment form and their paperwork, they think they can immediately stop payment. Even if the paperwork is received without any problem, it takes a while to process. So, don’t skip the next payment when it’s due. First, check with the loan holder. If your deferment has not been processed, make your payment! You might go into default otherwise. You can’t get any deferment on a defaulted loan.

Loan Consolidation

Loan Consolidation allows you to simplify the repayment process by combining several types of federal education loans into one loan, so you make just one payment a month. Also, that monthly payment might be lower than what you’re currently paying.

You can get a Direct Consolidation Loan, or a Federal (FFEL) Consolidation Loan, available from participating FFEL lenders. Under either program, the loan holder pays off the existing loans and makes one consolidation loan to replace them. If you have subsidized and unsubsidized loans, they’ll be grouped accordingly when you consolidate so you won’t lose your interest subsidy on the subsidized loans.

There are three categories of Direct Consolidation Loans: Direct Subsidized Consolidation Loans, Direct Unsubsidized Consolidation Loans, and Direct PLUS Consolidation Loans. If you have loans from more than one category, you still have only one Direct Consolidation Loan and make only one monthly payment.

You can also consolidate Federal Perkins Loans and other federal education loans. Debt consolidation firms can help guide you as to what the best type of consolidation is for you. If you have loans from private lenders, a debt consolidation firm may be able to negotiate lower interest rates so your monthly payment is less.