Bare with me, this might be kind of long but it's well worth the read... Since this is the season of college graduations, I will discuss a topic that a lot of people are not knowledgeable on; they simply sign on the dotted line! Yup-it's exactly what you're thinking.... that topic is student loans! Let’s be clear, we all hate student loans but for majority of students they are a necessary evil, and that evil begins usually six months after graduation. So your six months have passed and you have just received your first bill for repayment, and it is an amount that you cannot pay every month, so what do you do? Two common options are deferment and forbearance-I will go into detail about them both below, enjoy!
1. Deferment – Simple means delaying the payments on principal and interest until a further time when you are more capable to pay, sounds good right? Well if can be depending on the type of loan you have this requires a little legwork on your end to research your type of loan.
a. Federal Loan – Examples are Perkins loans, Direct Subsidized Loan, and/or Subsidized Federal Stafford Loan. Federal loans are unique where the government MAY the interest on your loan during the deferment period. For loans that are not subsidized the government will not pay the interest and you must pay it or it may/will be tacked on top of the principal after the deferment period is over.
The criteria for deferment of federal loans can be found at: http://www.direct.ed.gov/postpone.html
b. Private Loans – If the loan is not backed by the federal government it is a private loan. Interest WILL be not be paid by the loan provider and will be incurred during the duration of the deferment if no payments are not made. Personal opinion, if you defer private loans, you should pay interest payments at the minimum since delaying for extended times would greatly increase the cost of your loans in the long run.
2. Forbearance - When your scheduled loan payment cannot be made for numerous reasons BUT you do not qualify for a deferment plan, the loan provider may allow you to postpone payments for up to one year. As with most other loans interest will continue to be added on the loan, regardless if it’s subsidized or unsubsidized. There are two different types of forbearance that will be described below.
a. Discretionary – It is up to the loan provider if they will allow you a forbearance or not. There are two reasons you can request a discretionary forbearance and they are financial hardship and illness.
b. Mandatory – If you meet the criteria that lender MUST provide you a deferment. The criteria are below.
i. You are serving in a medical or dental internship or residency program, and you meet specific requirements.
ii. The total amount you owe each month for all the student loans you received is 20 percent or more of your total monthly gross income (additional conditions apply).
iii. You are serving in a national service position for which you received a national service award.
iv. You are performing teaching service that would qualify for teacher loan forgiveness.
v. You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
vi. You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
As you can see above deferment and forbearance both allow for delaying of payments, deferment is up to 3 years and forbearance up to 12 months. No matter which option you choose, it would be best to make payments while you are not required to as a way to limit the amount of interest that is incurred (if not a federal loan where they pay the interest).
0 Comments
Leave a Reply. |
-Finance
Archives
March 2016
Categories |