While student loans are a fact of life for most graduates, the required payments can be a drag on your finances. If payments on a loan are hampering your lifestyle, you have the option to extend your loan. Qualifying for extensions and payment-plan adjustments is possible when the burdens become too much for you and your partner. However, just because you can receive an extension on your student loan does not give you license to be reckless with your finances. The options available depend on whether you have federally backed loans or private loans.
Private Student Loans
If your student loan is with a private financial institution, your extension options depend on what your lender offers. Call your lender as soon as you realize that your payments are causing a financial hardship. Ask your lender to extend the terms of your loan to lower your payments. Offer to pay only the loan's interest temporarily until you can get on your feet financially. Because the government does not guarantee private loans, lenders typically will work with borrowers to prevent losses caused by loan default.
Federal Student Loans
If the government backs your student loan, you might qualify for a program where your family size, resident state and monthly income determines your monthly payment. The Income-Based Repayment (IBR) calculator provided by the U.S. Department of Education helps debtors determine whether they qualify for the program, but lenders make the final determination. While IBR reduces some borrower's payments to a more manageable amount, it will increase the term of the loan up to 25 years. This increase means that you will pay a higher amount of interest on the loan with IBR. However, federal law requires that any balance be forgiven at the end of the IBR loan.
A deferment extends the amount of time you have to repay your loan by temporarily suspending payments. If you have a Federal Perkins Loan, subsidized Direct or Federal Family Education Loan (FFEL), or a subsidized Stafford Loan, you do not have to pay interest while during the suspension. If you do not pay interest, the lender adds the unpaid interest to the loan's principle so you will pay more for the loan if granted a deferment. Typically, borrowers who go back to school, suffer an economic hardship or do not have a job can receive a deferment. Wait until you receive notification that your deferment is approved to stop making payments to prevent late-payment fees and negative reports to the credit bureaus. Deferments are available for private and federally backed loans. Deferments due to unemployment remain in effect for six months, and you can renew them 12 times. Deferments granted because of active military duty during war, national emergencies or military operations have no time limit. Deferments for military personnel serving any other time last for 13 months or upon starting back to school, whichever comes first.
Lenders grant forbearance to some borrowers who do not qualify for a deferment. Forbearance lasts for up to 12 months, and some borrowers receive extensions that grant payment relief for up to three years. Interest continues to accrue regardless of the type of loan, and borrowers must pay the interest to maintain the forbearance. Acceptable reasons for a lender to grant forbearance include completing a residency or internship, inability to work due to health or performing volunteer work for the government. Forbearance is available for all federal loans, but its availability for private loans depends on your lender.
- Forbes: The 4 Most Common Student Loan Problems and How to Fix Them
- Federal Student Aid: Income-based Repayment Plan
- Bankrate.com: What to Do When You Can't Pay Student Loan
- Federal Student Aid: Postponing Repayment
- Guide to Online Schools: Student Loan Forbearance
- Student Loan Borrower Assistance: Deferments
- American Education Services: Postpone Payments With a Deferment or Forbearance
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