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Understanding Deferment and Forbearance: Basics, with latest data.


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The only area where student loans stand better than credit card debt, car loans, and mortgages are Deferment and Forbearance. These options give borrowers desperately needed time when they are struggling. According to a report by the NSLDS, approximately 23 % ($184.1 billion) of direct student loans and 19% ($72.8 billion) of Federal Family Education loans were in deferment and forbearance in the 2nd quarter of federal fiscal year 2015.

Deferment is a temporary delay where the principal balance of student loans does not have to be paid. Depending on the type of loan(s) a borrower has, the government may also pay the interest on them while being deferred. Deferment is a right of the loan holder in difficult circumstances, so that lenders are required to grant it if borrower is eligible.

Criteria to apply for Deferment :

  • In-School : Includes loans for which payments have been postponed as a result of the borrower's enrollment in school.

  • Six-Month Post-Enrollment: Includes loans for which payments have been postponed for six months after the recipient is no longer enrolled in school at least half-time.

  • Unemployment: Includes loans for which payments have been postponed as a result of the borrower being unemployed or working less than 30 hours per week. ( Duration upto 3 years)

  • Economic Hardship: Includes loans for which payments have been postponed as a result of financial difficulty. (Duration upto 3 years)

  • Military: Includes loans for which payments have been postponed as a result of the borrower being called to active duty, mobilized or deployed in support of an operation of national emergency. (Duration upto 3 years)

  • Other: Includes loans for which payments have been postponed due to the following reasons: ACTION programs; full-time family service to high risk children; full-time teacher of math; full-time nurse/medical technician; full-time provider; full-time special ed teacher; graduate fellowship program; Head Start; law enforcement; NOAA; Peace Corps; total temporary disability; tax-exempt organizations; teacher shortage area; and working mother. Note: Several of these deferment types are only available to borrowers who took out loans prior to 1993.

Distribution of (Direct) loan amount in deferment:

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Here deferment due to unemployment and economic hardship shows the most troubling figures. $ 14.9 billion (7 billion less than last quarter) is in deferment, and these borrowers are more likely to struggle repaying their loans. Those loan holders with economic hardships ($ 5.6 billion in deferment) should be strong candidates for income based repayment plans.

Forbearance is when you are granted permission by your lender to stop making payments or to lower your monthly payments on your federal student loans for up to 12 months. If you qualify for forbearance, interest will accrue on your subsidized and unsubsidized loans. Unlike deferment, forbearance is not considered a right of the loan holder.

Criteria to apply for forbearance:

  • Administrative: Includes loans for which payments have been temporary suspended or reduced, often to help cover transition periods while the borrowers provides proper documentation or the lender/servicer reviews the documentation to determine the borrower's eligibility for certain programs/benefits.

  • Discretionary: Includes loans for which payments have been temporary suspended or reduced due to temporary hardships such as financial difficulties, change in employment, or medical circumstances.

  • Mandatory Administrative: Includes loans for which payments have been temporary suspended or reduced for reasons such as death, repayment accommodation, and exceptional circumstances including local or national emergencies and military mobilization.

  • Mandatory: Includes loans for which payments have been temporary suspended or reduced for reasons such as loan debt burden, medical or dental internship or residency programs, National Guard duty, Department of Defense Loan Repayment Program, or teacher loan forgiveness.

  • Not Reported: Includes loans that are in forbearance for which no forbearance type was specified.

Distribution of (Direct) Loan Amount in Forbearance.

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The figures raises concern as loan holders with $ 51.2 billion in loans ($ 1.2 billion less than last quarter) have Discretionary Forbearance. These are borrowers who simply cannot repay loans due to financial hardship or illness.

A Quick Comparison

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Source: https://studentaid.ed.gov

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