Can Loan Payments Be So Big You Don’t Have To Make Them?

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Pay stub

This forbearance relies on your gross pay. Sorry, all those other lines on your pay stub.

Did you hear there’s a repayment plan with $0 payments? Or that you can postpone payments for as long as you want? Well, with student loan info, sometimes the toughest thing is figuring out the fact from the fiction (and everything in between). These differences could literally cost you, so we enlisted loan expert Ashley Norwood to bust the myths. Today: a forbearance that sounds too good to be true (but isn’t!).

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There are lots of urban legends about student loan benefits—this one even got national coverage from Fox News. However, occasionally, student loan benefits that seem too good can be legit.

For instance, have you ever heard of someone whose student loan payments were so big that they didn’t have to make them? Sounds unbelievable … but it isn’t. It’s a little-known real forbearance option, but you have to qualify (of course).

How This Forbearance Works

I’m referring to the student loan debt burden forbearance. (This is also sometimes called the “excessive debt forbearance.” Cheery, right?)

To qualify, your federal student loan payments (Stafford, Perkins, and PLUS loans) must exceed 20% of your gross monthly income, i.e., how much you make overall—not how much you take home. So, if you make $1,000 per month but take home only $750, your federal student loan payments would have to be more than $200 per month (20% of $1,000).

Can I Use This Forbearance Forever?!

This is a mandatory forbearance—meaning that, if you qualify, your servicer has to let you use it. However, just like most other deferment and forbearance options, it has an expiration date.

You can receive this forbearance for up to 1 year at a time for a maximum of 3 years over the life of your loans. Do I even need to remind you to use this limited time wisely?

Next Steps

If making your monthly payments is difficult because your income-to-student debt ratio is out of whack, apply for this forbearance with your loan servicer. You’ll first need to complete the Mandatory Forbearance Request: Student Loan Debt (SLDB) form, but you’ll also have to prove that you are eligible.

To do this, you’ll need two things: proof of your monthly income and proof of your monthly payments. It would be a good idea to collect anything proving your most recent monthly income, e.g., paychecks or letters from grandma saying how much she gave you for being such a great grandchild. You’ll also need to give your servicer a statement showing your required monthly student loan payments. Easy peasy, right?

But Before You Sign Up …

Remember that you may have other options for lowering or stopping your monthly payments if you are having trouble before opting for any forbearance.

If you’re considering this option, first look into income-based repayment (IBR) to help make your payments more affordable. You could also apply for a deferment, so that your subsidized loans wouldn’t accrue interest while you stopped making payments.

Remember: Forbearance should always be a last resort because interest accrues on all of your loans while they are in forbearance. This makes your loan balance grow while you aren’t making payments and may increase your monthly payment when your forbearance time is up.

One myth that is true? Deciding between these options is hardly ever easy. If you need help, just let us know in the comments.

(Photo: mirsasha)

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  1. jolene boland December 3, 2013 / 2:37 pm

    I have contacted a company that claims to gather up all my info and present my case to the DOE and I am wondering if it is legit, and I am feeling odd because this country is so in debt – and they are just “forgiving” thousands and thousands of dollars in debt?? Any insight on this?
    Thanks!!!

    • Ashley December 4, 2013 / 7:58 am

      Hi Jolene, there are companies that will offer to do this for you, BUT they typically will ask you to pay for this service. I actually wrote about these types of companies back in April: http://blog.saltmoney.org/compliance-corner-when-to-say-no-to-financial-aid-and-student-loan-help/.

      Some of these offers can be scams, but some are legitimate companies – that are offering you services for a price that you can get for free from your loan holder. Call your loan holder up to talk about ways to lower your repayment amount or to see if you qualify for any forgiveness programs. Before paying for a service that you can get for free, I would recommend checking out your free options first.

  2. Arline Black December 6, 2013 / 11:58 am

    who do I contact about repayment of loans or the deferment options?

    • Ashley December 9, 2013 / 9:05 am

      You would contact your loan holder. If you don’t know who that is, you can go to http://www.nslds.ed.gov. This site will show all of your federal student loans and who holds them. Contact the loan holder listed for each loan to talk about your repayment options and deferment options.

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