Counselor Corner: Postponing Student Loans With An Economic Hardship Deferment

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Natali Picture

Natali is a team lead for our repayment assistance team.

When trying to understand a confusing topic like student loans, it helps to talk it through with someone—so that’s what we did. Aaron Weber chatted with SALT’s expert counselors about little details that can make a big difference when repaying student loans. Today, we hear from Natali about economic hardship deferments.

What Is An Economic Hardship Deferment?

This is a postponement that federal student loan borrowers can use to pause their payments if they’re facing economic difficulties.

To qualify, you must be receiving federal or state welfare aid, earning less than 150% of the federal poverty guidelines for your family size, or serving in the Peace Corps.

The Biggest Misconception About Economic Hardship Deferments

A lot of people don’t know that they can still make a payment during the deferment—even if it’s $10 a month. Payments that you submit will help keep your loan balance down.

That’s important because during the deferment, the government pays the interest on subsidized loans only. Not everyone has all subsidized loans, and you’re responsible for the interest on unsubsidized loans during deferment. If you pay the interest while you use deferment, it won’t build up and cause trouble later.

If you aren’t sure what types of loans you have, you can check the National Loan Data System.

When To Use An Economic Hardship Deferment

You should only use deferment if you can’t afford a reduced payment plan, like income-based repayment (IBR).

It’s true that you can use an economic hardship deferment for up to 3 years to avoid making payments. But IBR could lower your payments for an even longer period of time—so you may want to consider it before applying for this deferment.

Also, that 3 years is all time you get for this deferment, and you really want to avoid a situation where you’re out of deferment and you need the help.

The Application Process

Borrowers should first contact their servicer (the company they send their payments to) to see if they qualify for the economic hardship deferment.

You’ll have to fill out a form and send in some documentation—generally, 30 days of pay stubs or proof that you’re on public assistance. (Or proof that you’re in the Peace Corps.)

It takes about a week to process the application, and then another week or two before they confirm it. If you don’t get a confirmation, call the servicer and check. Also, be sure to keep making payments while you wait to hear back from them!

Hear more from Natali and learn more about postponing loan payments on saltmoney.org.  

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  1. Peter Lawson February 19, 2013 / 4:24 pm

    I have heard some loan officers suggest Economic Hardship in lieu of Income-Based repayment even if the student can make the repayments (like under $0 a month option). The officer said that if the student was planning on going back to school in the next 3 years, a deferment would be better. I was confused because usually they suggest IBR instead of a deferment.

    Do you have any thoughts on this?

  2. Natali February 20, 2013 / 10:02 am

    Hello,

    The Income Based Repayment plan (IBR) is a 20-25 year repayment plan option and it may not benefit everyone. It works better for people who are on fixed income and don’t expect a raise for a long time—such as a stay-at-home mom.

    You also want to consider your loan balance. If your loan is under $15,000 dollars your payment term may be 10-12 years. If you apply for IBR you could be turning a 10 year loan into a 20-25 year loan under the IBR.

    If you are on an IBR payment plan option and you qualify for a $0 payment due to your hardship, it gives you the flexibility to pay whatever you can afford in a monthly basis. However, if your income increases your payments could increase as well—and at times it can become un-manageable. Deferment allows you to stop payments temporarily; it may be a better option if you are experiencing difficulties and cannot pay for a short period of time. If you are is expecting a raise in 6 to 12 months, the Economic Hardship Deferment may be a better option because later on you can make your regular monthly payments.

    At the same time, You want to think about how much interest your loan accrues and consider the best way to keep it from adding to your loan. The less interest accumulates the less expensive for you in the long run. Its best to speak with your servicer about your situation and they can guide you based on your specific situation.

    Thank you,
    Natali

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