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!