Deferring Student Loans - How To Qualify
Deferring student loan payments is an option you can take if your income drops or stops due to losing your job, returning to college or joining the military services.
A deferment simply means a postponement.The payments are delayed until you are in a position to pay them back or when the deferred time limit expires. It is important to point out that deferred student loans are not a way to avoid paying back the loan. It is a temporary situation and you are still responsible to repay the outstanding amount.
When facing financial difficulties deferring your student loan can provide the breathing space needed to get your finances in order. This can help you avoid defaulting on the loan and damaging your credit score rating. However, before you consider this option you should take the time to learn the in's and outs of student loan deferments and whether you can qualify.
The following guidelines will help you make a better informed decision.
Interest Rates - To Accrue Or Not To Accrue
When it comes to postponing student loan repayments the interest rates can be handled differently. This relates to what is called deferment and forbearance. With deferment the interest rates do not accrue during the time the loan is deferred. However, this may only apply for certain loans. For example, interest will not be accrued on Federal student loans.
Forbearance means the interest will accrue during the deferment period of the loan. Even if you have a Federal or Government subsidized loan under forbearance the interest rates will be charged for the period the repayments are postponed.
Deferred interest is more common with federal lenders as it is with private lenders. The latter are far less generous and often the interest will be accrued. The interest is usually not charged during the deferment period but added on at the end.
Private lenders may even capitalize the interest. This means the interest charges are added to the principle of the loan therefore increasing the total debt you owe. This can mean longer repayment terms or your monthly repayment charges increase after the deferment period expires.
Alternatively, you could agree to repay the interest charges during the deferment period and avoid paying them later on. Therefore, when you contact your bank or lender ask them whether or not they accrue the interest. You should also find out beforehand whether you are able to qualify for a deferment option.
How To Qualify For Deferring Student Loans
According to SallieMae.com deferment can be authorized in the following situations.
- economic hardship,
- unemployment,
- military deployment,
- enrollment in school,
- internship,
- national service,
- and similar situations.
Also, according to Ehow.com
"Borrowers of loans that originated after July 1, 1993 are eligible for deferment if they are returning to school at least half time, are unemployed, are experiencing financial hardship, are participating in a graduate fellowship or are enrolled in rehabilitation training."
"Understand how long the deferment will remain effective and the specific eligibility requirements for your deferment. For example, to be eligible for a student deferment, you must be enrolled at least half time at an eligible institution and you must have the school certify your enrollment. Unlike other deferment options, there is no time limit when you defer your student loans to go back to school. You'll remain qualified until you graduate or drop below half-time status."
Types Of Deferred Student Loans
With the increased cost of college fees and expenses many students whose parents are not able to support them rely on student loans that are subsidized by the federal government. These federal loans have lower interest rates compared to private loans and in many cases a background credit check is not required.
According to the finaid.org
Student loans provide a variety of deferment options and extended repayment terms. Student loans include the Federal Stafford and Federal Perkins Loans.
Federal Stafford Loans:
Federal Family Education Loan Program (FFELP) loans are provided by private lenders, such as banks,
credit unions and savings & loan associations. These loans are guaranteed against default by the
federal government.
Federal Direct Student Loan Program (FDSLP) loans or "Direct Loans", administered by "Direct
Lending Schools", are provided by the US government directly to students and their parents. All
Stafford Loans are either subsidized (the government pays the interest while you're in school) or
unsubsidized (you pay all the interest, although you can have the payments deferred until after
graduation).
To receive a subsidized Stafford Loan, you must be able to demonstrate financial
need. About 2/3 of subsidized Stafford loans are awarded to students with family AGI of under
$50,000, 1/4 to students with family AGI of $50,000 to $100,000, and a little less than 10% to
students with family AGI over $100,000.
Repayment begins six months after the student graduates or drops below half-time enrollment. The
standard repayment term is 10 years, although one can get access to alternate repayment terms
(extended, graduated and income contingent repayment) by consolidating the loans.
In terms of interest rates Stafford loans have a fixed rate of 6.8%. This rate is applicable from when the first loan installment is made.
Perkins Loan:
"The Perkins Loan is awarded to undergraduate and graduate students with exceptional financial need. This is a campus-based loan program, with the school acting as the lender using a limited pool of funds provided by the federal government."
"(The Perkins Loan is the best student loan available. It is a subsidized loan, with the interest being paid by the federal government during the in-school and 9-month grace periods. There are no origination or default fees, and the interest rate is 5%. There is a 10-year repayment period."
"The amount of Perkins Loan you receive is determined by your school's financial aid office. The program limits are $5,500 per year for undergraduate students and $8,000 per year for graduate students, with cumulative limits of $27,500 for undergraduate loans and $60,000 for undergraduate and graduate loans combined."
"The Perkins Loan also offers better cancellation provisions than the Stafford or PLUS loans. See the
section on loan forgiveness for more details."
(source - finaid.org)
What Are The Alternatives If You Don't Qualify
For those students who are not fortunate enough to qualify for government subsidized deferring student loans while in school can seek other options via commercial lenders. These are commonly referred to as private education loans. These do require a credit report check which could influence the interest rate you are charged.
In relation to deferring student loans for bad credit it would better to have a cosigner with a good credit score to guarantee the loan as this will also help lower the interest rate. Private education loans charge higher interest rates than Federal loans but charge less than credit cards.
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References:
How to Defer Student Loans | eHow.com http://www.ehow.com/how_2228072_defer-student-oans.html#ixzz1dEDLKpC2
Read more: finaid.org - Student loans.
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