If you owe any type of student loan debt, there may come a time when you need a little help. That loan will stay with you until it’s 100% paid off, which often takes anywhere between 5 and 20 years. What are you supposed to do during a financial emergency? Maybe you lose your job or can’t find the extra money to pay your monthly bill.
In a lot of cases, in that situation, a borrower can get a deferment. It allows them to kick the can down the road a bit. It gives you the option of pausing your loan for a bit until you’re back on your feet. It sounds like a great option, but there are several things to consider before taking this route. It’s certainly not the choice for everyone and it comes with consequences.
Because it’s not a simple solution to your problem, it pays to know what type of loan you hold. Some loans will allow you to also put a pause on the interest you owe. Those loans are subsidized Stafford Loans, Direct, FFEL Consolidation Loans, and others. Yet, there are other types that do require the interest to keep flowing. These types are:
· Direct PLUS Loans
· FFEL PLUS Loans
· Direct Unsubsidized Loans
· Unsubsidized Direct Consolidation Loans
· Unsubsidized Federal Stafford Loans
· Unsubsidized FFEL Consolidation Loans
Paying Back Interest
Taking a month off isn’t a big deal, but if you anticipate a long break, you’ll have to determine what will happen with your interest. The government may continue to let the clock run. That means you will either have to make the monthly interest payment or it will continue to add up the full principal of the loan. You get a break, but you’ll still end up paying more down the line.
If you’re going back to school and need a deferment, be sure you take the time to sit down with financial aid counselor. They can help you get your public and private loans approved for deferment while continuing your education. Being proactive and contacting your servicer is also a great idea. Keep in touch with them over every change in your life that impacts your loans.
Pros and Cons of Deferment
If you’re in an emergency situation, deferring your student loans may seem like a great idea. It will free up money to pay on the more important things, like food, rent, and electricity. While it might be the best idea at the time, be sure to check out these pros and cons before making that decision. There are plenty of drawbacks and might complicate your situation further.
Depending on your interest rate, a $20,000 PLUS loan, which takes 10-years to pay off, can incur an additional $500 in interest towards the principal. That’s a lot of money. Still, it might be worth it at the time, but you should still consider whether you want to extend your loan out another several months.
A deferment can also impact your qualifications towards participation in student loan forgiveness programs. For example, the Public Service Loan Forgiveness program requires 120 eligible payments to get full forgiveness. If you defer, those payments are being met and you will lose valuable time, even if you’re still paying something and working for a non-profit.
You’ll have to take a long look at your situation and see if deferment is right for you. It can be the very wrong move, but if you simply can’t afford it, then you have no other choice. Deferment can be a complete lifesaver, but it rarely comes without drawbacks. If you can still make your interest payments, that will help your situation dramatically.
