During deferment, the lender allows you to postpone repaying the principal of your loan for a specific period of time.
Most federal loan programs allow students to defer their loans while they are in school at least half time. For Perkins Loans and Subsidized Stafford Loans, no interest accrues during the deferment period because the federal government pays the interest.
Students can postpone the interest payments on such loans by capitalizing the interest, which increases the size of the loan.
Deferments are commonly granted for students who are enrolled in undergraduate or graduate school, disabled students who are participating in a rehabilitation training program, unemployment and economic hardship.
These deferments are for the FFELP and FDSLP loans, not the Perkins loan.
Deferments are not granted automatically. You must submit an application and provide documentation to support your request for a deferment. Do not stop making payments on your student loans until after you are notified that your deferment has been granted.
During forbearance, the lender allows you to postpone or reduce your payments, but the interest charges continue to accrue. You must continue paying the interest charges during the forbearance period.
Forbearances are typically granted in 12-month intervals for up to three years.
Forbearances are not granted automatically. You must submit an application and provide documentation to support your request for a deferment.
Forbearances are granted at the lender’s discretion, usually in cases of extreme financial hardship or other unusual circumstances when the borrower does not qualify for a deferment.
Do not stop making payments on your student loans until after you are notified that your forbearance has been granted.
Getting Out of Default
To get out of default, you need to make arrangements with your servicer or lender to repay the loan. Once you have made six consecutive full voluntary on-time payments, you will be eligible for additional Title IV aid. On-time is defined as within 15 days of the due date.
For loan rehabilitation, the payments must be “reasonable and affordable”. This is determined by the guarantee agency, and will consider the borrower’s (and his/her spouse’s) disposable income and financial circumstances.
Also, if you are seeking rehabilitation and your wages are subject to a garnishment order, sometimes the guarantee agency will be willing to accept the higher of the rehabilitation amount or the wage garnishment, as opposed to the sum.
Also, if the default is very recent and the borrower brings the delinquency less than 270 days (the definition of default for federal education loans) within the 90-day period, before the lender has filed a default claim, they can cure the default.
It may also be possible to cure the default by consolidating the delinquent loan before the lender has filed for a default claim. Since the consolidation loan is a new loan, it effectively wipes the slate clean.
While lenders have very powerful options for collecting defaulted debt, and so don’t need to negotiate, they will often prefer to get the borrower into a voluntary payment plan than have to take the borrower to court. A good rule of thumb is a payment plan where you pay about 1% of the total amount owed per month.
For information about your options, contact the servicer of the loan and/or the original lender or the current holder of the loan. The financial aid office at your school should be able to tell you the name, address and telephone number of your lender and can also provide you with help and advice about repayment problems. You can also talk to the Default Resolution Group at the US Department of Education by calling 1-800-621-3115.