For borrowers repaying federal student loans, the Student Loan Ranger offers one piece of advice above all others: know your options.
Federal student loans typically come with better repayment options than private student loans. These include plans that can reduce your monthly payments, base your payment amount on your income and potentially forgive your debt. However, borrowers who just want to forget about what they owe — and many of them do — often opt for a different benefit, postponing their payments altogether through deferment or forbearance.
According to 2013 data from the Consumer Financial Protection Bureau, approximately 9 million borrowers have pressed pause on their loans. These borrowers knew their options and took advantage of one. However, that doesn’t necessarily mean they chose correctly.
Figuring out when to use a postponement isn’t simple. Nothing with student loans ever is. But the following information can help you can ensure you make an informed decision.
[Learn to start student loan repayment off right.]
Payment Is Always Your Best Option
As mentioned above, federal student loan borrowers may be able to take advantage of income-driven plans that can reduce their loan payments — sometimes to as little as zero dollars. You may not be eligible for a payment that low, but paying anything regularly is better than postponing repayment.
This is because interest accrues on all your loans during forbearance and on your unsubsidized loans during a deferment. If you don’t pay this interest during these postponements, it will be added to your balance once you re-enter repayment. As a result, you’ll end up paying interest on top of interest, increasing the amount you repay overall.
Besides decreasing the amount you owe, making payments comes with an additional bonus. If you’re eligible for certain income-driven payment plans, you may qualify to have your remaining balance forgiven after a set number of years and eligible payments. These amounts vary depending on the plan.
[Read about four income-driven student loan repayment plans.]
Deferment and Forbearance Are Limited
Another reason to make payments if you can is that you can only use deferments and forbearances for set amounts of time. Once you run out of that allocation, you run out of that option, too. Here are the lengths for some common postponement options:
— Economic hardship deferment: up to 12 months, which can be renewed for a maximum of three years
— Unemployment deferment: up to six months, for a maximum of three years
— In-school deferment: unlimited, as long as you are enrolled at least half time
— Discretionary forbearance: up to 12 months total
These durations may sound long, but they can go by very fast, especially if you’re dealing with a financial crisis. That could mean a number of things, like being in danger of missing payments, dealing with unemployment or a serious hardship or waiting for your application for total and permanent disability discharge to be processed.
“Emergencies ” likely wouldn’t include your grace period ending and you not feeling like starting repayment yet. Ditto for landing a job with a low entry-level salary.
While situations like those can definitely be trying, times that are more difficult may happen to you in the future. Having postponement options when you really need them could be a huge relief.
You can find a list of all available deferments here . To apply, you need to contact each of your loan holders directly. So, if you have three loan holders, you have to submit an application to each one.
Note that for Parent PLUS loans, eligibility for deferment and forbearance depends on the borrowers’ circumstances, not your own — even if you pay these loans. The exception is the in-school deferment, which can be applied based on either the student or the parent borrower’s enrollment status.
[Ask these four questions before requesting a student loan forbearance.]
Private Student Loan Options
With federal loans, deferments are your right. If you qualify, your loan holder must grant you the postponement. On the other hand, forbearance is typically granted at their discretion.
With private student loans, offering any postponements is entirely up to the lender. If they do provide these options, they may charge you to use them.
Fortunately, borrowers can shop around for private student loans. And while you may consider a low interest rate to be the best deal, you might want to factor postponement options into that equation as well.
If you already have a private loan, you’ll want to learn a few things before signing up for any postponements. Find out if there’s a fee for this service, if interest continues to accrue during the postponement, how long the deferment or forbearance lasts and how many times you can use this option. Knowing this information can help you decide whether that postponement is really worth it or not.
More from U.S. News
Debunking the Student Loan Bankruptcy Myth
4 Questions to Ask Before Requesting a Student Loan Forbearance
High Balance Student Loan Borrowers Skirt Default, Still Struggle
Know When It’s OK to Postpone Your Student Loan Payment originally appeared on usnews.com
