We all face financial obstacles in life which may affect our abilities to repay our student loans. When you realize that keeping up with your monthly student loan payments simply isn't possible anymore, it may be time to look into forbearance or deferment options. Here's the difference between the two:
Student Loan Forbearance
Forbearance places a temporary hold on your payments which can help you get back on track financially. While enrolled, interest will continue to accrue on BOTH the subsidized and unsubsidized portions of your loan.
As long as the borrower hasn't already used up the allotted 36 months, anyone can qualify.
This may be a good option when you're struggling to keep up with your student loans payments due to any financial hardship.
Student Loan Deferment
Just like a forbearance, deferment also places a temporary hold on your payments. Interest will accrue on the unsubsidized portion of your loans but NOT on the subsidized portion. If you meet the number of hours/credit that's required, deferment is automatic once the borrower goes back to school.
You could qualify if you're currently in the military or in the peace corp. Your best option is to talk to a professional in the field to make sure you understand the terms related to each program, and to find out if you qualify in the first place. Companies like Docupop can help answer all your questions and guide you to the plan that best fits your lifestyle.
Did you know that 1 out of 6 student loan borrowers never even apply for forbearance or deferment, and end up defaulting on their student loans? It's true! This can have tremendous effects on your financial future, and prevent you from reaching your goals. Below are just a few examples of possible scenarios when you've entered a student loan default.
A Default Could Ruin Your Credit
You pretty much need credit for all important milestones in life. For instance, when you're looking for a new apartment, finance a car, get a mortgage, start a business, and even when applying for some jobs. If you default on your loans, it takes up to seven years until it's removed from your credit report. Therefore, it's important to stay current on your payments and apply for alternative programs when you can't keep up with your payments anymore.
Debt Collectors Won't Back Down
We all know that life happens! Which means that during traumatic life events such as job loss or health issues, student loans may be the last thing on your mind. However, creditors don't care! As awful as it sounds, the only thing they care about is to collect their payments. Which means, they won't give up on trying to reach you over the phone, letters and even in person to demand payment.
Possible Wage Garnishments
If debt collectors fail to collect the payment, they will pretty much do anything to succeed. For example, this may include garnishing your wages or getting in the way for a portion of your tax return.
Now when you understand how defaulting on your student loans can affect your life for years in the future – avoid it with all your power. Find out if you could qualify for an income-driven repayment plan, which may lower your monthly payment. If this is still more than you can afford – you're next option may be forbearance and deferment.
Brian is a dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013 who, with his family, has successfully paid off over $100K worth of consumer debt. I want my three children to handle money better than I ever did at a young age. I have been teaching them as much as I can for the last 10 years. My goal is to continue to champion the financial literacy message and then why I created the “How To Rock Your Money” book. To help teenagers navigate their financial futures. I hope my family’s story of paying off over $100,000 worth of debt will inspire and motivate you to take control of your money. He blogs at BrianBrandow.com