Deferment

You may apply for deferment, a postponement of payment on a loan, based on your enrollment in school, unemployment or inability to find full-time employment, economic hardship (including Peace Corps service), military deployment, or membership in the military reserve under certain circumstances.

For federal student loans, interest does not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans during deferment. All other federal student loans that are deferred will continue to accrue interest, and any unpaid interest that accrued during the deferment period may be added to the principal balance of the loan.

Some private lenders provide deferment similar to that for federal loans. Most deferments are not automatic, and you will likely need to submit a request to your loan servicer, the organization that handles your loan account. You can view your federal loan information, including the types of loans you have and your loan servicer, by logging into the My Federal Student Aid website.

The period of time for deferment of a federal student loan varies. Please see the Federal Student Aid page on Deferment and Forbearance for more information on deferment periods on different types of federal student loans.

Forbearance

If you are willing but unable to make loan payments due to certain types of financial hardships, your lender may grant you a forbearance, a period during which your monthly loan payments are temporarily suspended or reduced. During forbearance, principal payments are postponed, but interest continues to accrue. Unpaid interest that accrues during the forbearance will be added to the principal balance of your loan, increasing the total amount you owe.

Your lender is required to grant you a forbearance if you are in any one of the following situations:

• You are serving in a medical or dental internship or residency program, and you meet specific requirements
• The total amount you owe each month for all the student loans you received is 20 percent or more of your total monthly gross income (additional conditions apply)
• You are serving in a national service position for which you received a national service award
• You are performing teaching service that would qualify for teacher loan forgiveness
• You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program
• You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.

Loan Forgiveness, Cancellation, or Discharge

Your loans may be forgiven, canceled, or discharged if you are a teacher, military personnel, nurse, childcare provider, individual performing certain public service, or person with total and permanent disability. If you think you qualify, contact your loan servicer.

You may also be eligible for a discharge through bankruptcy, if you can prove to the court that repaying your student loan would cause undue hardship. This court proceeding is adversary, and your creditors may be present to challenge your request. You would have to meet all three of these criteria to prove undue hardship:

1. if you are forced to repay the loan, you would not be able to maintain a minimal standard of living
2. this hardship will continue for a significant portion of the loan repayment period; and
3. you made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).

Meeting these criteria is extremely difficult and rarely allowed, and although you may file for bankruptcy on your own, you are strongly advised to hire a bankruptcy attorney, preferably one with experience in student loans. If your loan is discharged through bankruptcy, you will not have to repay any portion of your loan, and all collection activity will stop. You also will regain eligibility for federal student aid if you had previously lost it.

Delinquency and default

Your loan becomes delinquent the first day after you miss a payment. The delinquency will continue until all payments are made to bring your loan current. Loan servicers report all delinquencies of at least 90 days to the three major credit bureaus. A negative credit rating may make it difficult for you to get a credit card, borrow money to buy a car, rent an apartment, get sign up for utilities, or get a cellphone plan.

If you have to repay your loan monthly and you do not make a payment for 270 days, your loan is considered to be in default. The consequences of default can be severe:

• The entire unpaid balance of your loan and any interest is immediately due and payable.
• You lose eligibility for deferment, forbearance, and repayment plans.
• You lose eligibility for additional federal student aid.
• Your loan account is assigned to a collection agency.
• The loan will be reported as delinquent to credit bureaus, damaging your credit rating. It will take years to reestablish your credit and recover from default.
• The Internal Revenue Service can take your federal and state tax refund to collect any of your defaulted federal student loan debt.
• Your student loan debt will increase because of the late fees, additional interest, court costs, collection fees, attorney’s fees, and any other costs associated with the collection process.
• Your employer, at the request of the federal government, can withhold money from your pay and send the money to the government to repay your defaulted federal student loan debt.
• The loan holder can take legal action against you, and you may not be able to purchase or sell assets such as real estate.

If you have defaulted on any of your federal student loans, contact the agency that is billing you, explain your situation fully, ask it about available options to get out of default, and ask it to work with you. You should also discuss your situation with our office to see how we can help you discuss and resolve your situation with the lender.