For people who suffer injury or illness for who need to take care of someone in their family who is suffering, medical leave can be a true blessing. It allows you to take unpaid time off work to recover or help your family member—and your job is still there when you are better or can return to work.
Whether you’re working or not, however, like many of your other bills, student loan payments are still due each month, and if you’re off work due to medical issues, you might be worried about how you can pay for those loans when you aren’t getting a paycheck. There’s help available, however, and you have several ways to keep your student loans in good standing.
Managing Student Loans on Medical Leave
Illness and injury can take a debilitating toll on all facets of your life – including finances. While all aspects of your finances may be impacted, student loans are often seen as less important debt that can wait to be paid. Most workers who are on medical leave tend to think more short-term; they worry about how to pay the mortgage or credit cards, or they’re worried about their credit score.
Unable to pay all of their monthly obligations, they often prioritize “the big things,” including housing. In reality, however, not paying your student loans can result in negative effects that can ruin your credit long past when you return to work.
Rather than setting aside your student loan payments to focus on groceries or the light bill, check out the following options that can help you stay on your feet financially, even while you’re on medical leave.
Student Loan Deferment
The first option is a deferment, which basically reduces or even pauses your payments while you’re on leave. Depending on the type of loan you have, you may be able to get out of paying accrued interest during that time.
For subsidized loans, you are not responsible for the interest in a deferment. With unsubsidized loans, however, you will have to pay that accrued interest. You can make those interest-only payments while you’re in deferment—and if you’re financially able to, that’s a very smart move—but you don’t have to; you can choose to leave the interest and let it capitalize onto your balance.
Deferment isn’t automatic; you’ll need to contact your servicer to request one. They will usually ask for some kind of documentation showing that you are eligible for the type of deferment you are requesting.
With an Economic Hardship Deferment, you’ll need to show that you are experiencing a financial hardship due to your medical leave and offer evidence of your being on leave and unable to work. You may also need something from your doctor outlining that you’re off work and for how long.
To apply for deferment, complete the Economic Hardship Deferment Request and submit it to your servicer. You may want to also call them to ensure receipt and handle any follow-up to keep things moving along.
After you’ve received your deferment, make sure that you keep your servicer informed of any changes. If you go back to work, let your servicer know immediately so your payments can get back on track.
Student Loan Forbearance
There are two kinds of forbearance—general and mandatory. For a medical leave, you’ll come under a general forbearance, which allows you to pause payments for up to 12 months. Unlike deferment, if you are off work for longer than 12 months, you can request another forbearance.
If you have a Perkins Loan, you can only be in forbearance for up to three years. For Direct Loans and FFEL Program Loans, there is no fixed limit from the federal government. There may, however, be a limit on what your individual servicer will allow; check with them to see what that limit is.
Keep in mind that during a forbearance, interest continues to accrue and will capitalize onto your balance, so the amount you owe will increase as long as you are on it and not making payments. When you come off of forbearance, you’ll see that you now owe more than you did when you applied for it. Your credit report, however, will show that the loans aren’t late, they’re just deferred.
You can apply for a forbearance by completing the General Forbearance Request and submitting it to your servicer.
Alternatives to Deferment & Forbearance
If the idea of accruing and capitalizing interest with no payments sounds like more stress you don’t need, or if you don’t want to completely stop paying for the time being, you could also apply for an Income-Driven Repayment Plan. The federal government has several that can help you get your payments to a manageable level. You’ll need to update any income and family size data each year, whether it changes or not—and you’ll be asked for documentation of both.
Income-Based Repayment (IBR) Plan
The IBR plan caps your payment at 10 to 15 percent of your discretionary income, which is defined as what’s left over after food, clothing, shelter, and medical care. You may end up needing to decrease any additional spending; suspending or ending streaming subscriptions and your coffee or dining out habits are often good ways to help have more money during a temporary financial crisis.
Pay As You Earn (PAYE) Plan
With PAYE, you’ll still pay the 10 percent of discretionary income, but no matter how much you make, the payment is capped at whatever your normal payment was, which means you won’t ever pay more than you’re currently paying. Unfortunately, if you need to lower your payment while on medical leave, the PAYE plan may not be the best option. It doesn’t count your spouse’s income unless you’re filing married jointly, so you may get a reprieve; check the math before signing up for this plan.
Revised Pay As You Earn (REPAYE) Plan
The REPAYE option is much like the PAYE, but with this program, your spouse’s income gets counted in the total assessment regardless of how you’re filing your taxes.
Income Contingent-Repayment (ICR) Plan
With ICR, you’ll pay the lesser of 20 percent of your discretionary income or your fixed standard repayment for 12 years. After 20 years you may get any outstanding balance forgiven; just keep in mind that you’ll have to pay taxes on the amount that goes away, because it’ll be counted as income.
If you’re going through a serious illness, experienced a severe injury, or are otherwise unable to work, life for you and your family is stressful enough. If you’re having to worry about how you’ll make your student loan payment too, that only adds to that stress—and can even interfere with your recovery.
Take the steps to protect your credit by being familiar with the options available to you. Some of these options may not work for you, but others might. Student loan servicers are able to explain what your personal options are, and only you can decide from there which will work best for you and your family.
Once your student loans are handled and your credit is protected, you can focus on more important things—like getting better and getting back to work as soon as possible.