In the United States, millions owe more than $1.41 trillion in student loan debt, and not everyone can pay. After all, the default rate sits at 11.5 percent which accounts for anywhere from 4 to 5 million student loan borrowers.
This situation has led many to research what they can do to get out from under their debt. Some end up looking into economic hardship deferment.
What Is Student Loan Deferment?
Deferment is the action of putting something off or postponing it. So, economic hardship deferment refers to gaining deferment in the event of extreme economic issues. People can postpone repaying their loans as long as they meet the criteria. This can be applied to student loans, hence the term student loan deferment.
The Department of Education allows those who meet the criteria to pause their federal loan repayments for as long as three years. It can also be an option for private student loan borrowers, although the terms and conditions differ from one lender to the next.
Qualifying for Economic Deferment
This program is designed for low-income earners. While some programs require that people jump through hoops, borrowers only have to meet one of four criteria to qualify for economic hardship deferment on federal loans.
Borrowers qualify if they:
- Receive state or federal assistance
- Are in the Peace Corps
- Have a monthly income that is less than 150 percent of the poverty guideline for the borrower’s state and family size
- Received an economic hardship deferment for another federal loan for the same loan period
The process is quite a bit different for private loans. Some lenders will approve people after meeting one of the above-mentioned criteria. Others will look at the same information in a different light. That is why it is possible to get approved for deferment from one private lender and denied by another.
Applying for an Economic Hardship Deferment
Borrowers who want to apply for an economic hardship deferment need to start at their loan servicer’s website. It will have a form for requesting an economic hardship deferment. Those who are not currently in default can fill out and submit the form.
In some cases, documentation will be required. For example, those who are eligible for the deferment because they volunteer for the Peace Corps will need to show proof.
Is Deferment the Right Choice?
Deferment is a good option for those who can’t pay their loans right now but believe they will be in a better situation in the future.
Those who aren’t sure if their situation will improve in the future might want to consider other options though, such as income-driven repayment plans. These plans allow people to continue to repay their loans, but the payments are lower than they were before. That way, they can chip away at what they owe even while economically challenged.
Know Your Situation
There are good options out there to help people handle their debt situations. An economic hardship deferment is one such option. Borrows should consider this as an option if they are struggling to make monthly payments.