I f you are a soon-to-be college graduate, or have already graduated, you are on the path to bettering your life. More than likely, you have been looking for a job to complement that hard-earned degree. Most student loans give you a six-month grace period after you graduate from college before the payments need to begin. If you need a little more time before beginning to repay your student loans, you do have options: deferment or forbearance. Here are pros and cons of both in terms of extending your repayment period.
Deferment is a time-period in which the repayment of both principal and interest of your student loan or loans is delayed. Deferment is quite helpful if you are still looking for employment, if you are still enrolled at least half-time in college or graduate school, if you are suffering economic hardship, join the military, or other reasons as determined by your loan company.
Deferment has advantages and disadvantages. An advantage of deferment is that you can wait a period of time, depending on your loan company, to begin making payments. Another advantage of deferment is that the government may pay the accruing interest on federal loans, namely the Federal Perkins Loan, a direct subsidized loan, and a subsidized federal Stafford loan. You will also have the advantage of preventing loan default or delinquency.
In terms of disadvantages, interest will categorically accrue on unsubsidized Stafford loans and PLUS loans, which can be a hindrance since your overall loan amount will increase. Deferment can also prohibit your chances of receiving any loan forgiveness options if they become available.
Student loan deferment and forbearance are both viable options if you feel you need assistance in freeing up money for other necessary living costs such as rent and food.
Forbearance is typically the route individuals take if they do not qualify for a deferment. This option can allow you to completely stop making the monthly payments or decrease your payment for up to one year. Discretionary forbearance may be granted if you are having economic hardship or become ill, thus preventing you from working. Mandatory forbearance may be granted if you are participating in an internship program, the total amount of your monthly loan payment is at least twenty percent of your gross monthly income, you are a teacher or in a teaching program which qualifies for loan forgiveness, you are a member of the National Guard, or if your loans are categorized under the U.S. Department of Defense Repayment Program.
Forbearance also has advantages and disadvantages. One advantage is, understandably, you don’t have to make the payment. This can help free up your budget for other financial responsibilities or give you more time to gain employment. Another advantage of forbearance is that you will not become delinquent on your loan or go into loan default.
Forbearance does have a few disadvantages. One disadvantage is that interest will remain accruing on your loan each month for any subsidized and unsubsidized loans you are responsible for. This will increase the total amount you owe, so postponing the payment will require financial planning for making a higher payment when the time comes and you need to begin paying it back.
Student loan deferment and forbearance are both viable options if you feel you need assistance in freeing up money for other necessary living costs. While they both have positives and negatives, only you can determine what is best for your financial situation. If you are interested in either option, contact your loan servicer and they will guide you in the right direction, dependent on your circumstances, to make the best decision for you.