The most common type of student loan is a direct loan. These are either subsidized, meaning the federal government pays the interest while you’re in school and during grace and deferment periods, or unsubsidized, which means you’re responsible for interest from the day you take out the loan. If you didn’t make any interest payments while you were in school, you’ll end up with a larger loan balance to pay than the amount you borrowed, because that interest was added to the balance of your loan. A larger loan means your monthly payments will be higher, and you’ll pay more interest over the life of the loan.
The day after you leave school, whether you graduate, withdraw, or drop to less than half-time status, your grace period begins (usually at least six months). During your grace period, you don’t have to start making monthly payments. Your first loan payment will be due at the end of your grace period, but that doesn’t mean you can’t start making payments sooner. If you’re not sure when you have to make your first payment, check with your loan servicer.
If you’re having trouble making student loan payments, you have options other than default (where you just stop paying). Deferment is one option for relief during a period of financial difficulty. If you qualify for a loan deferment, you won’t be required to make principal payments on your loan during that period. If you have an unsubsidized direct loan, you’ll be responsible for making the interest payments yourself during the deferment period, or the interest will be added to your loan balance. If you have a subsidized loan, the federal government will make the interest payments for you. You can qualify for a deferment under the following circumstances:
If you don’t qualify for a deferment, you may qualify for forbearance, a special arrangement with your lender that allows you to reduce or postpone principal payments temporarily. Interest continues to accrue during this period on both subsidized and unsubsidized direct loans, and if you don’t pay it during the forbearance, it will be added to the balance of your loan. This costs you more in the long run.
Don’t Be Late
Late student loan payments are reported to the credit reporting bureaus just like late credit card, mortgage, or car payments. This information may stay on your credit history for up to seven years, unless you rehabilitate your loan.
Contact your loan servicer to request forbearance. You may have to fill out a general forbearance application, or they may grant it over the phone (it’s at their discretion whether or not to grant it, but they usually do). There’s no time limit on the forbearance, but you should try to keep it as short as you possibly can. While this is a better option than defaulting on your loan, it’s still a costly choice. The longer you remain in forbearance, the bigger your debt will grow. If you can, use the reduced payment option rather than the total pause for your forbearance to prevent your financial situation from getting even worse.
To request a deferment or forbearance, you have to complete an application available from your lender. Some lenders provide these online. Within thirty days of submitting your application, you’ll be notified in writing whether or not your deferment or forbearance was approved.
The sooner you start paying off your loans and the larger your monthly payment, the less your loans will cost you in the long run. If you find yourself having difficulty making your loan payments, it’s better to be proactive than to make late payments or default on your loans. Call your lender at the first indication that you may have trouble making payments.
There are several options for making your loan payments simpler. One is loan consolidation: This option allows you to combine all of your eligible student loans into one loan with a single payment. Another option, if it’s financially possible, is to prepay all or part of your student loans at any time without penalty, which can greatly reduce your interest costs.
If you have federal student loans and you can’t afford your full monthly payment, you may be able to change your payment plan. There are several options available: