Ever feel like student loans are taking over your life? Sometimes, you need a break from payments and a chance to get back on your feet or focus on other financial goals.
Student loan deferment can be a lifeline to help you stay afloat when things get rough. In fact, 3.6 million borrowers have chosen to defer their federal student loans.
We talked to three student loan borrowers who decided to pause their payments by deferring their student loans. Here’s how deferment helped them manage their debt and achieve their financial goals.
1. This grad deferred $140,000 to build a new business
Michael Maylahn was a senior in college when he co-founded health software company Stasis Labs. By the time he graduated, Maylahn was all-in on the startup but faced a major issue: how to repay $140,000 in student debt on his bootstrap budget.
First, Maylahn discovered student loan refinancing as a way to manage his 13 student loans more effectively. “I knew I wanted to consolidate my loans because having to pay back so many different sources, I knew there was a risk at some point … something would go wrong,” he said.
With time running out on his grace period after graduation, Maylahn searched for options that made sense. He found a solution in the SoFi Entrepreneur Program. This unique program allowed startup founders to refinance their student loans and defer payments for six to 12 months after refinancing. (Although SoFi still offers its entrepreneur program, it no longer includes deferment.)
Maylahn refinanced with SoFi and got a 12-month deferment. “That allowed me to not have to pay myself out of our investors’ funds just to pay my loans back,” Maylahn said. Deferment gave him “the ability to have the capital and the focus fully on building the business rather than having to worry about the investment in education that I’d made.”
In the meantime, Maylahn didn’t ignore his deferred debt. “I definitely planned ahead,” he said. He cut back on his budget to get ready for his student loans to enter repayment. He also got enough of a salary bump to cover his monthly payments once they resumed. Today, Stasis Labs is growing and Maylahn is still working to build his business.
2. One student deferred $16,000 to complete a PhD
Emily Roberts graduated in 2007 with $17,000 in student debt. She paid off a $1,000 unsubsidized loan right away. But she decided to defer the remaining $16,000 in Direct Subsidized Loans since they don’t accrue interest during deferment.
Deferring these payments helped Roberts complete a one-year postbaccalaureate fellowship and a six-year Ph.D. program in biomedical engineering. She learned so much about managing student debt and finances that she was inspired to start a website, Personal Finance for PhDs.
“For the vast, vast majority of graduate students, deferring is appropriate,” Roberts said. Most graduate students have little or no income. Roberts, for instance, had to figure out how to make ends meet on her $24,000 annual stipend.
“The silver lining in the dark cloud of having a low stipend is that you can use it to get pretty good with personal finance,” Roberts pointed out. With fewer resources, grad students have to learn to budget, track expenses, and be financially responsible.
Thanks to her deferment and stipend, Roberts made some smart money moves in graduate school:
- She opened and contributed to an IRA right out of college and continued to contribute to it throughout grad school.
- She paid off a small car loan she used to buy a car she needed for school.
- After getting married during her program, Roberts and her husband used some of his savings to start a midterm investing portfolio.
When Roberts completed her Ph.D. in 2014, her student loans entered repayment. She used $6,000 to pay off the largest loan with the highest interest rate. Now, she makes minimum payments on the remaining $10,000 so she can continue to focus on investing and saving for retirement.
3. He deferred $80,500 to avoid default
Brendon Lies left college with $42,000 in private student loans and $38,500 in federal student loans. Altogether, he owed $80,500 and was facing monthly payments of $800 — on an income of around $1,200 per month.
In other words, Lies was too broke for his student debt. “My nearest family was over 2,000 miles away, which meant that I had the wildly difficult task of supporting myself without help in South Florida,” Lies said. Facing high payments on a low income, he decided “to apply for forbearance or deferment, whichever I could get.”
Lies combed through student loan sites to learn how to apply for economic hardship deferment. He made calls to his student loan servicers to get the process moving.
“The most stressful part was not knowing what to do and fearing that someone on the phone would say, ‘Sorry, but no, we can’t help,'” Lies said. Fortunately, his student loan servicers were helpful and tried to quickly get him answers to his questions. Both his private and federal student loan payments were paused.
“I was emotionally drained from the process of figuring it out, all while knowing that a denial would mean the next option was to just default and wait for garnishments,” Lies said. But his actions achieved what he needed; they prevented student loan default and bought Lies some time.
Now, Lies has gotten a few raises and is earning enough to afford his current payment of $310 per month despite owing around $80,000. His private student loans are currently on an interest-only repayment plan, and his federal student loans have reduced payments too.
Can student loan deferment help you?
Overall, these three borrowers used deferment to get their finances under control and work toward their important life and money goals. But deferment comes with a cost.
“The trap of using those programs is that you extend the period that you’re repaying … [and] increase the amount of money that you repay,” Roberts pointed out. In many cases, interest will continue to accrue, your student loan balance will increase, and you’ll end up paying more to get rid of your debt. Deferring also will push back your payoff date, so you’ll be in debt longer.
As you consider deferment, follow the example of the borrowers here. Do your research, calculate what deferment could cost you, and be proactive about managing your debt both in and out of deferment.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
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