For student loan borrowers who are struggling to make ends meet, there is a possible solution: economic hardship deferment.
Like other forms of deferment and forbearance, economic hardship deferment allows you to pause your loan payments if you meet certain criteria.
One of the Department of Education’s numerous types of deferment, this one is designed for low-income borrowers who need as much as a three-year break from payments. It comes with clear-cut rules for eligibility. If you receive food stamps, for example, you have a shoe in.
Unfortunately, the thresholds for similar relief options from private lenders aren’t always as straightforward.
No matter your lender, here’s how economic hardship deferment works and how you can qualify.
How economic hardship deferment works
If you’ve never filed for economic hardship deferment, it can work out like this: A student loan borrower calls up their loan servicer and says that they’re having trouble making payments and want to know their options.
“Typically, the servicer says they can enter this kind of deferment, and the borrower says, ‘OK, great,'” explained Stanley Tate, a St. Louis-based student loan lawyer. “Then the servicer starts reading a disclosure agreement, and [the borrower will] stop listening because the pain is going away; it doesn’t matter how it’s going way.”
You can have each of your federal loans deferred in this kind of process. This means you could delay payments for a period of time. You can also consolidate your student loans into one, and then defer payments on the new loan.
Private lenders, meanwhile, might offer a blanket, 12-month deferment or forbearance option that covers economic hardship.
Of course, there are pros and cons to deferring student loan payments. On one hand, you might be freed up to pay off more pressing debts. On the other, your student loan debt might accrue interest and grow, making it more burdensome once your deferment ends.
Be aware of those nuts and bolts before you consider applying.
Economic hardship deferment qualifications
The positive of qualifying for economic hardship deferment is that you really only need to meet one of four specific criteria:
- You’ve already received a deferment on another federal loan for the same period.
- You’re receiving federal or state assistance, such as from Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), or Supplemental Nutrition Assistance Program (SNAP).
- You’re serving as a Peace Corps volunteer.
- Your monthly income is less than 150 percent of the poverty guideline for your family size and state of residence.
“With federal loans, everything is protocol,” said Simon Goldenberg, who operates a debt relief law firm in New York and New Jersey. “Some servicers have different interpretations, but the rules are the rules.”
You can find an economic hardship deferment request form on your loan servicer’s website.
As long as your loans are not in default and weren’t disbursed before July 1, 1993, you’ll be eligible to complete the form. It will guide you through the four ways to secure this type of deferment.
When applying, you might need to attach documentation proving you qualify for economic hardship. A Peace Corps volunteer, for example, would need to attach a certificate of their service, showing when their work is taking place.
The first pathway to deferment is the simplest. If you’re granted deferment on one federal loan, it will be granted for all of your federal loans. You’ll still have to apply, but at least you know you’ll be approved.
The monthly income criteria requires the most math on your part. You’ll need to calculate one-twelfth of your annual earnings and, taking into account your family size, show that you’re below the allowed maximum.
To do this, multiply your state’s poverty guideline by 1.5 to find the threshold, then subtract your monthly income from it. Any positive sum means you’re eligible.
A single individual living in New York, for example, would need to have a gross monthly income of less than $2,227.50 to qualify. If that borrower has a child, they would need to earn less than $2,747.50 because the government ups your allowance by $520 per dependent.
Although the economic hardship deferment form might be a simple one, go through it slowly to make sure your information is correct. Mistakes could lead your application to be rejected.
Economic hardship deferment qualifications for private loans
The federal government’s qualifications for economic hardship deferment are black and white, but private lenders’ are pretty murky. The lenders aren’t confined to a single set of rules.
It’s possible, for example, that you could apply for deferment with two private lenders and only be approved by one of them.
“And the one denying it may not be acting unlawfully,” said Goldenberg.
One lender could sympathize with your household’s sudden increase in medical expenses, for example. Another lender could have a cap on the dollar amount of bills it will recognize.
That’s the takeaway: There is no uniform economic hardship deferment application among private lenders. Qualifications vary from one lender to another.
SoFi, for one, offers Unemployment Protection to aid unemployed borrowers who weren’t fired for cause. Education Loan Finance, for another, has no public policy on granting economic stress-related relief, but claims to “work with everyone that has an issue or situation that arises.”
Earnest, another top-rated lender, said on its website that it offers forbearance to “clients who are experiencing a documented and verifiable hardship.” The company laid out the following possible qualifications for forbearance:
- Involuntary decrease in income
- Involuntary loss of employment
- Significant increase in essential costs, such as medical expenses
Expect to be asked for proof of hardship when you apply to delay payments. The lender won’t take your word for it. In the case of being laid off, for example, you might be asked to provide a photocopy of your final paycheck, an official employment termination letter, and the contact information for your ex-boss.
More likely, you’ll be working with a lender who isn’t all that forgiving. In that case, you’ll need to work with your servicer to figure out a plan of action.
If you’re shopping around for student loans, make sure to compare the protections of various private lenders before signing on the dotted line.
Is economic hardship deferment right for you?
About 30 percent of Direct Loans are in forbearance or deferment, according to 2015 research from New America. Of those, 7 percent are in economic hardship deferment.
But deferment isn’t your only option for managing student loans. Low-earning borrowers might qualify for an income-driven repayment plan, which can lower monthly payments.
Because Parent PLUS Loans have fewer options for income-drive repayment, this type of deferment can help parents who need to put payments on hold. Tate had one client apply for and receive economic hardship deferment on a PLUS Loan for one child’s education so that he could afford a younger sibling’s tuition payments.
Before applying for deferment, think through your options. Even if your loans are in deferment, interest might continue to increase your loan balance. So, make sure temporary relief from payments is worth paying off a higher balance in the future.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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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 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% 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
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
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.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|