Student Loan Deferment: How to Pause Repayment When You’re Broke

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For student loan borrowers who are struggling to make ends meet, there may be a way to make student loan payments more manageable: applying for economic hardship deferment.

Like other forms of student loan deferment and forbearance, economic hardship deferment allows you to pause your loan payments if you meet certain criteria.

This federal government program is designed for low-income borrowers who need as long as a three-year break from payments. It comes with clear-cut rules for eligibility; for instance, you can qualify if you’re receiving public assistance from the federal or state government.

The eligibility rules for similar deferment options from private lenders aren’t as straightforward, however. Here’s how economic hardship deferment works for both federal and private loans, and how you can qualify. Specifically, let’s look at…

How economic hardship deferment works

In order to pursue economic hardship deferment, call your student loan servicer — the company that collects your payments — and explain you’re having trouble affording them.

If you have federal loans, your servicer can explain which deferment options, if any, you qualify for. If you’re eligible for economic hardship deferment, you’ll then submit a deferment request form with any supporting documentation required. Once your application is approved, your student loan payments will be postponed for the specified period of time, up to a maximum of three years.

Private lenders, meanwhile, might offer a single deferment or forbearance option that covers economic hardship for up to 12 months, for example.

There are pros and cons to deferring student loan payments. In some cases, it can help you pay for necessities you otherwise would not be able to afford. But unless you have subsidized federal student loans — for which the government covers your interest charges during periods of deferment — your student loan debt will accrue interest and grow. That will make it more burdensome once your economic hardship deferment period ends. You can, however, opt to make interest payments during deferment to prevent your balance from growing.

Economic hardship deferment qualifications

It order to qualify for economic hardship deferment on a federal loan, you must be employed and meet one of four criteria:

  • You’ve already received an economic hardship deferment on another federal loan for the same period.
  • You’re receiving federal or state assistance, including through programs such as Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), or the Supplemental Nutrition Assistance Program (SNAP).
  • You’re serving as a Peace Corps volunteer.
  • Your monthly income is less than 150% of the poverty guideline for your family size and state of residence.

If you’re not working, you can apply for unemployment deferment — a separate type, which requires filling out a separate from — for up to three years.

“With federal loans, everything is protocol,” said Simon Goldenberg, founder and managing attorney of a debt relief law firm in New York. “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. You may need to attach documentation proving you qualify for economic hardship deferment. Peace Corps volunteers, for example, would need to attach a certificate of their service, showing when their work is taking place.

If you’re applying based on your income, you’ll need to calculate your monthly earnings (one-twelfth of your annual gross income) and, taking into account your family size, show that you’re below the allowed maximum amount. To do this, multiply your state’s monthly poverty guideline by 1.5 to find the threshold. (This information is also available on the economic hardship deferment request form.) Then subtract your monthly income from it. Any positive sum means you’re eligible for economic hardship deferment.

Economic hardship deferment qualifications for private loans

The federal government’s qualifications for economic hardship deferment are black and white, but the requirements set by private lenders can be murky. It’s possible, for example, that you could apply to postpone payments through two private lenders and only be approved by one. They also generally refer to their programs as “forbearance,” as opposed to “deferment.”

If you refinanced your student loans through Sofi, for instance, you’ll have access to its Unemployment Protection program, which helps borrowers who involuntarily lost their jobs. Education Loan Finance, on the other hand, has no specific payment-postponement policy, but its website says the company “may grant forbearance for up to 12 months” at its discretion.

Earnest, by contrast, offers forbearance to “clients who are experiencing a documented and verifiable hardship.” Possible qualifications for forbearance from Earnest include:

  • Involuntary decrease in income
  • Involuntary loss of employment
  • Significant increase in essential expenses, such as medical expenses or child care
  • Unpaid maternity/paternity leave

Expect to be asked for proof, like an official employment termination letter, when you apply to postpone payments.

Most importantly, understand your lender’s requirements as early as possible. When shopping around for student loans, make sure to compare the protections of various private lenders before borrowing.

Is economic hardship deferment right for you?

Many borrowers take advantage of this type of deferment. As of the second quarter of 2019, $3.5 billion federal direct loans were in economic hardship deferment, according to the office of Federal Student Aid.

But deferment isn’t your only option for managing student loans. Borrowers with low incomes compared to their debt loads can apply for an income-driven repayment plan, which lowers monthly payments to a percentage of their income. Your payment could be $0. Apply for an income-driven repayment plan on the FSA website for free.

Before opting for economic hardship deferment, think through your options. Even if your monthly payments are paused, interest might continue to increase your loan balance. So make sure the temporary relief from payments is worth a higher balance in the future — or try to pay interest as it accrues to keep your balance in check.

Jennifer Coates contributed to this report.