If you are experiencing temporary economic hardship (unemployment or poverty), then you may have several options to seek relief from your student loan payments. One option is to apply for an economic hardship deferment. If you meet the qualifications and your deferment is approved, then you can temporarily freeze payments for a period of up to six months before you must reapply. Unfortunately, there are downsides to using this option.
- It is not permanent. You cannot use the economic hardship deferment forever. In fact, you can only use it for a total of thirty-six months. Each deferment period lasts for six months. Deferment periods do not have to be back-to-back.
- Interest may accumulate. Interest will continue to accumulate on any unsubsidized loans during your deferment. Interest will be added to the principal balance of these loans, meaning you will owe more later.
- There may be better options: In some cases, income-driven repayment programs can serve the same purpose as an economic hardship deferment. These are programs that cap your monthly payments to a percentage of your income. You can enroll in these programs while unemployed, meaning your monthly payments could be $0. While interest will accumulate on these loans, you are working towards loan forgiveness with each passing month. Income-driven programs allow you to discharge your loans after making 20 to 25 years of payments.
When Should I Seek an Economic Hardship Deferment?
There are instances where applying for an economic hardship would make sense. For example, if your loans are for the most part subsidized, it may be a better option. Interest would not accumulate on these loans and you could apply to exit the deferment after increasing your income or finding a job. In fact, you are required to inform your servicer once your economic situation improves.
The Kansas City student loan attorneys at The Sader Law Firm can help you determine your available options for debt relief or reducing payments.