2015
Principles Related to Deferments and Forbearances
Student Loan Lawyer / 0 Comments /There are times when it makes sense to postpone repayment of federal student loans. Set forth herein is a brief description of the concepts of forbearances and deferments. For both the Direct program and the FFEL program, deferments and forbearances are available to the student loan borrower.
With respect to deferments, under applicable regulations, one may not be in default when seeking a deferment. The borrower must submit documentation to obtain a deferment. One benefit of a deferment is that for subsidized loans, interest does not accrue during the period of the deferment. However, for unsubsidized loans, the interest will accrue during the period of the deferment.
There are two principal types of deferments: Economic Hardship and Unemployment. As one would suspect with the Economic Hardship deferment, the borrower’s financial position is paramount. The most prevalent basis for an economic hardship deferment is to determine whether the borrower’s earnings from a full time job do not exceed the greater of the minimum wage or 1.5 times the federal poverty limit for the borrowers family size and state of residence. Other grounds for an economic hardship deferment include whether the borrower is on public assistance or if the borrower is a Peace Corp volunteer. A deferment because of unemployment may be obtained by a borrower providing proof that he or she is eligible for unemployment insurance benefits, or that he or she has registered with an employment agency and made sufficient attempts to find employment.
Forbearances, on the other hand, have several important distinctions from deferments. First, forbearances can be granted without the provision of documentation. Second, there is never an ability to defer interest during the period of a forbearance. Interest will continue to accrue. Finally, in contrast to deferments, a borrower may obtain a forbearance whether in default or not.
Applicable regulations provide that a borrower may use forbearances to obtain a temporary stoppage of payments, an extension of time for making payments, or to obtain smaller payments. There are both mandatory and discretionary forbearances. One type of discretionary forbearance permitted under the FFEL program is when the borrower has personal problems or is in poor health and cannot make the required payments. This type of forbearance may granted for each year for an unlimited period of time. For mandatory forbearances, the most significant type of forbearance is when a low income borrower can obtain a forbearance if a borrower will be unable to repay a loan within ten years under the Standard Plan, Graduated Plan, or Income Sensitive Plan. For this kind of forbearance, a borrower may obtain a forbearance for up to five years.
The remaining list of both forbearances and deferments is beyond this single post and can be discussed with counsel when seeking to defer payments otherwise due for student loans.
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