Student Loans

How To Defer Student Loans When Going Back To School

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 3 minute read

Every semester, the federal government sends me a check to cover my tuition, fees, books, and living costs at university (read: beer). A bill for $12 thousand showed up in my inbox the day after I graduated, and that was when I started to worry about paying back the student loans.

Looking back, I realize that I got off easy when compared to the many college students who have racked up debts of over $100,000 due to student loans. But interest accrues quickly whether you have a little or a lot, so it’s best to come up with a solid plan for paying back the debt that fits your budget.

What Are Your Alternatives?

Unless you die or become chronically handicapped, you almost never get out from under student loans (neither of which I recommend). However, there are a few options for delaying or extending loan payments:

  1. Deferment. Your obligation to make payments may be temporarily waived under specific conditions. Common reasons to request a deferment on your student loans include enrolling in further education, being unemployed, or experiencing financial hardship. If you have already fallen behind on your loan payments, you will likely not be granted a deferment.
  2. Forbearance. The holder of your loan may provide you a period of grace if you are experiencing hardships in your personal life that prevent you from making payments on your loan. Forbearance may be granted on federal loans if the borrower is unable to repay the loan in full within the standard grace period due to financial hardship.
  3. Payment Extension Program. The typical loan repayment plan gives borrowers ten years to pay back their debt. You can extend your student loan repayment period to 25 years if you borrowed more than $30,000.
  4. Modified Interest Payment Schedule. With a progressive payment plan, you can make smaller payments at first, but your total obligation will peak later on. Graduates who know they will have financial difficulties in the first few years following college but anticipate a significant increase in their income after two to three years may benefit from this plan.
  5. Payback Strategy Depending on Earnings. Your loan terms may be modified according to your salary, family commitments, and current debt balances. This tally will be adjusted annually.

It is up to you to find out from your loan companies what choices are available to you. When compared to commercial lenders, the Federal government is typically more lenient.

Delaying payments should only be used as a last resort

It can be tempting to look for ways to delay repaying your loans, but you should avoid doing so if at all feasible. While extended and graduated payment plans reduce your monthly payment, they can increase your total cost by hundreds of dollars because of interest.

To the extent that you are able, you should pay off your loans earlier than is required. Interest charges will be reduced proportionally to the rate at which principal is repaid. Using a repayment plan calculator, you may find that increasing your monthly payment results in significant savings.

Finally, if you have more than one student debt, you should start looking into private companies that offer consolidation services. One other option is to use a P2P lending platform, such as Lending Club.

Bottom Line

When it comes to paying back your student loans, some lenders are more flexible than others. You may be offered a grace period to repay your loans, but that doesn’t imply you should. In today’s interest rate environment, putting off or stopping payments can quickly add up.

However, there are certain people who may encounter circumstances in their lives that prevent them from paying back their loans on time.

It’s encouraging to know that there might be resources available to you if you’re having trouble finding work or if you’ve developed a significant illness. If you want to know your options and how to proceed, you should talk to your lender.

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