Difficulty Repaying

Deferment: You can receive a deferment for certain defined periods. A deferment is a temporary suspension of loan payments for specific situations such as reenrollment in school, unemployment, or economic hardship. For a list of deferments, click here. You don’t have to pay interest on the loan during deferment if you have a subsidized FFEL or Direct Stafford Loan or a Federal Perkins Loan. If you have an unsubsidized FFEL or Direct Stafford Loan, you’re responsible for the interest during deferment. If you don’t pay the interest as it accrues (accumulates), it will be capitalized (added to the loan principal), and the amount you have to pay in the future will be higher. You have to apply for a deferment to your loan servicer (the organization that handles your loan), and you must continue to make payments until you’ve been notified your deferment has been granted. Otherwise, you could become delinquent or go into default.

Military Service Deferment – New Provisions

The new College Cost Reduction and Access Act (CCRAA), enacted on September 27, 2007, modifies the military service deferment for borrowers in the FFEL, Direct Loan and Federal Perkins Loan programs who are called to active duty during a war or other military operation or national emergency. This deferment was originally added to the HEA by the Higher Education Reconciliation Act of 2005 (HERA). Under the HERA, the military service deferment had a maximum time limit of three years and was available only for loans first disbursed on or after July 1, 2001.

Effective October 1, 2007, the CCRAA eliminates the three-year limit for this deferment and removes the provision that limited the availability of the deferment to loans first disbursed on or after July 1, 2001. Eligible borrowers may now receive the deferment on all outstanding FFEL, Direct Loan and Federal Perkins Loan programs in repayment on October 1, 2007, for all periods of active duty service that include that date or begin on or after that date. A borrower whose deferment eligibility had expired due to the prior three-year limitation and who was still serving on eligible active duty on or after October 1, 2007, may receive the deferment retroactively from the date the prior deferment expired until the end of the borrower’s active duty service. Note: the military service deferment may not be granted for a period that will result in a refund to the borrower of payments previously paid on the loan.

The new law also extended the time period covered by military service deferments. Effective October 1, 2007, the deferment period for any borrower whose qualifying active duty service includes October 1, 2007, or begins on or after that date, is extended for an additional 180 days following the date the borrower is demobilized from that active duty service. This additional 180-day deferment period is available each time a borrower is demobilized at the conclusion of an eligible active duty service that supports the military deferment.

NEW Active Duty Student Deferment

The College Cost Reduction and Access Act (CCRAA), enacted on September 27, 2007, created a new deferment in the FFEL, Direct Loan, and Federal Perkins Loan programs for members of the National Guard or Armed Forces Reserve, and members of the Armed Forces who are in a retired status, who are called or ordered to active duty service. Effective October 1, 2007, these borrowers may receive a deferment on repayment of their title IV loans for up to 13-months following their completion of active duty military service if they were enrolled in a postsecondary institution at the time of, or within six months prior to, their activation. The deferment period for these borrowers expires at the earlier of a borrower’s re-enrollment in school or the end of the 13-month period.

Unlike a borrower receiving the Military Service Deferment, a borrower receiving the Active Duty Student Deferment is not required to have been activated during a war or other military operation, or national emergency, or performing qualifying National Guard service during a war or other military operation or national emergency. The term “active duty” has the same meaning as it has in section 101(d)(1) of title 10, United States Code, but does not include active duty for training or attendance at a service school. Under the CCRAA, members of the National Guard may qualify for this deferment for:

Until the U.S. Department of Education issues regulations implementing this deferment, for purposes of this deferment the term “enrolled” means at least half-time enrollment and “active duty” must include at least 30 consecutive days of service, excluding training. Eligible National Guard service does not include employment in a full-time, permanent position in the National Guard unless the borrower employed in such a position is reassigned as part of a Title 32 call to State active duty.

Many borrowers who are eligible for this deferment may have also received the Military Service Deferment. If a borrower has already received the Military Service Deferment, a lender or school may grant the 13-month deferment to a borrower without an additional request from the borrower or the borrower’s representative if the lender has documentation that: (1) demonstrates that the borrower was a member of National Guard or reserves or was in a retired status from the Armed Forces when entering active duty military service; (2) establishes an end-of-military service date; and (3) establishes the borrower’s enrollment status at an eligible institution prior to the borrower’s military activation. If the 13-month deferment is granted without a separate request from the borrower, the lender must send a notice to the borrower advising the borrower of the deferment and providing the borrower the opportunity to decline the deferment. The 180-day extended military service deferment period and 13-month post-active duty service deferment periods will run concurrently for such a borrower.

Economic Hardship Deferment

Under the Higher Education Act (HEA), a FFEL, Direct Loan, or Federal Perkins Loan borrower may qualify for an economic hardship deferment if the borrower’s income does not exceed the greater of an amount tied to the poverty line standard or the minimum wage rate. Effective for all economic hardship deferment requests made on or after October 1, 2007, the definition of economic hardship in section 435(o)(1) of the Higher Education Act (HEA) is amended to change the poverty line standard from 100 percent for a family of 2 to 150 percent of the poverty line applicable to the borrower’s family size.

In addition, the College Cost Reduction and Access Act (CCRAA) eliminates the provision of the HEA under which a borrower could be considered to have an economic hardship if the borrower was working full-time and had a federal educational debt burden that equaled or exceeded 20 percent of the borrower’s adjusted gross income. However, the CCRAA did not eliminate the Secretary of Education’s authority to establish, by regulation, additional criteria for an economic hardship deferment based on the borrower’s income and debt-to-income ratio. Accordingly, until the Department of Education issues new regulations to implement the CCRAA, the regulations that establish an income and debt-to-income criteria for the economic hardship deferment remain in effect. The applicable poverty line standard for purposes of these regulatory provisions, however, is the new poverty line standard (150 percent of the poverty line applicable to the borrower’s family size).

An economic hardship deferment may be granted for a maximum of three years with a reevaluation of the borrower’s eligibility every 12 months. A borrower currently receiving an economic hardship deferment may continue to receive the deferment, but is subject to the new poverty line standard at the borrower’s next scheduled reevaluation of eligibility.

Forbearance: Forbearance is a temporary postponement or reduction of payments for a period of time because you are experiencing financial difficulty. You can receive forbearance if you’re not eligible for a deferment. Unlike deferment, whether your loans are subsidized or unsubsidized, interest accrues, and you’re responsible for repaying it. Your loan holder can grant forbearance in intervals of up to 12 months at a time for up to 3 years. You have to apply to your loan servicer for forbearance, and you must continue to make payments until you've been notified your forbearance has been granted.

Note to PLUS Loan borrowers: Generally, the same eligibility requirements and procedures for requesting a deferment or forbearance that apply to Stafford Loan borrowers also apply to you. However, since all PLUS Loans are unsubsidized, you'll be charged interest during periods of deferment or forbearance. If you don't pay the interest as it accrues, it will be capitalized (added to the principal balance of the loan), thereby increasing the amount you'll have to repay.

Other forms of payment relief: Graduated and income-sensitive repayment plans are available. Graduated payment plans provide short-term relief through low interest-only payments followed by a gradual increase in payments (usually every two years). An income-sensitive payment plan offers borrowers payments based on yearly income. As that rises and falls, so do the payments.