Home Capital Gains Tax The Best Deferment Strategies You Should Know

The Best Deferment Strategies You Should Know

The Best Deferment Strategies You Should Know

Student loans are a significant concern for many people, and it is difficult to pay for them when tuition, textbooks, and living expenses add up. Fortunately, the federal government provides several deferment options to help borrowers manage student loan payments.

Deferment is a temporary pause on student loan payments, often due to financial hardship. During deferment, borrowers may not be required to make monthly payments and may avoid penalty fees and negative credit reports. Additionally, interest may stop accruing on some types of loans, such as subsidized federal loans, during deferment.

Borrowers should know the different types of deferment options and whether they qualify for each. Below are the best deferment strategies to consider when managing student loan payments.

In-School Deferment

In-school deferment is ideal for students who have not yet graduated. With an in-school deferment, student loan payments are paused while the borrower is enrolled at least half-time in an eligible institution. The deferment is automatic, meaning the borrower does not need to contact their lender to request it.

Undergraduates and graduate students may qualify for in-school deferment. However, it is important to note that unsubsidized loans continue to accrue interest during deferment, while subsidized loans do not.

Additionally, in-school deferment may have a maximum limit of 48 months, so it is important to monitor how long deferment lasts to avoid defaulting on the loan.

Parent PLUS Borrower Deferment

Parent PLUS loans are federal loans that parents can take out to pay for their children’s education. If the student for whom the loan was taken out is enrolled at least half-time in an eligible school, the parent borrower may defer loan payments until the student graduates or drops below half-time enrollment.

Parent PLUS borrowers should also note that the loans do not qualify for the income-based repayment plan, except for the Income-Contingent Repayment plan, which has specific qualifying criteria.

Military Deferment

Military deferment is active duty military deferment, and it is available to borrowers who are serving in the United States Armed Forces. During active duty, borrowers may be eligible for an interest rate cap of 6% on eligible loans.

Borrowers who are serving in a branch of the military with hostile fire or imminent danger pay may also receive an interest rate cap of 0%.

Post-Active Duty Deferment

Post-active duty deferment is another military deferment option that applies after active-duty service. This deferment is available for borrowers who are transitioning out of active duty service and looking for employment or beginning college.

To qualify for post-active duty deferment, borrowers must have been on active duty and within six months of discharge or release from active duty. The deferment lasts for up to 13 months, and the borrower must provide documentation of their military service.

Economic Hardship Deferment

If a borrower is experiencing financial difficulties, an economic hardship deferment might be the best option. Economic hardship deferment can pause student loan payments for up to three years in some instances. Additionally, interest may not accrue during deferment on subsidized federal loans, but it will continue to accrue on unsubsidized loans.

To qualify for economic hardship deferment, borrowers must meet certain criteria. Some common criteria include:

– Receiving public assistance, such as SNAP or TANF
– Being on Active Duty or in the National Guard
– Being unemployed or working less than 30 hours per week and earn less than the minimum wage.

Parental Leave and Working Mother Deferment

Borrowers who have recently given birth or are caring for a newly adopted child may qualify for the Parental Leave and Working Mother Deferment. The deferment lasts for up to six months and allows borrowers time to adjust to being a new parent.

Qualifying for Parental Leave and Working Mother Deferment is straightforward as borrowers only needs to provide evidence of pregnancy, childbirth, or adoption. Borrowers may need to contact their loan servicer to begin the process.

Teacher Loan Forgiveness

A teacher forgiveness program, although not a deferment plan, can help borrowers with their student loans. Teacher Loan Forgiveness is a federal student loan forgiveness program that incentivizes graduates to become elementary or secondary school teachers.

Under this program, borrowers can have a portion of their loans forgiven by up to $17,500 if they meet eligibility requirements. Borrowers must have taught in a low-income school or educational service agency for five consecutive years and have not defaulted on any loans during that time.

Conclusion

Having student loan debt can be overwhelming, but there is hope. Various deferment options are available to help borrowers manage their loans during difficult financial situations.

It is important to evaluate each deferment for eligibility, restrictions, and the amount of interest that may accrue during deferment. It is also essential to contact the appropriate loan servicer to begin the deferment process.

In the end, deferment can make a significant difference in managing student loans and achieving financial goals. Borrowers should make use of the options available to them to avoid defaulting on their student loans.