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As the cost of higher education in the United States continues to skyrocket, more and more students are forced to take out major loans to cover tuition.
With a tightening economy and difficulty finding a good job, many graduates find their salaries just don’t cover their increasingly sizable loan payments. More than half of private and public college graduates owe between $14,500 and $17,900 on their student loans — and the average starting salary for a college graduate is about $30,000. That’s why more grads are feeling the heat — and fielding phone calls from third-party collection agencies.
If you’ve hit a rough patch and need to buy some time to get back on a payment schedule, a student loan deferment might be the answer. With a deferment, your lender approves your delaying the repayment of the principal of your loan for a predetermined period of time.
Interest on the loan may or may not accrue, depending on the type of loan you have. (With Perkins Loans or Stafford Loans, no interest accrues during the deferment period as the federal government pays the interest. For unsubsidized loans or private loans, however, interest continues to accrue throughout the deferment period).
You may be able to put a break on interest payments on any type of loan during a deferment by “capitalizing” the loan. That means adding the existing interest onto the loan principal and rolling it into one big ball of financial obligations for you. Paying interest on interest is no way to go through life.
Another word of warning on deferments. Don’t assume that if you apply for a deferment that you’ll get one. Try to continue making payments – as much as you can, anyway – while your application is being reviewed and processed. It’s a short trip from assumed deferment to default, so take nothing for granted.
Contact your lending institution and ask for the appropriate application for your deferment. State your case clearly and explain why you think you might qualify for a deferment. It’s fine to do so over the phone but a letter may have more impact (and you won’t forget to leave important criteria out as you might in a phonev conversation).
Make sure you follow up after your request for paperwork and get the name of the primary contact you’ll be dealing with and file it away. That person may hold the most influence over your deferment situation.
Deferment situations usually apply to those individuals who are least able to afford paying their loans, including students still in undergraduate or graduate school (and likely not making much money); sick or disabled students who are are undergoing rehabilitation or treatment; those who have suffered a job loss or other economic woes; and. in some cases, parents with young children.
If you fit into any of these categories apply, a deferment might be right for you.
Brian O’Connell, a former Wall Street bond trader, is an author and writer with two Book of the Month Club titles and bylines in national media platforms such as The Wall Street Journal, Entrepreneur, CBS MarketWatch, The Street.com, Yahoo Finance and CNBC.com, among others.