December 18, 2020

I Maxed Out My 36-Month Student Loan Deferment. What Now? – Forbes Advisor

I Maxed Out My 36-Month Student Loan Deferment. What Now? – Forbes Advisor


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The economic fallout from the Covid-19 pandemic has left millions of Americans underemployed or jobless, making it increasingly difficult to pay for basic living expenses. In circumstances like these, student loan payments become a much lower priority.

That’s why deferment exists—to give borrowers who are struggling financially some time to recover, so they can avoid defaulting and eventually pay off their balance in full. But what happens when you max out the 36-month deferment limit for economic hardship?

Read on to learn what to do when your federal student loan deferment options run out. Private student loan borrowers may also have deferment options, but each lender sets its own guidelines for deferment, so you’ll have to contact yours individually.

What Is Deferment?

Borrowers with federal student loans can defer payments up to 12 months at a time for up to 36 months. During that time, you won’t have to make any payments and will still remain current on your loans.

Interest on deferred loans will not accrue if the borrower has one of the following types of loans:

If you have other types of loans, the interest will accrue while the loans are deferred. At the end of the deferment period, the accrued interest will be added to the principal balance.

There are multiple types of federal student loan deferments you can apply for, including:

  • Economic hardship deferment
  • Unemployment deferment
  • In-school deferment
  • Graduate fellowship deferment
  • Cancer treatment deferment
  • Military service and post-active duty student deferment
  • Rehabilitation training deferment
  • Parent PLUS borrower deferment

The 36-month limit applies to the total time spent among all deferment programs.

What to Do When You’ve Run Out of Deferment Options

The best option for borrowers who have maxed out their deferment is to switch to an income-driven repayment (IDR) plan. Switching to such a plan will, at worst, lower your monthly payment. At best, you could reduce your monthly payment to $0. You can see how your payments will change under an IDR plan through the U.S. Department of Education’s loan simulator.

Monthly payments will be lower on an IDR plan than on the standard repayment plan, and you’ll be eligible for loan forgiveness on the balance that remains at the end of the repayment term. Borrowers will have to pay taxes on the forgiven amount.

Seek an IDR Plan

There are five IDR plans, each with its own rules. Most will base the monthly payment on a percentage of the borrower’s discretionary income, which is calculated as the difference between the borrower’s adjusted gross income (AGI) and 150% of the federal poverty guidelines. You can find the current federal poverty guidelines here.

Payments on IDR plans are recalculated every year to account for changes in income or family size. However, if your financial situation worsens before the annual certification date, you can resubmit your information to receive a lower payment.

Revised Pay As You Earn (REPAYE)

Payments under the REPAYE plan are capped at 10% of your discretionary income. Married borrowers will have to report their spouse’s income along with their own, even if they file taxes separately.

The following loans are eligible for REPAYE:

  • Direct subsidized and unsubsidized loans
  • Direct PLUS loans made to graduate or professional students
  • Direct consolidation loans not made to parents
  • FFEL undergraduate and graduate loans, if consolidated

The remaining balance will be forgiven after 20 years if you only have undergraduate loans, or 25 years if you have a mix of undergraduate and graduate loans.

Pay As You Earn Repayment (PAYE)

Payments under the PAYE plan are capped at 10% of your discretionary income. Only borrowers without outstanding FFEL or direct loans before Oct. 1, 2007 are eligible for PAYE. They must also have received a direct loan after Oct. 1, 2011.

The following loans are eligible for PAYE:

  • Direct subsidized and unsubsidized loans
  • Graduate PLUS loans excluding parent PLUS loans
  • Direct and FFEL consolidation loans made after Oct. 1, 2011

The remaining loan balance can be forgiven after 20 years.

Income-Based Repayment (IBR)

Payments under the IBR plan are calculated as 10% or 15% of discretionary income. The payment will be 10% if the loans were taken out on or after July 1, 2014 and 15% if they were taken out before July 1, 2014.

The remaining balance will be forgiven after 20 years’ worth of payments for those who took out loans on or after July 1, 2014. Borrowers who took out loans before July 1, 2014 will have their loans forgiven after 25 years’ worth of payments.

Only married couples who file taxes jointly will have both of their incomes counted toward IBR.

The following loans are eligible for IBR:

  • Direct subsidized and unsubsidized loans
  • Subsidized and unsubsidized federal Stafford loans
  • Graduate PLUS loans
  • Consolidation loans (direct or FFEL) made to students

Income-Contingent Repayment (ICR)

Payments under the ICR plan are calculated as the lower of either 20% of your discretionary income or the amount you would owe on a 12-year fixed repayment plan.

Your spouse’s income only will be included if you file taxes jointly. The remaining balance will be forgiven after 25 years’ worth of payments.

The following loans are eligible for ICR:

  • Direct subsidized and unsubsidized loans
  • Graduate PLUS loans
  • Direct consolidation loans

Income-Sensitive Repayment (ISR)

Payments under the ISR plan are based on your annual income, usually between 4% and 25% of your gross salary. You can use this plan for a maximum of five years and then must switch to another plan to pay off your loan balance.

The following loans are eligible for ISR:

  • Subsidized and unsubsidized federal Stafford loans
  • FFEL PLUS loans
  • FFEL consolidation loans

Apply for Forbearance

If you can’t afford the monthly payments under an IDR plan, the next best step is to apply for forbearance.

Forbearance is similar to deferment, in that borrowers can suspend payments for 12 months at a time. Each lender has its own limit on how many times a borrower can receive forbearance. Unlike deferment, interest will continue to accrue on all loan types, even federal subsidized loans.

If borrowers don’t pay off any interest before the forbearance period is over, the interest will be capitalized. This means it will be added to the total balance, which will increase both the total amount of interest paid and the overall monthly payments when the forbearance period is over.

Discharge Student Loans

If the school you attended has been accused of fraud or negligence, you may be able to discharge your student loans through a process called borrower defense to repayment.

Having your loans discharged in this manner is a difficult and time-intensive process. Talk to a lawyer to see if you qualify and what your next steps should be.

Apply for Bankruptcy

It’s possible, though difficult, to get student loans discharged in bankruptcy. Borrowers must prove in bankruptcy court that repaying student loans would cause them “undue hardship.” You’ll likely have to hire a lawyer to file the papers and represent you in court.



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