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Apr 20, 2015

Deferment and Forbearance DefinedWe talk about deferment and forbearance all the time 

There are certain student loan terms that it’s just assumed we understand. Terms that are frequently used in conversation, often without further explanation. “Deferment” and “forbearance” are two terms that student loan borrowers have heard thousands (if not millions) of times. But, has anyone ever explained what they mean? In simple english?

The clarity test

I have a little test for myself. A test I use to determine whether or not I truly understand a concept. Let’s call it the “clarity test.” If I can clearly communicate the concept out loud, to myself, without sounding like I’m lunging all over tarnation, then I probably have a decent grasp on it.

If, however, I start using terms like “you know,” “well you see,” “everyone knows,” or “see what had happened was” (these last two are very serious red flags), then I know, that I don’t know, and even worse, that I’m trying to convince myself that I do know something that I very clearly don’t.

(Given the number of of times I used the word “know” in the previous sentence you can see why I place a premium on explaining concepts to myself before I embark upon trying to explain it to anyone else.)

Anyway. When I tried to explain the difference between deferment and forbearance to myself, I thought I was on solid ground, but I very quickly found myself launching from side to side like I was on a really jerky carnival ride.

Didn’t pass the clarity test.

Just in case you and I are in the same boat, I decided it was time for a blog post fleshing out the difference between deferment and forbearance. Let’s start with deferment.

What does deferment mean?

When I hear the word “deferment” I think about putting something off. Problem is, when I hear the term “forbearance” I think about someone else clenching their teeth while they deal with my putting something off. But difference between deferment and forbearance in the context of student loans couldn’t possibly boil down to teeth clenching, so let’s dig a little deeper.

According to Federal Student Aid, deferment is:

“A postponement of payment on a loan that is allowed under certain conditions and during which interest does not accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans. All other federal student loans that are deferred will continue to accrue interest. Any unpaid interest that accrued during the deferment period may be added to the principal balance (capitalized) of the loan(s).”

I can identify five main components in this definition of deferment:

#1 Payments are postponed

#2 Specific conditions must be satisfied to qualify

#3 Interest does not have to be paid if it’s a Direct Subsidized Loan, Subsidized Federal Stafford Loan or Federal Perkins Loan

#4 The borrower is responsible for interest that piles up if it’s any other type of federal loan

#5 Any interest that isn’t paid during deferment can be lumped into the unpaid principal loan balance

Okay. So when we’re talking about the deferment of federal loans, we’re focusing on circumstances where borrowers can qualify to put off repayment and, depending on the type of loan, avoid having to pay interest on the principal. Got it.

What does forbearance cover?

Federal Student Aid defines forbearance as:

“A period during which your monthly loan payments are temporarily suspended or reduced. Your lender may grant you a forbearance if you are willing but unable to make loan payments due to certain types of financial hardships. During forbearance, principal payments are postponed but interest continues to accrue. Unpaid interest that accrues during the forbearance will be added to the principal balance (capitalized) of your loan(s), increasing the total amount you owe.”

For the sake of consistency, let’s stick with five, and see if we can break down forbearance:

#1 It lasts for less than the overall repayment period

#2 The borrower doesn’t have to pay the full payment typically required

#3 The borrower would like to make payments but can’t because of money trouble

#4 Interest keeps piling up

#5 Any interest that wasn’t paid during the forbearance will be lumped into the principal

Alright. What I’m hearing is that forbearance covers a brief period of time when full-on repayment is suspended, but borrowers remain responsible for paying interest. Any unpaid interest gets lumped into the principal once the forbearance is over.

Things are getting clearer. Sometimes it helps when we can spot the similarities and differences between related terms, so let’s do that next.

Ways that deferment and forbearance are similar

Both deferment and forbearance involve putting off repayment to a later point in time. Also, you don’t just get either option, you have to meet certain conditions. What else? Interest can pile up and be added to the principal once the deferment or forbearance period is over (depending on the type of loan if we’re talking about deferment).

Two ways deferment and forbearance are different

Boiled down to the essentials, the two main ways that deferment and forbearance differ are: (1) qualifying, and (2) the accumulation of interest based on the type(s) of loan(s).

There is a nifty little chart on Federal Student Aid to help you determine whether you may qualify for deferment. Scroll further down that webpage, and you’ll learn more about forbearance, including that there are two types: (a) discretionary forbearance, and (b) mandatory forbearance.

Additional types of forbearance

Discretionary forbearance is payment postponement that your lender can choose to give because you are experiencing financial difficulty, or illness. In contrast, mandatory forbearances must be given by your lender if you qualify. According to Federal Student Aid, there six ways you can qualify for mandatory forbearance. I’ve paraphrased each way below:

#1 You’re in residency or an internship as part of medical or dental school (and meet additional requirements)

#2 Your monthly payments exceed your monthly income by 20% or more (and meet additional requirements)

#3 You’re a national award recipient and are serving in that capacity

#4 You qualify for teacher loan forgiveness because of teacher service

#5 You qualify for US Department of Defense Student Loan (partial) Repayment

#6 You’re in the National Guard and have been activated by your governor (but don’t qualify for military service)

One more thing that deferment and forbearance have in common

No one will read your mind, assume you want to be enrolled in a particular deferment or forbearance program, and then enroll you. It just doesn’t work that way. Even if you qualify!! So do some digging using the links in this post, and the links to additional resources I’ve posted below to see whether: (a) you qualify for either deferment or forbearance, or (b) you’re even interested in either deferment or forbearance in light of the pros (postponed payments) and cons (potential for bigger total loan repayment due to interest piling up and being lumped into your principal).

Links to help you with your next steps if: 

You need help figuring out whether you have federal loans, private loans or a mix of both. –>  Start with the CFPB’s (Consumer Financial Protection Bureau) helpful post and link to the National Student Loan Database System.

You have federal loans and need to track down your servicer(s). –>  Start tracking down your student loan servicer using this information on Federal Student Aid.

Your student loan servicer (federal or private) isn’t communicating and you need help. –> File a complaint with the CFPB.

 

 

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Feb 7, 2015

I wanted to write something different about student loans

I was having difficulty choosing a topic to blog about this week. There were ideas rolling around in my head, but I had an itch to write about something different, something I couldn’t quite put my finger on. I wasn’t sure what. So, I turned to Ewan (my husband) and ran my quandary by him. And, of course, as only Ewan can do, he managed to point out a reality that’s right in front of my nose which I typically minimize. Maybe you do too.
ruthless-honesty

Whenever we talk about student loans, we usually talk about the negative. How it’s weighted us down financially. How we’re stressed out by trying to cope with it. How it’s tough to figure life out when you’ve got it. All realities that are important and which I take very seriously here on Conquer.

I continue to give these realities serious weight, but he hit on something when he suggested taking a moment to talk about the positive things that we wouldn’t have access to if we couldn’t borrow student loan money.

Huh?

(There are moments when my body literally buzzes with irritation that anyone would suggest I take a moment to focus on the positive things about student loan debt. This is one of those moments. My snarkmeter is shooting through the roof. Does such a thing even exist?)

What if student loans didn’t exist?

As I sat in the car, running my mind over this nugget, I zeroed in on this related thought: What if Student Loans Didn’t Exist?

What if when the end of high school rolled around, and we didn’t have funds set aside to help fund our education, there were no student loans we could borrow?

What if when we were enrolled in undergraduate, graduate, or professional school and there was an gap between the money we could come up with to cover our educational expenses and the total bill, there was no student loan alternative available?

What then?

What if instead of only asking what if we’d never take on student loan debt to begin with we asked ourselves what if student loans didn’t exist?

Stumbling into pitfalls

I have to admit that I’m having a difficult time writing this. There is a part of me that is attracted to the vilification of student loans. A part that wants to focus on solely on how my life has been challenged by the realities of coping with student loan debt and leverage that (and only that part of my experience) to help others avoid many of the pitfalls I’ve fallen into.

As the moments tick by I am increasingly aware that I’ve fallen into the pitfall of assuming that everything that’s stemmed from my struggle with student loan debt was and is negative.

Just one problem. If I’m being honest, that’s simply not the case.

Possibilities I accessed through student loans

Let’s just take a moment to examine a snippet of what I’ve been able to do because I could borrow student loan money.

Because I was able to borrow student loan money, I completed my Bachelor of Arts in Political Science. Without access to student loans at that point, I wouldn’t have been able to graduate. If I hadn’t graduated I wouldn’t have been able to enroll in a Juris Doctor or Master of Public Policy program. Without student loans I wouldn’t have been able to complete either of those programs. If I hadn’t finished my Juris Doctor I wouldn’t have been able to sit for the bar exam and become a licensed attorney. If I hadn’t earned my Master of Public Policy I wouldn’t have been able to combine my legal skill set with my policy skill set to create this blog and complete countless tasks while employed.

And that’s not taking into consideration all of the relationships I wouldn’t have formed, life lessons I wouldn’t have learnt, perspective I wouldn’t have gained, or connections I wouldn’t have made if I hadn’t been able to walk through the educational doors made available to me using grants, scholarships, assistantships and yes, student loans.

What if student loans didn’t exist? Well, I wouldn’t owe a dime in student loan debt.

But I also wouldn’t be close to being the person I am today.

Because I was able to borrow student loan money my personal struggle with student debt is forging a strength of character that I’m not certain I could have gained any other way.

Because I was able to borrow student loan money, in addition to gaining education,  mentors, friends, and acquaintances, I’ve learnt to have more compassion for people facing financial challenges, developed empathy towards people struggling with managing the emotional and practical realities of managing student loans, grasped the importance of taking responsibility for the consequences of my financial (and other) decisions, understood the necessity of doing thorough research on the short- and long-term impact(s) of my life decisions, and identified the very crucial need we have in our society to help one another through student loan repayment difficulties so that we can begin avoiding avoidable pitfalls more regularly.

And really, that’s just the beginning of what I’ve gained through leveraging student loans to access education.

I’m not saying that life with student loans is all cotton candy and lollipops.

What I am saying is that maybe, just maybe, we’ve focused so much energy on how tough it is to manage our student loans that we’ve overlooked the possibility that life without the opportunity to use student loans to access education might be much worse than facing life with student loans.

Because the truth is that student loans have given many of us the power to make life choices that have altered the trajectory of lives for generations to come (hopefully) for the better. Right now, today, the struggle may feel unbearable. But at least it’s a struggle that we have some say in, and we will always have a choice in how we decide to manage.

Clearly, I’ve got more thinking left to do.

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Jan 31, 2015

What do you see when you look at your student loans?

5 Healthy Ways to Cope with Student Loan Debt

As I sit here typing, I look out of the window and the sky is light grey.  Not the grey that leads to rain, but the grey that’s somewhere in between overcast and cloudy. I suppose that one way to look at this weather is to label it “gloomy.”

But then again, another way to think about it is calm, peaceful and still, with softly glowing light.

The more time passes, the more I am beginning to know, really know, that much of how we experience life is about the perspective we choose to take.

Will we choose to find the strength in the difficult things, or will we allow the difficulty to overwhelm us until all we can taste is bitterness?

This week, as I thought about the experience of student loan debt, I was reminded that student loans are going to be part of our society for awhile.  For those of us living with student loan debt, repayment is definitely a journey and not an achievement we suddenly wake up with one morning.  Between where we are today and the completion of student loan repayment there will be many different types of days.  It’s up to us to decide whether we will find the good during each day of our repayment experience. Continue reading »

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Jan 24, 2015

Here are 3 resources every person with student debt needs to read

Student Debt Resource #1

For an up-to-date, big picture view of student loans in the United States, the NYTimes Your Money Guide – Student Loans section is an excellent place to start. It’s the kind of webpage that you’ll find yourself returning to again and again. From a college cost calculator to recent Times articles on student loan debt this page will help you find your way if you want to get a better grasp on what the student loan market is like, why student loans are such a big issue, or how student loans are impacting people across America. If you’re feeling like no one is paying attention to the student loan problem, this page (and the growing number of editorials listed) is a reminder that the free press is paying attention. Another upside of this resource? You can get some perspective on mortgages and auto loans by navigating the links in the upper left corner.
Continue reading »

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Jan 17, 2015

It was another day, and I found myself making yet another excuse about why I just couldn’t deal with my student loans.  I’m tired.  I’m frustrated.  I can’t pay them all anyway.  The excuses just kept coming, one after the other.  As I lay in bed, I felt the weight of letting another day pass where I spent my day doing things that weren’t really that important instead of focusing on the most important things first.  After many conversations with friends, colleagues, even acquaintances over the years, I know that I’m not alone in this tendency.

Why is it that we tend to put off the things that matter most to us in favor of doing things that are good to do, but not the most important thing we could be doing?  And why does that seem especially easy to do when it comes to student loan repayment? Continue reading »

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