Private Student Loans and Deferment

Student loan payments can feel overwhelming, especially when you’re just starting your first job post-graduation. While there are options for deferment and forbearance with federal student loans, you might have a harder time making things work with private student loans.

So, what options do you have when you’re struggling with private loan monthly payments? Let’s look at what borrowers can expect.

Federal Education Loans vs. Private Student Loans

Understanding the difference between federal student loans and private student loans is important. With federal loans, many options are available to student loan borrowers who have trouble managing their payments.

There are automatic conditions in which borrowers can put off making monthly payments through deferment or forbearance. On top of that, borrowers with subsidized federal loans won’t see interest accrue during the deferment period. (Unsubsidized loans and forbearance result in accrued interest.)

Another option for federal borrowers is income-driven repayment. This approach limits your monthly payment to a percentage of your discretionary income. After a number of years, you receive loan forgiveness on your remaining balance. Nothing like that is available with private lenders.

Instead, you need to check the loan terms with a private lender. You might be able to get an in-school deferment, but there might not be such an option after you graduate. Some private lenders have hardship provisions similar to forbearance, but it’s not the same guarantee that you receive with loans from the Department of Education. And, of course, the interest accrues, and the lender will capitalize it — or add it to the loan balance — at the end of your hardship period.

Some borrowers choose to make student loan interest payments during periods of deferment and forbearance to keep the interest from accruing. That can reduce your total debt if you can afford to make interest payments. In many cases, forbearance and deferment grow balances at a faster rate since interest is charged on the accrued interest after it’s been capitalized.

Which Private Lenders Offer Hardship Options?

While they’re not the same as income-driven repayment plans offered by the government, some lenders offer hardship forbearance. You generally need to prove that you’re struggling in some way, and repayment options might be limited with a hardship provision.

Here are some of the lenders that offer hardship forbearance for private student loans:

• CommonBond: Offers forbearance, but you need to contact Firstmark, which is now servicing payments.
• Education Loan Finance: Up to 12 months of forbearance if you experience an event out of your control, such as disability or job loss.
• Earnest: Up to 12 months over the life of the loan in periods of three months. You can also use Earnest’s skip-a-payment feature once every 12 months, following six consecutive payments. However, skipped payments are added to the end of the loan term.
• Laurel Road: Up to 12 months over the life of the loan in periods of three months. Additionally, Laurel Road offers discharge of the loan in cases of death and total permanent disability and offers two months of forbearance for natural disasters.
• SoFi: Rather than offering forbearance, SoFi has unemployment protection. If you lose your job, you can apply for the program and postpone payments for three months. However, you must work with career specialists at SoFi to find a job in order to qualify for the program.

Finally, some lenders, including Sallie Mae, can help you on a case-by-case basis if you’re experiencing economic hardship. College Ave offers help in the case of the coronavirus pandemic, and there might be other options as well.

In any case, you should immediately reach out to your lender or loan servicer if you’re worried about falling behind due to financial hardship. Delinquency on any federal or private loan can impact your credit score and affect your future finances.

How to Retain Hardship Options for Your Student Loans

If you’re concerned about retaining access to hardship options during student loan repayment, it’s important to understand what’s available to you.

While refinancing can help you get a lower interest rate and may help you get out of debt faster, it will negate your federal loan protections. Rather than refinancing federal student loans, completing a Direct Loan consolidation might make more sense. That allows you to streamline your student loan debt without losing access to benefits — including student loan forgiveness programs.

As long as you’re making federal student loan payments, you have access to fixed rates, income-driven repayment options and loan forgiveness options. Plus, if you go back to school at least half time, you will qualify for deferment.

For loans with private student lenders, on the other hand, you need to check to see if you have access to loan deferment or forbearance options and what the eligibility requirements are.

If you cannot access such programs through a private lender, consider refinancing to a lender that offers financial hardship options. Juno can help you compare refinancing options.

You might need a co-signer if your credit score isn’t high enough. Check the lender disclaimer for information about co-signer release and other programs to ensure that you’re getting the personal finance support you need.

Bottom Line

You never know when a financial disaster will strike and make it difficult to make your monthly student loan payments. If you have student loans as a result of federal student aid, you need to contact your servicer immediately and find out what income-driven repayment and other options are available to you.

For private loans, you should also contact your lender quickly to find out what programs it has in place to help with your situation.

Create a plan to move forward and begin tackling your debt as quickly as possible once your financial situation improves. Otherwise, you could end up with consequences that can impact your credit score and the rest of your financial life.