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Out of Deferments and Forbearances? What to do next…

If a deferment or forbearance isn’t available on your student loans it is time to explore some more creative options to keep payments affordable.

Written By: Michael P. Lux, Esq.

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Many student loan borrowers have a sense of panic when their lender tells them they have run out of deferments and forbearances on their student loans.

What am I going to do?  How am I going to afford these payments?

The first thing I normally tell borrowers in this situation comes as a surprise to many: Deferments and Forbearances are lousy options and not being able to get one might be for the best. Lenders who advise a deferment are often guilty of giving bad advice.

Why are Deferments and Forbearances Bad?

The only thing a deferment or a forbearance accomplishes is a temporary delay in payment. A borrower is simply kicking the can down the road to deal with at a later time.  

The problem is that each time payment is delayed, handling the debt becomes more difficult. This is because interest still accumulates on most loans during both a deferment and a forbearance.

The temporary break in payments comes at a high price. I typically only suggest a deferment or forbearance for borrowers that will be starting a high paying job in the next six months or less.

Finding a different strategy that will work in the long-term might be a little bit stressful, but it marks a very important first step. Instead of just getting by for the next month, most borrowers are able to find a path to entirely eliminating student loan debt. This can be an attainable and monumental step forward.

The process for moving past a cycle of deferments/forbearances will depend upon the loan type.

Federal Student Loans: Qualify for low or even $0 payments

One of the main reasons federal student loans are regarded as the best student loans is the existence of income-driven repayment plans.

Unlike most other debts, borrowers actually have the option to make payments based upon what they can afford, rather than what they owe. For borrowers with smaller incomes and large debts, income-driven repayment can keep things under control.

Best of all, income-driven repayment plans provide all borrowers a path to student loan forgiveness.

A Note about $0 Payments: A monthly payment of zero dollars per month definitely sounds too good to be true… especially if it might lead to student loan forgiveness.

The reality is that Congress has created repayment plans to allow borrowers to make payments based upon what they can afford to pay rather than what they owe in total. No special negotiating or connections are needed. Borrowers simply enroll in an income-driven plan and depending upon income, they may have $0 payments.

Parents with Parent PLUS loans are also eligible for an income-driven repayment plan, but there is an extra step involved in enrollment.

Finally, it is worth noting that there are many income-driven repayment plans, including: Income Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). Before starting enrollment in an income-driven repayment plan, it is a good idea to review the pros and cons of the various available plans.

Private Student Loans: Be the Squeaky Wheel

There is an old adage that fits this situation well: The squeaky wheel gets the grease.

The cost of servicing student loans is high. Training call center representatives — even lousy training — is expensive. The quicker lenders can get through calls the more profits they will generate.  

Sharing this nugget of information is important because borrowers need to know that they are not getting the full picture in many circumstances.

Lenders simply don’t invest the time and the resources necessary to provide quality detailed advice to everyone who calls.

Being the squeaky wheel means calling multiple times and asking for help getting affordable payments. The goal is to get monthly payments that you can actually afford. Making huge payments for a couple of months until you go broke won’t help things.

As an example, one program that can be of assistance is the Navient Rate Reduction program. This repayment program allows Navient borrowers in difficult financial circumstances to get interest rates temporarily lowered.  

Other lenders have similar programs. These are not advertised by lenders because they want them to be reserved for the borrowers that truly need them. The advantage of a lower interest rate is that it allows borrowers to make smaller payments and start paying down the balance of the loan. Enrollment is not a right under most loan contracts, so it requires persuading Navient to help you out. Borrowers that earn too much to qualify for this form of assistance, may have to refinance their loans in order to get a lower interest rate.

Once borrowers are able to lower interest rates, they can focus on aggressive student loan repayment in order to eliminate the debt.

If multiple efforts at securing lender assistance don’t lead to results, it might be time to file a complaint against your loan company.

One of the best ways at getting results is to file a complaint with the Consumer Financial Protection Bureau. When borrowers file a complaint, the lender is usually required to respond. Because it is being handled within the structure of a consumer-friendly government agency, the playing field is more fair to borrowers. We’ve put together some tips on how to file a complaint and get the most from the process.

Private lenders have a well-deserved reputation for being difficult to work with, but because there are many potential routes to working something out, most borrowers can avoid loan delinquency and default.

Final Thoughts

A deferment or forbearance is a quick fix to a long-term problem.

The goal for any borrower should be to come up with a plan to eliminate their student debt.

Running out of forbearances and deferments may seem like a negative when it first happens, but it could be for the best in the long run.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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