Today I received a great question from a reader, let’s call her Jenny.
I am a financial aid counselor. I direct many of our students to your website. I appreciate the information presented and the accessibility of the site. Many of our students take 1 1/2 or 2 years to complete an unpaid service mission (they usually pay between $8,000 and $10,000 for the opportunity). Many of them have student loans when they leave (usually only a Freshman loan). In your opinion is the best option to pursue forbearance during the time they are not in school and not earning anything?
First, let me say thank you for the very kind words.
It appears this thoughtful question came in response to my recent article that discussed why forbearances were a bad idea for many people. In that article I suggested that a forbearance is a good idea for someone who has a temporary/short term issue, but not a good idea for someone with longer term loan repayment issues.
Students who are taking an extended break from college, such as those on an extended mission, seem to straddle the line between short term and long term funding problem. In this case, I think the most important thing is that the student remain aware of their existing and likely future debt. They should also understand that the interest on their loan grows every day.
I certainly don’t want to discourage someone who is willing to give up $10,000 and two years of their life in the service to others. However, student loans are a real problem, and these young people who are so willing to serve others certainly deserve the full picture when it comes to their student loans.
I do think a forbearance could be the best route for many of these students. One note of caution would be to make sure that they are not limited to the amount of forbearances that they can take. If the student in question is dealing with a private lender, they should make sure that a two year forbearance is possible. Each student should get into contact with all of their lenders and explain the situation that they are in. Given that so many lenders have so many different rules, it is important to do your own personal research.
For students with federal loans, they may also want to look into income based repayment or Pay As You Earn instead of a forbearance. They might explore public service loan forgiveness. If the student is not making any money, but is doing work that their lender counts a public service, they could get a head start on the loan forgiveness for some of their loans. Please Note: it is important to discuss this possibility with your loan servicer. If the student gets subsequent federal student loans, it could result in some complicated circumstances. It is also important to remember that the forgiveness at the earliest applies after 10 years and only to those students who end up working for a total of 10 years in public service.
Ultimately, my advice to students would be to pay their interest each month they are on their service mission. Going this route reminds students of the existing debt that they have already incurred and it prevents it from growing while they are on their mission. Many people who end up running into major student loan problems can point to the growing interest as one of their biggest hurdles. By paying down the interest that accrues each month, these students would be responsibly hitting the pause button on their student loans.
Obviously these monthly payments would make an already expensive mission trip even more expensive. Perhaps students could reach out to their friends and family and ask for a bit of support. Rather than donating the money up front, supporters can chip in a little bit each month so that the student avoids major student debt issues.
In the end their are many different routes that a student can follow in this situation. The best plan for each individual could really vary depending on their individual circumstances. If students are doing their research, working with their lenders, and making a feasible long term plan; they are well on their way.