The federal government bends over backward to make sure you'll be able to pay off your student loans. That's one of the advantages of taking out federal loans rather than alternative loans: Private lenders don't let you defer and may be stricter when it comes to forbearance. If you're struggling with your loan payments, call your lender and look into the following options. They won't hurt your credit rating, and they could save you from destroying your financial future. "Anything is better than going into default," says Dan Madzelan, director of forecasting and policy analysis at the Office of Postsecondary Education of the Department of Education.
Deferment
Generally, graduates can postpone repayment for three years if they become unemployed or experience some other economic hardship. They can defer for longer periods if they go back to college or graduate school. Graduates with Perkins loans can get a deferment if they become teachers in designated schools serving low-income families or work in nursing, law enforcement, as a medical technician, or in certain other fields.
When a subsidized Stafford or Perkins loan is deferred, the graduate stops making payments and the government pays the interest that accrues. On unsubsidized loans, the graduate must pay the interest periodically, according to the payment plan worked out with the lender, or add it to the total amount owed.
Forbearance
If you don't qualify for a deferment, forbearance is another way to suspend or reduce payment temporarily. Forbearances are granted for up to 12 months at a time. There's no limit to the number of times a lender can grant forbearance, but they won't be patient forever.
Whether your payments are reduced or suspended—it's up to you and the lender to hash out an agreement—you'll be charged interest even if your loan is subsidized. You can pay the interest during the forbearance period or add it to the total amount owed. Graduates eligible for forbearance include those who are completing medical and dental internships or residencies, whose federal student loans equal at least 20 percent of their monthly gross incomes, or who have health or personal problems. As with deferment, call your lender and explain the circumstances to see if you qualify.
Forgiveness
Depending on the type of loan, you might qualify for forgiveness, or cancellation, of your loan. In that case, you don't have to repay all or part of the loan. There are more forgiveness provisions for Perkins loans than Stafford loans. For instance, teachers at low-income schools or who teach subjects that are experiencing teacher shortages may qualify for complete forgiveness of their Perkins loans, as well as medical technicians, nurses, and Vista or Peace Corps volunteers. With Stafford loans, up to $17,500 can be forgiven if the borrower works for five years in specific teaching positions in a school serving low-income students. Both Perkins and Stafford loans will be cancelled if the graduate dies or becomes permanently disabled.
For more information on loan repayment, deferment, and forgiveness, consult the Department of Education brochure, Repaying Your Student Loans. It can be found online at www.studentaid.ed.gov. (Click on "repaying" and scroll down to "paying back your loan.") If you are in default, the Department of Education's "Collections Guide to Defaulted Student Loans" website (www.ed.gov/offices/OSFAP/DCS/index.html) can explain your options.
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