Deferring Private Student Loans

How much debt do student loans add to the average American household?

According to the Federal Reserve Bank of New York’s Consumer Credit Panel (CCP), private educational loans averaged $24,200 per borrower at the end of 2017. That’s about half of what it was 10 years ago, back before the Great Recession hit. In fact, over that time period, private student loan balances dropped by nearly 50%.

The average amount owed today is still higher than it was around 2008 though, as private student loan balances jumped 6% between 2011 and 2012 alone.

Is deferment worth it?

Although many people choose to pay off their personal loans immediately after graduation, the reality is that most borrowers don’t have enough money to do so. Instead, they opt to take out smaller loans and put them on hold while making payments toward their original balance. Doing so gives borrowers extra freedom to focus on paying down their debt without worrying about interest accruing on their principal.

But if you have the means, you might consider putting your loans on hold. According to Freddie Mac, those who receive federal Direct Stafford Loans may qualify for extended repayment options under the William D. Ford Federal Direct Loan Program. Those eligible for these programs must make 120 monthly payments (down from 132) while paying a portion of their interest each month. By doing so, borrowers would cut the length of their loan from 20 years to 15 years.

As long as borrowers stick to the terms of the program, they won’t incur any additional fees or penalties. Plus, since the government doesn’t charge any interest, they should save hundreds of dollars compared to standard payment plans.

Which option is best?

With both types of programs, borrowers need to meet certain criteria, including having no defaulted loans and not being delinquent on their payments. To find out whether you qualify for either type of plan, contact the lender directly or check out our guide to student loan options.

Deferring Private Student Loans

The US Department of Education estimates that around 10 million people are currently indebted on student loans. In fact, roughly 1 out of 5 undergraduate students graduate with debt, according to the Institute of Higher Education Policy at Georgetown University. Of those who do default, many are not able to pay back their loan balance due to a lack of income. Many borrowers have been forced to use credit cards just to make ends meet. Because of this, some companies now offer programs specifically designed to help people struggling with private student loans. These programs take advantage of refinancing options, tax credits, and even deferment options. Here are five of the best ways to defray your costs and save money while still going to school.

Refinancing Options

If you’re having trouble paying off your private student loan, refinancing may be a good option for you. Most lenders offer several different refinance plans, including fixed rate, variable rate, and adjustable-rate mortgages. Each plan offers a slightly different interest rate and repayment length. Depending on what kind of mortgage program you choose, it might cost you anywhere from $35 to $50 per month. However, if you need that extra cash flow to cover unexpected expenses, these loans could put you in a position to pay down your debt faster than you thought possible. When choosing a lender, consider factors like the APR (Annual Percentage Rate), term, security requirements, and fees associated with each type of loan. Ask about any special conditions or restrictions before making a decision. Generally speaking, it’s a safe bet to stick with loans with lower APRs and longer terms.

Tax Credit Programs

Many government agencies provide a variety of tax incentives related to education. The most popular one is the American Opportunity Tax Credit. This federal tax incentive was introduced in 2007 and gives eligible taxpayers a dollar for dollar refundable credit based upon the amount they contribute toward their student loan payments. If you qualify, you can receive the full value of the tax credit, no matter how much you owe. You can find out if you qualify for either this or another federal education tax credit by visiting IRS.gov. Other states, local governments, and schools also have tax incentives aimed at helping students pay for tuition. A list of state tax incentives can be found here. One example is the California Tuition Equity Act. As long as your tuition qualifies, you might be eligible to claim a portion of your college tuition as a tax deduction. Check with your tax preparer for details.

Federal Deferments

One of the easiest ways to get rid of your student loans is to apply for a federal student loan consolidation. This essentially combines all of your student loans into one low payment plan, effectively lowering your total loan burden. To qualify for this program, you must have at least $10,000 worth of unsecured federal student loans, and be enrolled in repayment under the Direct Loan Program. This program requires monthly payments equal to 10% of your discretionary income, plus a minimum charge of $25 per month. After 30 years of payments, your remaining balance will be forgiven. Another benefit of consolidating your debts is that you won’t accrue additional interest charges on your existing balances.

Income Based Repayment Plans

Another way to reduce the amount of student loan debt you carry is to sign up for an income-based repayment plan. Under this plan, you would only have to make payments based on the percentage of your adjusted gross income rather than the standard 20% figure. As your income increases, so does your repayment obligation. Your first payment would likely be lower, depending on the income range you fall into. The higher your income, the smaller your payment over time. If you fail to make a payment, the amount owed balloons, potentially leading to serious financial problems. However, since this method reduces your total amount of unpaid debt, it has the potential to save you thousands of dollars. Talk to your lender about whether or not this type of plan may be right for you.

Consolidation Offers from Schools

Some colleges and universities offer their own loan consolidation programs. These programs allow graduates to consolidate their student loans at a discounted rate. One example comes from the University of Colorado–Boulder. Students who attend CU–Boulder can participate in the Educational Financing Plan. According to their website, “ plan provides guaranteed savings through the consolidation of federal Stafford Loans, PLUS Loans and FFELP loans into one federal consolidated loan.” Eligible students can receive up to two percent more than what they would pay otherwise.

Deferring Private Student Loans

Deferring student loans until after graduation could save hundreds of thousands of dollars. Many students have to pay off their private student loan early due to lack of income during school. This results in paying high interest rates while trying to make ends meet.

If you qualify for financial aid, use it! Financial aid can help you cover tuition, books, and other costs associated with college. You should always apply for financial aid when applying for admission and do not wait until enrollment day to request financial assistance.

Make sure that you’re not taking out any unnecessary loans. Make sure that the loan company is willing to work with you to lower payments or extend payment terms if you need them to.

Do not go into debt over something that you cannot afford. Paying for college is a big deal, but there are many ways to manage your finances throughout college without borrowing money. Start small by making small changes and gradually increase your spending.

Talk to your parents about how much they want to help you financially. Ask them about scholarships and grants that are offered to you. These programs may be offered directly by colleges, universities, or other organizations.

Take advantage of federal loans, grants, and scholarships. Federal loans, grants, and scholarship opportunities are available to all students attending postsecondary institutions regardless of race, color, national origin, religion, sex, age, disability, veteran status, marital status, sexual orientation, gender identity, and socioeconomic status. Most schools offer free information sessions regarding these loans, grants, and opportunities. 7. Ask your school’s financial aid office what financial aid options are available to you. Your school may be able to provide you with additional scholarships or grants. You can get a list of scholarships from your school’s website.

Find internships and jobs before graduating. Internships and jobs can be great assets in securing employment after graduation. Look for internships and jobs that align well to your interests and career goals.

Save as much as possible. Saving money will allow you to stay in school longer and reduce your loan repayments. Get a job when you start college and continue working as long as you can. Make sure that you budget for everything, including food, rent, transportation, utilities, and other necessities.

Consider transferring credit to an educational institution that specializes in programs that match your major field of study. A transfer credit program allows you to transfer credits earned at one school to another school based on the courses that you’ve completed. Transfer credit programs are designed specifically for students who plan to attend two-year community colleges and four-year schools.

Do not take on more than you can handle. Too many people make the mistake of going into massive amounts of debt right away. If you know that taking out large amounts of loans will hinder your future plans, try to cut back on the amount of money you borrow.

Try to graduate under time limits. Students who are unable to complete their education within the allotted time are often given special consideration. However, some schools may refuse to grant extensions if you are already close to graduating.

Keep your grades up. If you fail to maintain good academic standing, you risk losing eligibility for certain programs and financial aid.

When looking for roommates, choose someone who is responsible and reliable. Good roommate relationships can lead to greater success in college.

Deferring Private Student Loans

What Are Deferred Federal Stafford Loans?

Federal student loans can be deferred if they are consolidated into a private loan. There are two types of private student loans: federal direct loans and non-federal direct loans. A federal direct loan consolidates federal student loans that have been previously issued under  IV of the Higher Education Act of 1965 (Pell Grants). In contrast, a non-federal direct loan does not consolidate any of the borrower’s previous federal student loans, instead offering a single private loan at the time of consolidation.

How Do I Apply for a Deferred Direct Loan Consolidation?

To apply for a deferred direct loan consolidation, you must first submit a Free Application for Federal Financial Aid (FAFSA) along with the application for the loan. When you complete the FAFSA, you’ll need to provide proof of income and assets. You may qualify for additional financial aid based on the estimated cost of attendance for the school and program you plan to attend.

Is My Income Good Enough to Qualify for a Private Loan?

If you meet the requirements, then the answer should be yes! However, before applying for a deferred loan, make sure you have enough income to cover the amount of interest being charged. If you don’t have enough money, you may want to consider taking out a personal credit card or using cash advances.

What Does Interest Cost on a Deferred Loan?

Interest costs vary depending on several factors including the borrower’s eligibility for a deferment, length of deferment, type of loan, and repayment schedule. Typically, borrowers who choose to defer their loans incur no interest for five years after receiving their original disbursements; however, some private lenders charge a fee. After the initial five-year period, borrowers may opt to extend the term of their deferment or enter into a repayment agreement where they pay interest on outstanding principal.

Can I Use a Tax Refund to Pay Off a Deferred Loan?

Yes, you can use tax refunds to repay a private loan. Depending on your circumstances, you can use a portion or all of your refund toward repaying your loan. Make sure that the funds are applied directly to your loan balance. Also, keep in mind that if you fail to repay your loan, you could risk losing access to future refund amounts.

Who Pays the Debt Service on a Deferred Loan if I Am No Longer in School?

In order to manage payments on a deferred loan, borrowers must enroll in automatic payment plans or set up a repayment agreement with their lender. Lenders do not automatically deduct payments from your bank account. Before paying off your loan, make sure you understand how much you’ll owe after each month. Your payment will depend on the total debt amount as well as the number of months remaining on your loan.

Can I Extend My Repayment Period?

A borrower can request to waive certain fees associated with his/her loan, including those related to late payments and default. Borrowers must submit a request to the lender to modify or cancel their loan(s), which must be agreed upon by both parties. Once approved, the terms of the modification will take effect immediately.

Deferring Private Student Loans

I am not going to give a lecture here but instead go straight to the point. I have been struggling financially since my first year of college and was forced to take out student loans. These loans were supposed to help me pay for school and get some sort of job after graduation. However, now that I am nearly done with school I figure that if I do not start paying back these loans then I will never be able to save money for anything else in life. I would rather pay off what I owe than live the rest of my life having nothing. I know what I am doing is wrong and I want to change things. No matter how much I work or go to school to try to make things right they just keep getting worse. I don’t think I deserve to be punished so I decided to stop making payments. If this works then great! But at least I tried. I am hoping that someone can help me out in this situation. There is no way for me to repay this debt without the fear of going bankrupt.

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