Q: I am a recent college graduate, my grace period of 6 months is over for my student loans, and I am still unemployed. The job market for my career field is competitive, and I have yet to secure a job. I have both federal and private student loans, and am not in a financial position to make payments on any of them, do I have more options to postpone these student loan payments?
A: First, yes you do have options for postponing your student loan payments. The most common options for postponing student loan payments are grace period, deferment, or forbearance. Almost all federal student loans will offer you these options, but since private student loans are not regulated by the government, private lenders may or may not offer these options (most private lenders do offer some form of student loan postponement).
Student Loan Deferment
Deferment will allow you to postpone paying back your loans because of certain circumstances. Depending on what type of loan you have, interest may or may not accrue during deferment. For Federal subsidized student loans, interest will not accrue during deferment periods. For federal unsubsidized student loans, interest will accrue during the period of deferment. For federal student loans where interest does accrue, lenders may have the option to postpone charging interest and add it all to the loan principal after the deferment period is over, otherwise known as capitalization. It is also important to note that you are only eligible for a deferment if you have not yet defaulted on your loans. Once you default, your eligibility is damaged. Some common student loan deferments would include: Active Duty Student Deferment, Military Service Deferment, Unemployment Deferment or Economic Hardship Deferment.
Student Loan Forbearance
Similar to student loan deferment, allow the borrower to postpone student loan repayment. Unlike student loan deferment, a student loan forbearance could also include extra time (an extension) to make payments or allowing smaller payments to be made. Also unlike student loan deferments, forbearances are available to those who have defaulted on their loans. With student loan forbearance, interest WILL continue to accrue while the loan payments are postponed. Some student loan forbearance situations would include: Mandatory Forbearance, Administrative Forbearances or Forbearances for Poor Health.
For private student loans, it is hard to generalize what is available to you, since private student loan terms are different from lender to lender. Most private student loans will offer a grace period, and some type of forbearance. With private student loans your interest will most likely always capitalize in periods of grace and forbearance. You need to contact your private student loan lender for your specific options and terms.
There are options available for postponing student loan payments, however it may not be your wisest choice if you can avoid it. If you check into your specific loans and find out that your interest WILL capitalize during your postponement period, this will in fact increase the principal balance of each student loan you postpone payment for. Take the time to calculate the amount of interest that will accrue on your loans during the period of postponement, in order to see how much the new loan balance will be once you began repayment. You may wish to pick up a temporary job in an unrelated field, or consider paying the interest while you are in a deferment period to avoid adding onto your loans principal balance.