Economic Hardship Deferment

Economic hardship deferment summary: 

• Student loan borrowers facing severe financial issues can apply for an economic hardship deferment.

• All federal loans are eligible for economic hardship deferment, and some private loan providers also offer this assistance. 

• Deferment means putting off repayment temporarily. The program doesn't reduce what's owed or stop unsubsidized interest from accruing.

Economic Hardship Deferment Definition and Meaning 

Economic hardship deferment is a temporary pause on student loan payments for borrowers facing severe financial issues. This deferment applies to federal student loans and some private student loans. Federal Perkins Loans (discontinued in 2017) are still eligible for deferment. 

More About Economic Hardship Deferment 

All federal student loans are eligible for an economic hardship deferment, including Federal Stafford Loans, Federal Parent PLUS loans, Federal Consolidation Loans, and the discontinued Federal Perkins Loan. 

To be eligible for this hardship program for debt, a borrower must satisfy at least one of the following conditions:

• Receive federal or state public assistance, such as the Supplemental Nutrition Assistance Program (SNAP), Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), or state general public assistance.

• Be a Peace Corps volunteer.

• Work full time (30 or more hours per week) and have income that doesn't exceed the federal minimum wage of $7.25 per hour or 150% of the poverty line for their family size and state. 

For those with private student loans, eligibility for an economic hardship deferment depends on the individual lender and its policy.

Example of an Eligible Borrower

Janine works 30 hours per week, which is considered full-time in this program. She earns $2,000 per month. That's more than the federal minimum wage, which at $7.25 per hour would be $217.50 per week. However, Janine has two children, and in her state, 150% of the poverty line for a family of three is $2,288. So she would probably qualify for a hardship deferral.

Economic Hardship Deferment: A Comprehensive Breakdown 

Once you decide to pursue an economic hardship deferment, here's what to expect:

• Documentation: You must complete an economic hardship deferment application and document your financial problem. For instance, you might submit pay stubs, tax returns, a layoff letter, and/or copies of unemployment benefit checks to prove eligibility. 

• Payment-free period: During deferment, you don't have to make your student loan payments. 

• Accrued interest: Although you can skip student loan payments during the deferment period, unsubsidized loans continue to accrue interest, and that will be added to your balance. Interest doesn’t accrue on subsidized loans. 

• Potential grace period: After the deferment period ends, you may be entitled to a post-deferment grace period of six months.

Here are several factors to keep in mind: 

• If you're having trouble making student loan payments, contact your lender to learn more about the options available to you. 

• All federal student loans are eligible for economic hardship deferment.

• Some private lenders offer deferment options, although the requirements may differ from those of the federal government. 

The most important thing to remember is that you're not alone. Others have survived situations like yours, and you can, too. Help and guidance are available if you reach out and ask questions.