If you cannot afford your federal student loan payments, you may qualify for a deferment program that allows you to postpone your payments temporarily. As of the first quarter of 2020—the latest reported data before the CARES Act suspended loan payments—approximately 90,000 borrowers were enrolled in economic hardship deferment, holding $3.5 billion in outstanding student loans.
If your loan servicer approves your economic hardship deferment request, you can stop making payments for up to three years.
Here’s what you should know about this deferment option and how to apply.
How Does the Economic Hardship Deferment Program Work?
Economic hardship deferment is a program offered by the U.S. Department of Education specifically for federal student loan borrowers. Designed for low-income individuals, this deferment program can give you time to establish your career and increase your earnings. And depending on the type of loans you have, interest may not accrue on your loans while they are in deferment.
Note: If you have a federal direct loan, a federal Perkins loan or participate in the Federal Family Education Loan (FFEL) program, your loan payments are automatically suspended as part of the CARES Act. Until at least Sept. 30, 2021, you will not have to make any student loan payments. And the interest rate on your loans will be set at zero, making that a more useful relief option than economic hardship deferment.
To be approved for an economic hardship deferment, you must have a qualifying federal student loan and meet one of the following requirements:
- You are currently receiving means-tested benefits such as Temporary Assistance for Needy Families
- You are serving in the Peace Corps
- You work full time but make less than 150% of the poverty guideline for your family size and state
As of 2021, these are the poverty guidelines and qualifying income thresholds for the 48 contiguous states and the District of Columbia:
Loans That Qualify for Economic Hardship Deferment
Federal direct, FFEL and Perkins loans are eligible for economic hardship deferment. However, the interest charged can continue to accrue on some federal loans while they’re in deferment.
If interest will accrue on your loan during the deferment period, you can decide to pay the interest as it accrues, or, you can allow it to be capitalized. That means it will be added to your principal balance when your deferment period expires.
Unpaid interest is only capitalized on direct loans and FFEL loans. It is never capitalized on Perkins loans.
Are Private Loans Eligible for Economic Hardship Deferment?
Private student loans aren’t eligible for the federal economic hardship deferment program. However, there may be other ways to get relief if you cannot afford your current monthly payments.
Contact your lender to discuss your options. Some lenders have their own financial hardship programs. For example:
- MEFA: The Massachusetts Educational Financing Authority offers a modified payment plan that temporarily reduces your monthly payment installments.
- RISLA: The Rhode Island Student Loan Authority offers up to 12 months of forbearance for borrowers that lose their jobs or have other financial difficulties.
- SoFi: SoFi offers repayment assistance programs for borrowers that have lost their jobs, experienced significant medical expenses or had damage to their homes.
Pros and Cons of Economic Hardship Deferment
Before applying for an economic hardship deferment, consider the pros and cons:
- You temporarily suspend your loan payments. If you can’t afford the required student loan payment, economic hardship deferment allows you to halt the payments, giving you time to build your career and manage expenses.
- Interest may not accrue on your loans. If you have subsidized loans, interest will not accrue during the deferment period.
- You can defer your loans for up to three years. You can receive economic hardship deferment for up to three years, which gives you a substantial amount of time to get your finances in order.
- There are income restrictions. Not everyone will qualify for economic hardship deferment. To be eligible, if you’re working full time, your income cannot exceed 150% of the federal poverty guideline. You’re also eligible if you’re receiving certain federal benefits or you’re serving in the Peace Corps.
- Only full-time workers are eligible. If you’re currently working, economic hardship deferment is only for those working full time. You won’t qualify if you have lost your job or you are working part time. Federal unemployment deferment may be available to you in these cases instead.
- You have to reapply every year. While you can defer your payments for up to three years, you have to submit an economic hardship deferment application every year to continue delaying your payments.
How to Apply for Economic Hardship Deferment
To apply for economic hardship deferment, follow these steps:
- Download the economic hardship deferment request form. If you have multiple federal student loans, you must complete and submit separate request forms for every loan servicer per loan that you have.
- Attach documentation. When you apply, you’ll need to submit documentation proving your income, approval for public assistance programs or verification of your Peace Corps service.
- Fill out the form. On the form, check off the applicable box regarding interest. Be sure to check the box that says you want to make interest payments while in deferment, if you want to reduce accrued interest. Once finished, mail the form and documentation to your loan servicer.
- Continue making payments. Keep making the minimum payments on your loans until the servicers of your loans contact you confirming that your economic hardship deferment request has been approved. In some cases, your loan servicer may put the loans into forbearance while they review your application, so you might not have to make payments. You can also contact your lender to see if that is a viable option.
Alternatives to Economic Hardship Deferment
While economic hardship deferment can offer up to 36 months to help get your finances in better shape, not everyone will qualify for this program. If you aren’t eligible for economic hardship deferment, and can no longer afford your current loan payments, consider these alternatives for federal student loans:
With federal forbearance programs, you can postpone payments for up to 12 months at a time if you lose a job, have major medical expenses or experienced a financial loss. You can receive forbearance for up to three years total over the loan period. However, interest will accrue on all federal loans during forbearance.
Income-Driven Repayment Plans
An income-driven repayment (IDR) plan can be a long-term solution to affordability concerns. Instead of lasting for only 12 to 36 months, you can use IDR plans for 20 or 25 years. At the end of your term, the remaining balance will be forgiven.
If you qualify for an IDR plan, your loan servicer can extend your loan term, and your minimum monthly payment will be set at a percentage of your discretionary income.
You can apply for an IDR plan online, or contact your loan servicer.