Student loan borrowers who are seeking student loan consolidation need to be careful about switching lenders in midstream. There may be no savings when it comes to consolidating your student loans unless you save a substantial amount of money every month.
Yes, consolidation may improve the interest rate slightly, and you may be able to stretch out the term of your loan for more time by refinancing student debt, or you may even be able to save time and frustration by having only one monthly bill to pay each month.
But consolidating isn't the best choice in every situation.
Those borrowers who merely wish to take a break from repaying their educational loans until their personal finances improve may be better off making a formal request to postpone their student loans, not consolidate them. In that case, they will need a better understanding of the basic differences between "student loan deferment" and "student loan forbearance."
With so many college graduates struggling to keep their head above water these days, looking for the best ways to stay current on their student loans, loan relief can often take place from one of these two options: deferment or forbearance. And, although they sound like they are the same thing, they are indeed quite different.
If you are wondering what the difference really is between deferment vs. forbearance, you'll find these terms used interchangeably quite frequently. But each term does have its own unique meaning. By finally knowing the true definition, you will be able to choose the best option to postpone repaying your student loan debt instead of seeking out a loan consolidation.
A student loan forbearance is an agreement between you, the borrower, and your lender to temporarily stop monthly payments due on your school loans. Forbearance may also extend the timeframe for making monthly payments, or even reduce the total number of monthly payments on a short-term basis.
The downside of forbearance is simply this: your loan accumulates interest; forbearance results in you having to pay more money than your original calculations on college borrowing costs in the long run. Ultimately, you must pay off your student loans. Paying a higher total will cause pain then. But if you are without a job now, or you are engaged in an intense life-altering event, or you are attending advanced internship which will lead to enhanced employment prospects in the future, then forbearance may appeal to you.
On the other hand, a student loan deferment is a specific period of time during which your student loan payments are postponed.
The federal government offers up the exact definition of a 'deferment' of college loans in this way:
"A deferment is a temporary suspension of a borrower's monthly loan payment. There are many different types of deferments available. During deferment of subsidized loans, principal payments are postponed and interest does not accrue.
"During deferment of unsubsidized loans, principal payments are postponed but interest continues to accrue. Accrued unpaid interest will be added to the principal balance (capitalized) of the loan(s) at the end of the deferment period. This will increase the amounts borrowers owe."
Deferments must have been applied for and they need to have been fully documented with a horde of paperwork before they can be approved. No one is going to tell you that getting a student loan deferment is going to be an easy job. However, if you are indeed struggling to make ends meet, this may be your best financial option now.
Various types of deferments exist which college loan borrowers can apply for. Deferment programs include:
Serving in the military, attending graduate school, experiencing economic hardship (such as unemployment), and joining the Peace Corps are just a few of the options which abound when it comes to deferring your student loans.
Forbearance, on the other hand, will usually be available by programs such as these:
* Americorps (CNCS) Loan Forbearance
* Internship/Residency Forbearance
* Loan Debt Burden Forbearance
* Teacher Loan Forgiveness Forbearance
The forbearance and deferment options available to you will vary. Each carries with it different requirements immensely important to follow exactly to the letter.
Borrowers of private student loans are best served by contacting their own lender and trying to assess the best options available to them. Unfortunately, recent changes to federal student loan repayment options, which were originally aimed at helping to consolidate and/or forgive education loans, do not include private loans at this time. Therefore, instead of seeking solutions to consolidate college loan debt, it may prove more valuable to seek out a deferment or a forbearance to postpone educational loan repayment.
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