Student Loans: Cancellation, Deferment, and Forbearance

If you can't make payments on one or more of your student loans, you may be able to get temporary or permanent relief from making payments.

Learn about your options before you go into default. If you default on your student loans, you will suffer negative consequences. For example:

• Your credit will be damaged.
• Your loan balance will increase dramatically as collection fees are added to the pot.
• In the worst-case scenario, your loan holder will take aggressive action to get the loan money from you, including taking a portion of your paycheck or your tax refund. (For information on how the lender can collect student loans, see Nolo's article What Happens If You Default on Your Student Loans.)

Your Options

If you are unable to make loan payments, some options include:

• postponing payments through deferment or forbearance programs (see below)

• eliminating the loan altogether through loan cancellation (see below)

• discharging the loan in bankruptcy (to learn more, see Student Loan Debt in Bankrutpcy) , or

• considering other, more affordable payment plans or loan consolidation (to learn more, see Student Loan Repayment Options and Student Loan Consolidation).

Deferring Student Loans

A deferment excuses you from making student loan payments for a set period of time because of a specific condition in your life -- such as returning to school, economic hardship, or unemployment. Interest will not accrue on subsidized loans during the deferment period.

Qualifying for deferment. You can defer repayment of a student loan if:

• you meet specific criteria and conditions for your type of loan, and 

• you are not more than 270 days behind in loan payments (or six months behind for an unemployment deferment on a FFEL).

Most common types of deferments. The most common deferments are:

• enrolled in school at least half-time
• unemployed and seeking employment
• suffering economic hardship
• serving in the military on active duty
• called to service while enrolled in school, or
• serving in the Peace Corps.

How to get a deferment. You can get an application for deferment for Direct loans from the Federal Student Aid website at www.dl.ed.gov, click on "Site Map" and under "Forms" select a deferment program. You can also view the detailed criteria for each type of deferment.

Obtaining a Forbearance

In a forbearance, your loan holder gives you permission to stop making payments for a set period of time or to temporarily reduce payments. Interest always continues to accrue during a forbearance. In some circumstances, a forbearance may be available even if you have defaulted.

Qualifying for a forbearance. Forbearance on federal loans may be granted for a number of reasons, including:

• poor health

• unforeseen personal problems

• inability to pay within the maximum repayment term (usually 10 years), or

• monthly payments totaling more than 20% of a borrower's monthly income.

How to get a forbearance. To apply for a forbearance, contact the holder of your loan, explain your situation, ask for a forbearance, and fill out the appropriate forms. (Here's how to find the holder of your student loan.)

Canceling Student Loans

In certain limited circumstances, you may be able to cancel your student loan -- meaning that you no longer have to pay it. Doing this is not easy; you'll have to meet specific conditions depending on the type of loan you have. 

Often, when you cancel your loan, the government will also reimburse you for payments already made, and help clean up your credit record. In some situations, you won't be able to cancel the entire loan, but you may be able to get rid of a portion of the loan.

Loan cancellation (also called loan discharge) is available only in certain, specific situations, including:

• you attended a school that closed
• you didn't get a refund where appropriate
• your school falsely certified that you would benefit from the education and you don't have a GED or high school diploma
• you work in certain occupations after graduation (like teaching or some public service jobs), and
• you are disabled or die.

To learn more about qualifying for student loan cancellation, see the articles in Nolo's Student Loan Debt area.

For comprehehsive information about debt, getting out of debt, and dealing with creditors, get Solve Your Money Troubles: Debt Credit & Bankruptcy, by Margaret Reiter and Robin Leonard (Nolo).