Requests to defer loan payments on federally guaranteed direct consolidation loans are typically granted when those requests are supported by facts such as the debtor’s re-enrollment in school, unemployment, economic hardship or military service.
A federal Direct Consolidation Loan, or DCL, allows the borrower to combine multiple federal education loans into one loan without paying any fees or loan origination costs. Once the consolidation is complete, the borrower has a single monthly payment on the new loan instead of multiple monthly payments on the separate loans. As is the case with other federal student loans, borrowers unable to make their loan payments have the option to defer those payments until their circumstances, including employment earnings, support repayment.
Deferral opportunities associated with continued education require the borrower to be enrolled at least half-time at an eligible school or to be in a full-time course of study in a graduate fellowship program. Those who are unemployed are eligible for deferral for a maximum of three years as long as they can show they are diligently seeking but unable to find full-time employment. Likewise, borrowers with low-income employment may qualify for economic hardship deferment for a maximum of three years. Borrowers are eligible for deferrals based on military service while serving on active duty during a war, other military operation, a national emergency or qualifying National Guard duty. Borrowers with disabilities who are in approved full-time rehabilitation programs are also eligible for loan payment deferrals.
Deferment temporarily relieves borrowers from the obligation of making payments. However, it does not relieve them of their ultimate obligation to repay the loan. Moreover, depending on the type of loan, the borrower may be responsible for paying the interest that accumulates during the deferment period, but that amount is added to the loan balance and must be paid in the future. Unlike defaulting on a student loan, taking advantage of deferment programs will not damage a borrower’s credit rating.
Besides meeting the deferral qualifications, there are two important points to remember. First, a borrower is not eligible for deferment if he is already in default on a loan, which means borrowers must make all payments due until their deferment requests are approved. Second, most deferments are not automatic, and a borrower will likely need to submit a request to his loan servicer and, if seeking deferral for continuing his education, apply for deferment through his school.