The Broke Yuppie

So it happened: the dreaded day when my student loans all entered repayment. I was slammed with a $544 bill from one of my lenders - a third of my take-home monthly salary. Last weekend I applied for a consolidation loan from the U.S. Department of Ed., but have yet to receive that loan. I cannot afford to pay my lender $544, especially when my other lenders will charge me a couple of hundred dollars more for other loans. What should I do?

When your loan payments are too high to handle and are eating up a large chunk of your income, it is possible to put the payments off for a while.

Your options: Deferment and Forbearance.

Deferment, if you qualify, is less financially damaging. With deferment your loan payments are put on hold for a while - and your federal subsidized loans stop gaining interest.

But you can only qualify for deferment under certain circumstances, such as:

Unemployment
Going back to school at least half-time
Active military service
Economic hardship, which is defined as making a monthly income at or below minimum wage, or at or below 150 percent of the poverty level for your state. You can also get an economic hardship deferment if you are in the <a href=”http://www.peacecorps.gov/” title=”Peace Corps”>Peace Corps</a>.

For unemployment, active military service and economic hardship, the maximum time you can defer your loans is 3 years, with your qualifications reassessed each year. If you return to school, you can defer your loans until you are out of school.

You will not qualify for a deferment if you are already in default.

So deferment, although it can be a great option, is not available to many underpaid recent grads - myself included. As much as I complain about my income, it’s not anywhere near 1.5 times the poverty line for a family of one. I’d have to be making less than $16,245 to qualify.

My other option - and yours, too - to postpone payment is forbearance. With forbearance, interest continues to accumulate on all your loans, so think carefully before signing on - it will increase your overall debt burden.

That said, here’s how you qualify:

Poor health or other personal problems that make it harder for you to make your payments
Administrative forbearance, which can occur if your lender is resolving a change in the loan’s status or you’ve applied to have your loan status changed and are awaiting a response
Economic hardship, or when your loan payments are greater than 20 percent of your monthly income
Discretionary reasons. Your lender can decide, based on your specific circumstances, to grant you a forbearance, regardless of whether you qualify for the above reasons

Again, interest continues to accumulate while you are in forbearance, so forbearing will increase your overall financial burden. Alternative repayment plans could be a better option - they will reduce your monthly payments and often increase your repayment period, providing you with a bit of relief while also allowing you to continue to pay.

Still, for now, I decided to go with a brief forbearance. I called my lender after receiving the $544 bill and explained that I was awaiting a response from the federal government re: can I consolidate? - a response I hope to receive within the next couple of weeks, after many rules governing student loans change tomorrow. My lender agreed, and my loan payments will be put off as I await the government’s determination of my fiscal fate.

Until then, I can breathe easy(ish) knowing I have at least a third of my salary to spend on utilities and groceries.

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