USA Funds offers advice about student-loan repayment

College Grads Facing Tough Job Market May Qualify to Delay Student-Loan Payments

INDIANAPOLIS—Many members of the collegiate Class of 2001 who still are searching for their first job following graduation now face the prospect of having to make their first student-loan payments. USA Funds^®, the nation's largest education-loan guarantor, advises college graduates who have yet to secure employment, or those facing other financial hardships, that they may qualify to temporarily postpone or reduce their student-loan payments.

College students who took out Federal Stafford loans, the largest component of the federal student-loan program, typically enjoy a six-month, post-school grace period during which they are not required to make payments on their loans. That grace period is about to expire for many students who graduated this spring.

"The student-loan program offers deferment and forbearance options to help graduates who are unable to make their monthly loan payments because of temporary financial difficulties," said Carl C. Dalstrom, USA Funds president and CEO. "Borrowers in these circumstances should discuss these options with their lenders or loan servicers."

Federal education-loan borrowers who are unemployed, facing certain economic hardships or returning to school for additional studies may qualify for a deferment. Borrowers who meet the qualifications and submit the required documentation are entitled to defer principal payments, in the case of unemployment or economic hardship, for up to a maximum three years during the term of their loans. There is no maximum time limit for an in-school deferment.

Borrowers who don't meet the standards for deferment, but who still need payment relief, may request forbearance. Forbearance permits a borrower to reduce or postpone payments or extend the time for making payments, usually at the discretion of the lender. Forbearance requests typically are granted for a period of up to 12 months.

Student-loan borrowers should be aware of the following issues regarding deferment and forbearance:

• Borrowers must make their scheduled payments until their requests for deferment or forbearance are approved.
• Unless borrowers have subsidized loans and qualify for a deferment, interest will continue to accrue on their loans during the period of deferment or forbearance. As a result, their outstanding loan balance will be greater when they resume repayment of their loans.
• Maximum periods of unemployment or economic-hardship deferment are limited for each Federal Stafford-loan borrower, regardless of the number of loans a borrower is repaying. For example, a borrower who uses 12 months of unemployment deferment typically would qualify for only 24 additional months of unemployment deferment eligibility during the remaining terms of all of the borrower's outstanding loans.

Student-loan borrowers who believe that they qualify for deferment or forbearance should contact their lenders or loan servicers. Borrowers may identify their lenders or loan servicers by using the free LoanLocator service of the National Student Clearinghouse.

To assist borrowers, USA Funds provides copies of deferment and forbearance forms on its Web site.