In 2019, One of the best ways to get some debt relief is via a student loan deferment, and perhaps the most effective of these is the Economic Hardship Deferment, which lets you put your loans on pause while you work on improving your finances.
Qualifying for an Economic Hardship Deferment will depend on your income, family size, and the poverty guidelines for your family size in the state where you live.
Read on to see if you can qualify for an economic hardship student loan deferment.
Economic hardship deferments are pretty simple, and extremely valuable to those borrowers who are able to qualify for them.
Here’s how the economic hardship deferment program works:
- To qualify, borrowers need to have extremely low incomes (near the poverty line)
- Borrowers also have to be receiving, or have received payments under a federal or state assistance program (like Welfare)
- Loans granted under the Federal Perkins Loan Program or the Federal Family Education Loan (FEEL) Program are eligible
- Deferments are offered in increments of one year, with a 36 month maximum total deferment period
- Peace Corps volunteers automatically qualify for the program
- Interest does not accumulate on subsidized loans during the course of the deferment period
If you’re able to qualify for this program, it’s almost guaranteed to be worth taking advantage of, since it stands to (temporarily) save you thousands of dollars in monthly repayments.
Paying off student loan debt isn’t easy for anyone, but for those living at or under the poverty line, it can be especially crippling. Take advantage of these benefits if you think you can qualify!
Get Help With Your Loans!If you're truly struggling with student loan debt, then you should consider paying a Student Loan Debt Relief Agency for help. Why? Because the people working at these companies deal with student loans all day, every day, and they're your best chance at figuring out how to get your loans back under control.
For help with Federal Student Loans call the Student Loan Relief Helpline at 1-888-906-3065. They will review your case, evaluate your options for switching repayment plans, consolidating your loans, or pursuing forgiveness benefits, then set you up to get rid of the debt as quickly as possible.
For help with Private Student Loans call McCarthy Law PLC at 1-877-317-0455. McCarthy Law will negotiate with your lender to settle your private loans for much less than you currently owe (typically 40%), then get you a new loan for the lower, settled amount so you can pay off the old loan, repair your credit and reduce your monthly payments.
I've spent 10 years interviewing debt relief agencies, talking to all sorts of "experts", and these are the only two companies that I trust to help my readers. If you have a bad experience with either of them, please make sure to come back and let me know about it in the Comments!
What is a Deferment?
Deferments are a period of time where you student loan repayments are basically put on pause. Deferments are available to those people who have run into financial trouble, and are having problems affording making the payments on their monthly student loans.
Those borrowers with subsidized student loans get the best deal out of deferments, as the interest on their loan doesn’t accumulate during the deferment period.
Subsidized loans continue to accrue interest, which can be paid monthly, or added to the principal of the loan when the deferment period ends, in a process known as capitalization.
What is an Economic Hardship Deferment?
Economic hardship deferments are a specific type of deferment, available to those facing very serious financial problems.
Here’s how they work:
If your income is so low that you’re living near the poverty line, the Federal Government will pause your loan repayments, giving you time to start saving money, find yourself a better job, and earn an income high enough to start paying back your loans without crippling your finances
Which Loans Qualify?
Not all student loans qualify for economic hardship deferments, in fact, only a few do.
Qualifying Loans include:
- National Direct Loans
- Federal Family Education Loans (FEEL Loans)
- Federal Stafford Loans
- Federal Perkins Loans
- Federal Supplemental Loans for Students
- Federal PLUS Loans
- Federal Consolidation Loans
- National Defense Loans
Typically, this program is only available to those borrowers with loans that were funded on or after July 1st, 1993.
Do Private Student Loans Qualify?
No. The federal economic hardship deferment program does not offer deferments for private student loans.
For those with private student loans, qualification for an economic hardship deferment may still be possible, but it will be through a program offered by your lender.
Some lenders offer their own economic hardship programs, with different requirements than the federal program.
To find out if you can qualify for a private student loan economic hardship deferment, you’ll need to contact your lender directly.
Do I Qualify for a Hardship Deferment?
There’s a few conditions you’ll have to meet in order to qualify for receiving an economic hardship deferment.
Qualification conditions include:
- You must be working full time (for at least 30 hours per week, at a position expected to continue for at least 3 months), and…
- You must be earning a gross income below 150% of the federally defined poverty level for your family size, or…
- Your combined monthly federal loan payment must exceed your monthly adjusted gross income by 20%, or…
- You must have been granted an economic hardship deferment under the FDSL or FEEL programs for the period of time which you’re requesting receiving an economic hardship deferment for your Federal Perkins, National Direct or National Defense loan, or…
- You must have been or be receiving financial assistance under a federal, or state-sponsored public assistance program, like Food Stamps, Supplemental Security Income, Aid to Families with Dependent Children or a state general public assistance program
In a nutshell, you’ve got to be working full time, able to prove that you’re working full time, and not be making much money with that full-time employment.
The Economic Hardship Deferment Calculator
The best way to find out if you’re likely to qualify for an economic hardship deferment is to plug your information into the economic hardship deferment calculator offered by FinAid, which you can find here.
The calculator will take a variety of conditions into account, including:
- Whether or not you’re currently receiving any other state or federal financial assistance
- Whether or not you’re currently working full time (30+ hours per week or more)
- Your gross monthly income
- Your total educational debt
- The interest rate on your educational debt
- The term length of your educational loan
- Whether or not you’re serving as a volunteer in the Peace Corps (if you are, you automatically qualify for the program)
- Your current state of residence
- Your family size
- Whether or not to use the 20/220 rule (set this to no, since it’s no longer relevant)
You’ll have a pretty good idea about your potential for receiving an economic hardship deferment once you’ve filled this out, but do keep in mind that it’s not a perfect survey, and your real-world results may be different.
What About Interest?
During the course of your economic hardship deferment, interest on your student loan will not accrue if your loan is a subsidized loan.
If your loan is an unsubsidized loan, then interest will continue to accrue during the period that your loan is being deferred.
Make sure you understand how this works, because if your loan continues to accrue interest during the deferment period, and you fail to make payments on that interest during that time, it’ll be tacked on the principal balance of your loan once the economic hardship deferment ends.
This can add significant expense to the cost of your loan, making it hundreds to thousands of dollars more expensive in the long-run.
The process of adding interest to your loan is called capitalization, and it’s important that you understand how it works.
How Does Interest Capitalization Work?
Remember that interest will continue to accrue – even during deferment – if you’ve got an ubsubsidized loan.
You’ll have the option to pay off that interest each month, as it accumulates, which you should definitely do, to avoid interest capitalization.
If you don’t pay off that interest as it accrues, then at the end of your deferment period all the accumulated interest will be added to the principal of your loan, via the process known as interest capitalization.
This can add thousands (or even tens of thousands) of dollars to the lifetime cost of your loan, making it significantly more expensive than it was planned to be.
To find out how much additional money you’ll owe after the interest has been capitalized, check out FinAid’s interest capitalization calculator here.
And remember that if your student loan is of the subsidized kind, then no interest will accrue during your deferment, and you won’t have to worry about capitalization at all.
The 6 Month Grace Period
One additional benefit to the economic hardship deferment program is that each deferment period (offered in annual increments) comes with an additional 6 month long “grace period”, during which your loan principal and interest remain on hold.
This is a pretty big cherry on top of the already awesome assistance offered by hardship deferments, since it extends the effective financial relief by half each time you’re able to qualify!
How Do I Apply for an Economic Hardship Deferment?
Fortunately, the process is pretty easy.
To apply for a deferment, follow these simple steps:
- Download the economic hardship deferment request form (click here)
- Read the form carefully, then fill it out in full
- Make sure to include documentation to prove the amount of your income
- Do not forget to sign the paperwork, as it won’t be able to be processed without your signature
- Mail the form to your lender, or whoever is servicing your loan
It may take a couple weeks to hear back from your lender, but calling them to check up on the process is generally considered to be a good idea.
Where Can I Download the Application?
Get yourself a copy of the latest version of the economic hardship deferment form by clicking here.
Don’t forget to sign the form after you’ve filled it out entirely. Without your signature, your lender won’t be able to process it.
What if I Don’t Qualify?
Just because you don’t qualify for an economic hardship deferment doesn’t mean that you won’t qualify for one of the other Federal Student Loan Deferment Programs.
There are deferments for a wide variety of conditions, from being unemployed to serving in the military.
And in addition to deferments, you should also look into Forbearance Programs, Loan Forgiveness Programs and Loan Cancellation Programs.
There are also Federal Student Loan Relief Programs for Teachers, Military Personnel and even those working in Public Service.
If you’re having trouble making your monthly student loan payments, it’s likely that you can find a way to get some financial relief.
For More Information
If you’ve still got questions about how economic hardships work, please feel free to ask away in the comments section below.
Alternatively, the best source of information about this program, and financial assistance in general, is your lender.
Before you get into a sticky situation, like defaulting on your loan, or being forced to declare bankruptcy, it really is in your best interests to contact your lender and let them know you’re in trouble.
Most lenders are willing to work with their borrowers to set up a new repayment schedule, reduce interest rates, or extend a loans term in order to make things more affordable for them.
Remember that your lender doesn’t want you to default either! They don’t want to have to go to court, and they don’t want to have to chase you for their money!
The sooner you take care of your financial problems, the sooner you can move on with your life, living stress free, and forgetting about your student loan debt.
Thanks for stopping by, and if this page helped you out, please do me a favor in return and share it with a friend!
The more people that find out about this website, the more time I can spend writing up content like this, and helping you save money.
Disclaimer:Information obtained from Forget Student Loan Debt is for educational purposes only. You should consult a licensed financial professional before making any financial decisions. This site receives some compensation through affiliate relationships. This site is not endorsed or affiliated with the U.S. Department of Education.
I went to school back in 2009 for a year. Last year they finally took my whole income tax, well this year i have another offset even though I have been paying the 5.00 a month they figured out with my income,and family size. Well my job situation has changed. Do i need to apply for a economic hardship deferment again or just call my loan provider. What things can I apply for since my loan is in default?
When you’re loans are in Default, the options are pretty limited. Take a look at my Guide to Federal Student Loan Default, then look at my post on the Student Loan Rehabilitation Program.
Although I understand the information about the economic hardship deferment program presented here, I still have a question that I can’t seem to find the answer for anywhere. What about those working part-time? I’ve been working part time for a year since I graduated college making less than $900 a month off minimum wage. I have been looking for full-time work but no luck there. I’ve been looking for better paying jobs but, without the right experience, I can’t even get my foot in the door.
I qualify as a dependent (can’t really live off of part-time minimum wage) but I have monthly loan payments of $269.16/month and insurance payments for a car that’s slowly breaking down.
Is there a reason working part-time (average of >30 hours/week) doesn’t qualify as economic hardship?
That’s just how the program has been created. Most of the student loan relief benefits require full-time work, unfortunately.
We are so lucky this program exists! By the time my husband graduated from college he had accumulated over $60,000 in debt, and he couldn’t find a job!! It’s not his fault – where we live there is literally no one hiring, but we had thought his college degree would make him more marketable, and apparently that was not the case. Well, none of that really matters when it comes time to send in the monthly student loan repayment check.
I thought we were screwed until I found out about student loan economic hardship deferments. We had no income at all, as I’m a stay at home mom and he was looking for work, so it was pretty easy for us to qualify for the deferment program, and we’ve had his loans on pause now for two months.
If we weren’t able to pause those loans, we would have been in big trouble. Our landlord doesn’t care for excuses and expects to get the rent check on time, every time. Thank God for the economic hardship deferment program!
Thanks for making this easy to understand. I was having trouble figuring out whether I should apply for the economic hardship deferment or the unemployment deferment, but now I get the difference and the pros and cons to each. I’m filling out my paperwork now.