How to Handle Student Loans While on Medical Leave

When you need to take medical leave to care for yourself or a family member, student loans are probably the last thing on your mind. 

The stress of juggling doctor appointments, treatment, and recovery is often overwhelming. Plus, loss of income and increased medical costs can negatively impact your finances. But here’s the good news—you have options to handle student loans during medical leave. 

Here’s how to decide whether strategies such as deferment, income-driven repayment, or forbearance make the most sense for you during medical leave. 

How to manage student loans on medical leave

Medical leave usually impacts your finances due to loss of income and increased expenses. It’s an overwhelming time, and forgetting about your student loans is easy. However, missing payments or ignoring your balance can have long-lasting negative impacts. 

You must also deal with your student loans as you figure out how to handle your treatment and finances during medical leave. Here’s why. 

Having an emergency fund is vital. An emergency fund can keep a medical crisis from becoming a financial crisis.

David Haas

CFP®

• Avoid default: If you default on your loans, the loan servicer reports it to the credit bureaus, and it appears on your credit report. As a result, it might be harder to secure a loan or buy a home. You also lose eligibility for future student loans from the federal government. 
• Protect your credit score: If you are more than 90 days late on a payment, your lender reports it to the credit bureaus, negatively impacting your score. The delinquency stays on your report for years. For a private student loan, your cosigner’s credit score will also be affected.
• Save money on late fees: If you miss student loan payments, you could face late fees, which can add up. 

Ask the expert

David Haas

CFP®

It is important to always be covered by medical insurance because you can never know when a medical emergency can occur. Young adults can be covered under their parents’ policy until age 26. After that age, if your employer does not provide medical coverage, you can obtain it using an Affordable Care Act policy. You may be eligible for a subsidy which can make coverage very affordable. 

The federal government provides options for handling student loans during medical leave. The best choice depends on your finances and circumstances. You typically have access to the following solutions for federal student loans. 

Potential solutions	When it’s best for	How it works
Deferment	When you have a condition or event that qualifies for deferment, and you have the type of student loan where interest does not accrue during deferment	Apply to pause student loan payments for up to three years. Interest does not accrue for direct subsidized federal student loans.
Forbearance	When you have a temporary financial setback due to a medical emergency which does not qualify for deferment and/or you do not have a loan where interest stops accruing during deferment.	Apply to pause student loan payments or reduce the amount of your payment for up to three years. Interest does accrue during forbearance.
Income-driven repayment plan	You might have a longer period of lower income.	Plans allow you to pay less each month and work toward forgiveness. Payments can be as low as $0.

Student loan deferment

If you have federal student loans, you can apply for deferment and suspend payments during a set period. 

Some private student loan lenders offer deferment as well. However, it’s not guaranteed, and you need to check with your servicer. Here’s how deferment works with federal student loans. 

How it works

You must apply for deferment and meet the eligibility requirements. Once approved, you do not need to make student loan payments during that period. Depending on the loan type, your balance might still accrue interest, but you don’t need to pay it until deferment ends unless you want to. 

How long does it last?

The type of deferment determines how long it takes, and the reason for your medical leave determines your eligibility. If you’re on medical leave, you might qualify for deferment due to cancer treatment, economic hardship, or rehabilitation training. 

Here’s how long each type of deferment lasts. 

Type of deferment	How long it lasts
Economic hardship	Up to three years
Cancer treatment	During cancer treatment and up to six months after
Rehabilitation training	During treatment

Who’s eligible?

You can likely apply for deferment if you have federal student loans. There are specific requirements for each type of deferment, and you must qualify.

Type of deferment	How long it lasts
Economic hardship	Must receive a means-tested benefit, like welfare, or have full-time employment with  a monthly income less than minimum wage or 150% of the poverty guideline for the state
Cancer treatment	Must have a cancer diagnosis and receive treatment
Rehabilitation training	Must enroll in an approved rehabilitation program for drug abuse, mental health, or alcohol abuse

How to get it

You must apply for deferment and submit the necessary forms. Here’s how to apply for each type of deferment. 

Type of deferment	How long it lasts
Economic hardship	Submit the Economic Hardship Deferment Request form
Cancer treatment	Submit the Cancer Treatment Deferment Request form
Rehabilitation training	Submit the Rehabilitation Training Deferment Request

What do payments look like?

You do not have to make any payments during deferment. Some federal student loans might still accrue interest during deferment, but you do not have to pay it during this time. 

Student loan forbearance

Federal student loan forbearance is similar to deferment, and you do not need to make any payments toward your loans. The main difference is that all types of student loans accrue interest during forbearance. With deferment, only some types of loans accrue interest. 

Forbearance might be available for private student loans, depending on your lender. Check with your lender about options for pausing payments. Here’s what to expect with forbearance for federal student loans. 

How it works

There are two kinds of student loan forbearance—general and mandatory. 

For medical leave, your request falls under general forbearance, which allows you to pause payments during periods of financial difficulties and medical expenses. You can request to pause payments or suggest a smaller payment amount. 

How long does it last?

General student loan forbearance lasts for 12 months. You can request another forbearance if you still have the same circumstances after 12 months. Your loans can remain in forbearance for up to three years in total. 

Who’s eligible?

Direct Loans, Federal Family Education (FFEL) Program loans, and Perkins Loans are eligible for forbearance. You can qualify for student loan forbearance if you cannot make student loan payments due to financial difficulties, medical expenses, or other acceptable reasons. 

The federal government does not list specific guidelines or limitations for eligibility. 

How to get it

To apply for forbearance, you must complete the General Forbearance Request form. You must provide personal information and verify your identity with a social security number. Once you complete the form, mail it to your loan holder. 

What do payments look like?

When you apply for forbearance, you can request to pause payments completely. You can also request a lower monthly payment. To suggest a lower amount, input the number in the request form. Your payment amount depends on which option you select. 

Income-driven repayment plans

If your income decreases due to medical leave, consider an income-driven repayment plan for federal student loans. Your income determines the monthly payment amount. It’s a solid option if you’re struggling to make payments due to your current income. However, private loans are not eligible.

If you plan to apply for deferment or forbearance, applying for an IDR plan beforehand might be worth it. Once you have an IDR plan, periods of forbearance or deferment count toward your total loan repayment, which is a significant perk. 

Income-driven repayment plans are only available for some federal loans, and multiple plans are available. Each plan has a different repayment amount, determined as a percentage of your income. Depending on your loan, one might be better than the others. 

Income-Based Repayment (IBR) plan

The Income-Based Repayment plan (IBR) is usually 10% or 15% of your discretionary income, which is the money left over after food, clothing, shelter, and medical care. Borrowers with eligible federal loans might qualify for the plan, but private loans are not eligible.  

How it works

With an IBR plan, your discretionary income determines your payment amount. You must meet the income eligibility requirements and recertify each year based on your family size and current income. Payment amounts are 10% or 15% of your discretionary income, depending on the year you receive your loan. 

How long does it last?

If you’re a new borrower before July 1, 2014, the repayment period lasts 20 years. If you’re a new borrower after that, the repayment period is 25 years. Once you complete the repayment period, your loan is forgiven—even if you still have a balance. 

Who’s eligible?

To qualify, your IBR payment must be less than what you pay with a standard 10-year repayment plan. You probably qualify if your student loan balance exceeds your annual income. 

How to get it

Fill out the Income-Driven Repayment Plan Request form to apply for IBR. You can submit the form online or in the mail. To apply, you must have an FSA ID or StudentAid.gov account. 

What do payments look like?

Payment amounts are 10% to 15% of your discretionary income, which is what you have left after necessary expenses like housing and food. 

If you’re a new borrower before July 1, 2014, your payment is usually 10%. If you’re a new borrower after that, the payment is typically 15%. You can use the Income-Based Repayment Calculator to determine exactly how much your payments will be.

Pay As You Earn (PAYE) plan

The PAYE plan is currently available until July 1, 2024. After that, borrowers can no longer apply. 

The plan is for eligible borrowers with federal loans. Private loans do not qualify. 

It’s similar to the IBR plan, but monthly payments are up to 10% of your discretionary income, which is a lower maximum. 

How it works

Your discretionary income determines your payment amount. To qualify, you must meet the income eligibility requirements and recertify your eligibility each year by submitting information about your family size and income. Payments are 10% of your discretionary income.

How long does it last?

The PAYE plan has a standard 20-year repayment period. You no longer owe money once you complete the repayment period, and your balance is forgiven. 

Who’s eligible?

The qualification requirements for PAYE are the same as IBR. Your payment with the plan must be less than a standard 10-year plan. Borrowers with bigger student loan balances than their annual incomes usually qualify. 

How to get it

Complete the Income-Driven Repayment Plan Request form to apply for IBR and submit it online or in the mail. You must have an FSA ID or StudentAid.gov account. There’s a universal form for all income-driven repayment plans, so you will fill it out regardless of the plan you want. 

What do payments look like?

Borrowers pay 10% of their discretionary income, which is the money left after necessary expenses. But no matter how much you make, the payment cannot exceed what you would pay with the standard 10-year plan. In other words, you won’t ever pay more than you currently do.

SAVE plan

The SAVE plan replaces the REPAYE plan. Any borrower with eligible federal student loans can apply for this program. Parent Plus loans and Direct Consolidation Loans that consolidated Parent PLUS loans are not eligible for the SAVE plan. 

Private loans also do not qualify. Like other income-driven repayment plans, your income and family size determine your payment amount. 

How it works

The SAVE plan is available for borrowers with eligible federal loans. You do not need to meet specific eligibility requirements for income or other factors. 

One of the primary differences between this plan and other income-driven plans is that the SAVE plan does not consider your spouse’s income if you file separately. 

How long does it last?

The SAVE plan has a standard 20-year repayment period if all your loans are for undergraduate study. If any loans you’re repaying are for graduate study, the repayment term is 25 years. Your balance is forgiven once you complete the repayment term. 

Who’s eligible?

• Borrowers with eligible federal student loans can apply for the SAVE plan. Eligible loans include: Direct subsidized loans
• Direct unsubsidized loans
• Direct PLUS loans for graduate studies

Direct consolidation loans that include Parent PLUS loans are not eligible, but you may be able to consolidate Parent PLUS loans twice before July 1, 2025 and still be eligible for the SAVE plan. 

How to get it

To apply, fill out the Income-Driven Repayment Plan Request form and submit it online or in the mail. There’s one form for all income-driven repayment plans, including the new SAVE plan. 

What do payments look like?

Payments are usually 10% of your discretionary income. However, the SAVE plan increases the income exemption to 225% of the poverty line, which means you might qualify for a lower payment amount with this plan. 

Payments may be as low as $0, but if your income is high enough, payments could be higher than they would be with the Standard Repayment Plan.

Income Contingent-Repayment (ICR) plan

Income Contingent-Repayment (ICR) is another income-driven repayment plan. There are slight differences between this plan and the others, especially regarding the repayment time frame, since you can expect to make payments for 25 years.

How it works

The ICR plan is available for borrowers with eligible federal student loans. Private loans do not qualify for this plan. Your discretionary income determines your payment amount with the ICR plan.

How long does it last?

With ICR, your repayment term is 25 years. You must recertify your income and family size each year. If you remain eligible and submit payments, you will receive loan forgiveness after 25 years, which is longer than some of the other income-driven repayment plans. 

Who’s eligible?

Borrowers with eligible federal loans can apply for the plan. ICR is the only income-driven plan available for borrowers with Parent PLUS loans, making it a helpful option for some borrowers. 

How to get it

You must submit the Income-Driven Repayment Plan Request form to apply for ICR. You can submit the form online or through the mail.

What do payments look like?

With ICR, you’ll pay the lesser of 20% of your discretionary income or your fixed standard repayment for 12 years. After 25 years, you may get any outstanding balance forgiven.

Ask the expert

David Haas

CFP®

Whether you choose deferment, forbearance, or an income-driven repayment plan, you must stay on top of the application requirements and ensure you don’t miss any recertification requirements. Make sure you keep copies of all forms you submit and send anything in the mail using certified mail. Student loan servicers have a history of mishandling paperwork, so you need to keep that in mind.

How to choose the best option for your student loans on medical leave

The best option for your student loans during medical leave depends on your finances, loan type, and reason for leave. But regardless of your situation, it’s essential to plan for your student loans during this time, especially if you cannot afford the payments. Here are the steps you can take to prepare. 

• Apply for income-driven repayment: If you have the capacity, start by applying for an income-driven repayment plan. You can submit one application to apply for all four programs. After you apply, the loan officer can inform you which option results in the lowest payment. If you qualify for income-driven repayment and later apply for deferment or forbearance, the months in the program will count toward your repayment term.
• Pause payments: If you cannot afford any size payment or need to remove student loan payments from your to-do list, apply for forbearance or deferment. Payments will pause, and you can focus on your medical leave.
• Ask for help: If you have a trusted friend or family member, ask them for assistance with the forms and documentation. You already have a lot to handle, and getting help can make a big difference. 
• Contact your lender: If you have private student loans, contact your lender and ask about deferment options. Private loans are not eligible for any federal repayment programs, but your lender might be able to offer a different solution.

Ask the expert

David Haas

CFP®

Call your loan servicer for your private student loans and ask about the rules for a deferment due to a medical leave. Unfortunately, not all private loans have a deferment option, but remember that not paying back the loan could affect your cosigner’s credit score and your own. You should let your cosigner know that you can’t make payments and what the impact of that might be on their credit. If your medical leave becomes a permanent disability, you may be able to negotiate a settlement with your loan servicer, but that usually only happens after you are in default, ruining your credit rating and that of your cosigner.