If you reach a point where your income can’t support your student loan payments, economic hardship deferment can help. If your lender offers deferment, you could postpone payments for up to three years.
However, not everyone will qualify for deferment. Read on to determine whether student loan deferment for economic hardship is the right move for you.
In this guide:
- How economic hardship deferment works
- Economic hardship deferment for federal student loans
- Economic hardship deferment for private student loans
- Should I apply for economic hardship deferment?
- Alternatives
How economic hardship deferment works
The U.S. Department of Education offers economic hardship programs through your student loan lender. The program began to help borrowers with low income temporarily pause payments they can’t afford.
Humanitarian workers in the Peace Corps or AmeriCorps can also qualify for deferment. Since these programs often pay a small income in addition to room and board, repaying student loans isn’t always possible.
One significant downside of economic hardship deferment is that, for many loans, interest will continue to accrue. So when you resume payments, you’ll also end up paying back interest.
Economic hardship deferment for federal student loans
As with the current student loan pause, the government’s deferment program is only for government-funded loans, aka federal student loans. These loans include:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
Private loans from private lenders, such as SoFi or Earnest, don’t have the same protections as federal loans. Find out more about the full differences between private and federal loans.
For federal loans, deferment can last up to three years, but it’s on a case-by-case basis and depends on your income and reason for requesting a deferment. Per the deferment application, each period of deferment lasts 12 months, so you must reapply every year.
Deferment for federal student loans isn’t automatic. You’ll apply with this form and submit it to your lender.
How to apply
Federal student loan payments are on pause at the time of writing. But when economic hardship deferment options resume, you can apply through your lender.
To be approved, you must meet at least one of the following requirements:
- You receive public assistance payments, including Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), or Supplemental Nutrition Assistance Program (SNAP) benefits.
- You’re a Peace Corps volunteer.
- Despite working full-time, your income is no more than 150% of the federal poverty guideline for your state and family size.
You can fill out the four-page economic hardship deferment application form if you meet one of these requirements. You’ll input basic information such as your name, address, Social Security number, and phone number.
The next page is about eligibility, with “yes” or “no” questions about the requirements we mentioned above.
You’ll also share your income and family size to help prove eligibility. The rest of the form explains how the program works and what you’re expected to pay in interest.
Economic hardship deferment for private student loans
The federal economic hardship deferment program is not available for private student loans.
But that doesn’t mean you don’t have options for private loans. Some lenders offer their own deferment programs, although many are for shorter terms than the federal option.
If you can’t make your payment and are considering deferment, contact your lender to see your options. If deferment isn’t available, it may offer other programs.
The four companies below offer deferment (or similar) programs for student loan borrowers who cannot pay.
| Lender | Economic deferment length | Details |
| Discover | Varies by deferment option | Only offers deferment for specific cases, including attending school, during active duty for military members, working for a public service employer like the Peace Corps, and during medical residency. Discover has a simple 2-page application you’ll fill out to request a deferment. |
| Earnest | 12 months of forbearance for economic hardship; deferment for the length of active duty as a military member | Earnest allows its borrowers to skip a payment each year if they need to. Those who qualify for forbearance can also defer payments for up to 12 months. Active-duty military can qualify for deferment for their active-duty period and 180 days after. For forbearance, you can apply using Earnest’s form. |
| Laurel Road | 12 months | Defer your loan for up to 12 months if you can prove temporary financial hardship, but only in three-month increments (can’t be consecutive). Those facing a natural disaster can apply for up to two months of forbearance. Contact Laurel Road’s customer service department to see whether you qualify. |
| SoFi | The length of active duty or the length of graduate school | SoFi offers deferment for military members serving active duty and graduate students enrolled part-time or full-time. To see if you qualify for deferment, contact SoFi’s customer support. |
Should I apply for economic hardship deferment?
Applying for economic hardship deferment isn’t ideal. It often means your income can’t support your everyday expenses and student loans. If you’ve reached this point, ask yourself these questions:
- Do I have a loan that qualifies for deferment? No other question matters if you don’t qualify for federal or private deferment. If you don’t have a low income or are not involved in a public service career, you may not qualify for deferment.
- Will I be able to resume payments in the next few years? Deferment only lasts so long. Federal programs grant up to three years, while many private lenders offer just a year. If you know you won’t be able to pay your student loans even after that time, you may need a better long-term solution.
- Have I exhausted all other repayment options? Deferment shouldn’t be your first option because interest often continues to grow on your unpaid balance. Make sure you’ve talked with your lender for assistance in making a final decision.
If you answered yes to any of the questions above, student loan deferment might be the right option.
Alternatives to economic hardship deferment
If you can’t secure deferment due to your income or loan type but can’t pay your loans, what should you do?
Your options if you can’t pay your student loans include the following.
Forbearance
Forbearance is another method of delaying payments. You may qualify if you’ve lost your job, have a major medical issue that results in a considerable expense, or have experienced a significant financial loss.
All federal loans come with forbearance options if you are eligible. Interest will continue to accrue on federal loans in forbearance.
Private student loans may also have a forbearance option, but this varies by lender.
Refinancing
If you can’t afford the high interest that may come with your federal student loans, you can refinance through a private lender, ideally securing a lower interest rate. Private lenders often offer low rates for borrowers with good credit as an incentive.
Before you decide whether refinancing is right for you, understand the benefits you stand to lose. You’ll give up income-based repayment options and loan forgiveness by switching from a federal to a private loan. Private loans also don’t qualify for the federal student loan pause that’s in effect due to COVID-19.
Loan forgiveness
In rare instances, student loans can be partially or entirely forgiven. The program with which most are familiar is Public Service Loan Forgiveness. This program allows those who work in nonprofits, government agencies, or tribal governments to qualify for forgiveness after meeting certain conditions.
It can be challenging to qualify. In addition to working for a specific type of employer, you must have been enrolled in a federal repayment plan for your student loan and made 120 qualifying monthly payments under that plan.
Changing your repayment plan
Many federal student loan lenders, and some private lenders, offer multiple repayment plan options. One of the most common is income-based repayment. As the name suggests, the plan is based on your income. This option caps your student loan payments at 10% to 20% of your income.
You should have no issue qualifying if your student loan debt exceeds your discretionary income. You will need to show the standard 10-year repayment plan many federal student loans are subject to isn’t working for you.
In addition to the income-based repayment option, you can consider options such as Pay as You Earn (PAYE) and Income-Contingent Repayment (ICR). With PAYE, your student loan payments are capped at 10% of your income over 20 years.
ICR, meant for Parent PLUS loans, allows you to pay either of the following:
- Up to 20% of your income
- The amount you would pay with a 12-year repayment plan
Find out more about student loan deferment.