You have a $120,000 college degree and no job. That won't stop your student loan bills from arriving.
The six-month grace period on student loans for the class of 2009 is about to expire, meaning this year's graduates will soon start getting their monthly statements. It could be a problem for those who have yet to find full-time work. Others who graduated earlier may also be struggling.
One option for anyone in a financial squeeze is deferment or forbearance, which allow for the postponement of payment under select circumstances.
There will likely be repercussions, but none as damaging as if you consistently make late payments or let loans lapse into default:
A deferment or forbearance is a period when payments on a loan are not required, although interest generally continues accruing. The difference between the two is that the term "deferment" is used in specific situations with federal loans.
Most people know federal student loans can be deferred if you enroll in graduate school or the military. But you can also get a deferment for unemployment or economic hardship.
To qualify for the latter, you can't earn more than $16,245 a year in the continental United States. You're also automatically eligible if you get public assistance, such as food stamps, or volunteer with the Peace Corps.
If you don't qualify for a deferment, you might still be able to postpone payments if you're dealing with health issues or other circumstances. The government calls this a forbearance; private lenders use the term for any type of postponement they grant.
With private loans, the lender has the discretion to grant forbearance.
WILL IT LAST?
Economic-hardship deferments are granted one year at a time, while unemployment deferments are granted in six-month increments. You can reapply as needed for a total of three years each.
That means you could get an unemployment deferment for three years, then an economic hardship deferment for another three years. The deferments don't have to be used continuously.
You could also reset the time limits on deferments if you consolidate a loan, since it's essentially a new loan, said Edie Irons, a spokeswoman for the Project on Student Debt.
Expect less leniency with forbearance on private loans. Sallie Mae grants them in one- to three-month increments, typically for no more than a total of two years.
WHAT ARE THE DRAWBACKS?
These measures should be used as a last resort, since interest generally continues accruing on the loan. One way to minimize the financial impact is to pay the interest costs while your loan is in deferment or forbearance. Otherwise, it will be added to the loan amount and push up what you ultimately owe.
One alternative is picking a payment plan that reduces your monthly bill. Of course, this means it will take longer to pay off your loans, which in turn pushes up how much interest you pay.
Another relatively new option for federal loans is the Income-Based Repayment program. The program caps monthly payments at 15 percent of your earnings above a certain threshold, currently around $16,000. Those who earn less than that may not have to make any monthly payments.
Any debt remaining after 25 years is forgiven. Eligibility is determined by weighing your debt level against your income. A calculator at www.ibrinfo.org can help assess whether you qualify.
You can also change payment plans with private loans. Or your lender may be willing to rework the terms of your loan, perhaps with a lower interest rate.