Education Loan Services

By: EconomyWatch Content   Date: 26 November 2009

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Education loan repayment, in the absence of proper planning, may create an enormous burden of debt on the borrower. Often, such a situation leads to defaults, which is very detrimental to a borrower’s credit rating. To avoid such defaults and losses, lenders offer several education loan services. These are meant for easier student loan management.  

 

Education Loan Services: Options

A borrower can select from several education loan services, to obtain temporary or permanent relief from making payments. Common student loan relief options include:

 

Deferment

A deferment excuses a borrower from making payments towards a student loan for a specific period. When a student loan is under deferment, no interest is charged or accrued on the period of deferment.

 

A borrower can apply for a sudden loan deferment in exceptional circumstances, such as:

  • during periods of economic hardship

  • unemployment

  • upon quitting a job to pursue higher studies

 

Also, a borrower must not have defaulted on a student loan, to qualify for deferment.

 

Forbearance

Under forbearance, a student loan borrower is permitted to discontinue repayments for a specific purpose but unlike deferment, the interest continues to accrue under forbearance. Typically, forbearances are approved for one year at a time.

 

Forbearance on a federal loan may be offered for several reasons, such as:

  • Poor health

  • Unforeseen financial problems

  • Monthly payments exceed 20% of the borrower's monthly income.

 

Forbearance may also be obtained by a borrower even if s/he has a prior record of student loan default, which is not the case with deferment.

 

Cancellation

 

When a borrower qualifies for student loan cancellation, a part or even the entire loan may be discharged by the lender.

 

Federal student loan programs offer complete loan forgiveness for borrowers who are employed in jobs that contribute to the community’s development such as:

  • Military

  • Teaching

  • Law

  • Medicine

 

Student loan borrowers may also qualify for loan cancellation if they become completely disabled or if the educational institution (providing the degree) is shut down.   

 

Finally, one may consider education loan consolidation. This involves amalgamating multiple education loans into one account, and thereby establishing a fixed monthly payment and interest rate. This helps to maintain manageable monthly payments and reduce the chances of default. There are some education loan services that offer the option of choosing either a fixed or a variable consolidated interest rate.

 

 

 


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