How to Apply for an Economic Hardship Deferment
The economic hardship deferment temporarily pauses payments on federal student loans while the borrower is experiencing severe financial difficulty. Some private student loan lenders also offer options for deferments.
Like any other deferment, the federal government pays the interest on subsidized federal student loans during the deferment, but not on unsubsidized loans.
The interest that accrues on unsubsidized loans as well as private student loans remains the borrower’s responsibility during the economic hardship deferment. If the borrower does not pay the interest as it accrues, it will be capitalized at the end of the deferment period by adding it to the loan balance.
Eligibility for the Economic Hardship Deferment
All federal education loans are eligible for the economic hardship deferment, including Federal Stafford Loans, Federal Perkins Loans, Federal Parent PLUS loans and Federal Consolidation Loans.
Borrowers may qualify for the economic hardship deferment by satisfying any of the following conditions:
- The borrower is receiving federal or state public assistance, such as Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps/Supplemental Nutrition Assistance Program (SNAP) or state general public assistance
- The borrower is a Peace Corps volunteer
- The borrower is working full time (30 or more hours a week), but their income is less than or equal to the federal minimum wage ($7.25 per hour) or their income is less than or equal to 150% of the poverty line for the borrower’s family size and state
- Eligibility for an economic hardship deferment for private student loans depends on each lender.
How to Apply for the Economic Hardship Deferment
To apply for the economic hardship deferment for federal loans, borrowers must submit an Economic Hardship Deferment Request form to their loan servicer. Borrowers must also submit documentation of income such as a copy of a recent pay stub or the borrower’s most recently filed federal income tax return.
For federal loans, the economic hardship deferment is made available in increments of up to one year in duration. Borrowers must reapply once a year, unless they are a Peace Corps volunteer. There is a 3-year limit on the economic hardship deferment.
For private student loans, call your lender directly to see how to qualify and apply for an economic hardship deferment.
Considering a deferment? Use our Cost of Deferment Calculator to evaluates the impact of interest capitalization at the end of a deferment or forbearance on the monthly loan payment and the cost of the loan, assuming that the loan payments are re-amortized after the deferment or forbearance.
Alternatives to the Economic Hardship Deferment
Borrowers who are ineligible for the economic hardship deferment might qualify for a forbearance.
Most borrowers who would qualify for the economic hardship deferment based on low income will also qualify for a zero monthly payment under an income-driven repayment plan. (Single borrowers who are working 34 or more hours a week at the federal minimum wage might exceed the income threshold for a zero monthly payment, but will nevertheless have a very small monthly loan payment.)
If you have reached the three-year limit on the economic hardship deferment should consider switching to an income-driven repayment plan.
Another option is to switch into an extended repayment plan, which will yield a lower monthly payment than the standard repayment plan.
Borrowers might qualify for a lower interest rate by refinancing their federal student loans into a private student loan. However, a private refinance might involve a shorter repayment term, which can yield a higher monthly loan payment.
Also, borrowers who refinance federal loans into private loans will lose the superior benefits available in the federal student loan program, such as death and disability discharges, longer deferments and forbearances, income-driven repayment and loan forgiveness options. If you have private student loans, you aren’t eligible for those federal loan perks, so refinancing could be a good idea. Consider the pros and cons of refinancing to know if it’s right for you.