No job and student loans due? Don’t fret

updated 7:46 a.m. ET Oct. 15, 2009

NEW YORK - 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.

"These are really important options for people who are struggling," said Edie Irons, a spokeswoman for the Project on Student Debt, an advocacy group based in Berkeley, Calif.

There will likely be repercussions, but none as damaging as if you consistently make late payments or let loans lapse into default. So if you need extra time to pay your loans, here's what you need to know.

Who’s eligible?
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.

Sallie Mae, the biggest issuer of private student loans, says its agents interview borrowers to assess whether forbearance is an appropriate solution.

It's worth noting that Sallie Mae is granting forbearance less frequently than in the past. At the end of the second quarter, 6.5 percent of its private loans were in forbearance, compared to 13 percent the same time a year ago.

Patricia Christel, a Sallie Mae spokeswoman, said the company is trying harder to work out payment arrangements rather than immediately using forbearance as a solution.

Stall tactics
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 Irons of the Project on Student Debt.

The terms of forbearance for federal loans are tailored to specific situations, so there are no set rules on how long they last.

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.

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