Loan Deferments and Forbearances Can Help Graduates Cope With a Difficult Economy

Online, September 15, 2010 (Newswire.com) - Many recent college graduates are finding unique ways to gain employment. As unemployment rates have reached near-historic levels, some graduates are starting small businesses as an alternative to traditional employment pathways. Even so, in March of this year, the total number of unemployed college graduates reached 2.3 million. The credit crunch accompanying the housing and employment contraction has hit young business owners, especially recent graduates and those without an established credit history particularly hard, causing many to struggle when paying back student loans.

Some are turning to non-traditional lenders for personal loans to shore up their short-term finances. Many, even as they struggle to make student loan payments, have sought small business loans to finance fledgling businesses.

The fact is, more and more students are defaulting on their federally guaranteed student loans. According to a report from the U.S. Department of Education, default rates for federally guaranteed student loans are expected to reach 6.9% for fiscal year 2007. That's up from 4.6% two years earlier and represents the highest rate since 1998.

Borrowers having trouble repaying their federally backed loans may seek help through loan deferments or forbearance programs. Borrowers who qualify due to financial need may apply for a loan "deferment," in which case the government will pay the interest payments during the period of time the student cannot afford to make payments. Most types of federal loans also have "forbearance" programs, where the borrower can suspend payments temporarily but is still on the hook for the interest that continues to build while payments are on hold, which is then spread out over the life of the loan. It is important to note however, that student loan deferments and forbearances can each be used only for a maximum of three years per loan.

Those borrowers who are experiencing trouble repaying their federally backed loans can call their lender or visit www.federalstudentaid.ed.gov. They may also access the web site www.nslds.ed.gov or can contact the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).

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