This year, the Economic Hardship Deferment program has new eligibility rules that allow more students to qualify for the program. To find out if you are eligible, you can use the Economic Hardship Deferment calculator or refer to a coversheet that outlines the requirements and documents you will need to provide when applying for deferment.
If you have consolidation or GradPLUS loans, remember that you need to apply for deferment before graduation because those loans do not carry a grace period. Applying for deferment before graduation means interest will not capitalize on consolidation and GradPLUS loans.
Unfortunately, a major change to the program is the loss of the debt-to-income pathway, which is expected as of July 2009. The Department of Education announced in March that it plans to end the provision because the program would cost taxpayers about $1 billion over the next decade. The decision was generally supported by financial aid advocates, who said the money could be better spent on needier borrowers. Most affected by this change will be medical students entering residency.
If you’re entering residency, here’s what it means for your loans:
An average of almost $7,000* of additional interest to repay. After capitalization, that extra interest accrual will end up costing $9,578 on a 10-year term (an additional $80 a month) or $14,442 on a 25-year term (an additional $48 a month).
A new repayment plan created to help students who no longer qualify for hardship deferment but face a partial financial hardship starts July 1, 2009. This status would require a monthly payment based on household income. Borrowers need to qualify for the income-based repayment plan every year. Currently a $40,000 income will require a $309 payment while $45,000 requires $371.
Residents who no longer qualify for a hardship deferment will have a few options. One of these options is forbearance. The second is qualifying for partial financial hardship and making payments according to the new income-based repayment plan available July 1, 2009. The third is entering repayment and using a payment plan that offers a period of interest-only payments.
*Based on $34,000 in subsidized Stafford loan debt at 6.8% interest.
The chart below outlines the new income-to-debt requirements necessary to qualify for Economic Hardship Deferment.
|
This graph can be used as a general guideline to help you determine whether or not you are likely to qualify for an economic hardship deferment under condition six. Locate the point that your annual income intersects your total federal student loan debt on the graph. If this point is above the line, you likely qualify for an economic hardship deferment. Qualification Condition- (6) Work more than 30 hours per week(full time) and Your student loan payments are more than 20% of your monthly gross income and Your monthly gross income after your student loan payment(s) is less than 330% of the federal poverty level based on family size. |
Annual Income | Monthly Income | Qualify with Stafford Loans at 6.8% | Qualify with Federal Loans at 5.38%* |
| $31,000 | $2,583 | $44,900 | $47,900 | |
| $32,500 | $2,708 | $47,100 | $50,200 | |
| $35,000 | $2,916 | $50,700 | $54,050 | |
| $37,500 | $3,125 | $54,400 | $57,950 | |
| $40,000 | $3,333 | $58,000 | $61,650 | |
| $42,500 | $3,541 | $61,550 | $65,650 | |
| $45,000 | $3,750 | $77,350 | $82,500 | |
| $47,500 | $3,958 | $95,500 | $101,750 | |
| $50,000 | $4,166 | $113,500 | $121,000 | |
| $52,500 | $4,375 | $132,000 | $140,400 | |
| $55,000 | $4,583 | $149,750 | $159,650 | |
| $57,500 | $4,791 | $168,700 | $178,950 | |
| $60,000 | $5,000 | $186,000 | $198,300 | |
| $62,500 | $5,208 | $204,500 | $217,600 | |
| $65,000 | $5,416 | $222,500 | $236,850 | |
| $67,500 | $5,625 | $240,500 | $256,200 | |
| *The interest rate represents the weighted average of a portfolio of student loans where 1/4th of the loans are fixed at 2.875%, 1/4th of the loans are fixed at 4.75%, and 1/2 of the loans are fixed at 6.8%. | ||||