Monday, May 26, 2008

Economic Hardship Deferment How-To

What follows is a bit of a step-by-step manual on how to apply for economic hardship deferment for your federal student loans. It's a lot to read - my apologies.

Let me start by issuing a very strong disclaimer: all of the following is derived from my own reading, and I haven't consulted with any experts. Please, please (please) verify things on your own before letting me lead you astray. And, if you are going to use this information to complete your deferment form, I strongly urge you to read the entire post, not just the bold-faced sections which apply to you. There may be important info you gloss over.

Additionally, I would greatly appreciate any input regarding omissions, inaccuracies, etc.

The following assumes that you have federal student loan debt and that you are interested in having payments and/or interest accrual deferred for at least one and perhaps two years after med school graduation. Your interest accrual will only be deferred for loans such as subsidized Stafford and Perkins loans. Interest will continue to accrue on unsubsidized Stafford loans. If you need more information regarding whether or not to defer, check the interweb.

There really is no good way to go about doing this, so what I'm going to do is walk you through completing the form. This may mean that you read through all of this and realize at the very end that you're not eligible for a deferment; if that happens, my apologies.

Alright, start by opening up the hardship deferment request form.

For the purposes of this email, when I talk about loans, I am talking about federal student loans. See the list of acceptable loans (JPG), here:

Note that this does not include private education loans, car loans, credit card debt, etc - don't take any of these types of loans into consideration when filling out this form.

On to the Form

Section 1:
Fill this stuff out like a monkey.

Section 2:

1. Enter the date you want your deferment to begin.

This is not necessarily a simple issue. If you have loans that you consolidated back in 2006, then in all likelihood, the date your loans enter repayment is whatever you indicated as your graduation date when you filled out your initial paperwork. This is because, by consolidating your loans, you waive your 6-month grace period, and your (consolidated) loans go immediately into repayment following graduation.

Before you begin this process, you'll first need to find out the dates that each of your loans goes into repayment by going to each of your lenders' websites and/or calling them. You will be submitting this form to the lender with the earliest repayment date.

With earliest date of repayment in hand, enter that date in the appropriate space at the top of the form. If you are able to indicate a date in June 2008 or earlier, that is optimal.

Why does this make a difference? Because, if at least one of your loans goes into repayment on 7/1/2008 or earlier, you will be able to apply for economic hardship deferment in June of this year. Currently, the 20/220 pathway by which the vast majority of us will qualify for hardship deferment is set to expire on July 1, 2009. This means that, if you qualify again for hardship deferment NEXT year (which is possible since you'll only have 6 months of an intern's salary - during tax year 2008 - to report on your form), then you will be able to squeeze in your application for another year's deferment prior to the July 1, 2009 deadline. (That is, sometime in June 2009).

What if I didn't consolidate? If you didn't consolidate any loans, the date your loans enter repayment is likely set to be sometime six months after graduation, probably 01/01/2009. The good news: you will still be able to apply for one year of hardship deferment. The bad news: you probably won't be able to apply for two years of deferment, as you won't be able to apply again until 12/1/2010 - well after the July 1, 2009 deadline for the expiration of the 20/220 pathway. If there is a loophole to this, I don't know it, and would appreciate the insight!

Incidentally, the other good news: if you didn't consolidate any of your loans, you may be able to take advantage of new, low interest rates that will change on 7/1/2008 - but only for loans issued prior to 2006. Talk to your student loan office about this; the discussion is beyond the scope of this post.

2. Which box to check?

  • Box 1: Check if you have already successfully been granted a deferment with one of your lenders. (eg, you submitted this form to Sallie Mae and they sent you back a form saying yahoo, you've been approved). NB: You need to apply independently to each of your various lenders. (This includes applying independently to Perkins). So check box one and submit this form along with a copy of the letter your first lender sent you saying you were approved.
  • Box 2-4: This probably applies to a small audience; I will defer discussion.
  • Box 5: You will most likely check this box this time, unless you worked full-time during the last school year.
  • Box 6: Check this box if, for some reason, you are currently working full-time. This will be the box you check next year when you apply.
3. My monthly income is?

READ CAREFULLY: The documentation requirements which I list below may change from lender to lender. Either verify documentation requirements with your lender or be prepared to have your application denied.

Here's another tricky one. See what applies to you:

I didn't have any wage income during tax year 2007: This applies to you if you did not do anything like TA during tax year 2007 (January 1, 2007 - December 31, 2007). Make sure you were not issued a W2. If not, you're on easy street, and you will most likely qualify. Write down your monthly income as "0," and write the following in the space to the right: "I did not receive a form W2." (Note: some lenders, like Sallie Mae, have an online form that you can use to submit your deferment request. In these cases, just answer the questions on the online form appropriately). Just to make ULTRA sure you qualify, go to: and enter all appropriate information. See further down in the email about what to put in the calculator about your loans.

I had some wage income during tax year 2007, and I filed an individual (not joint) tax return: This applies to you if you TA'd or did some other form of work that generated a W2. (This also assumes that you received a paycheck from only one employer, eg Medical School X. If you had multiple sources of wage income, you need more help than this email). Now, you are going to have to do some math. Grab your tax return for tax year 2007. Look at your adjusted gross income (AGI). (1040, line 37; 1040EZ, line 4). Divide this number by 12; this is number A.

Next, you need to figure out the amount of one of your paychecks during 2007. If you received your payments by direct deposit, and you do online banking, try looking back in time to determine how much was deposited per one paycheck from Med School X Payroll. Take this amount (the value of one paycheck) and - assuming you were paid biweekly - multiply it by 2. This is number B.

Which amount is lower? Whichever it is, take that amount and enter it into the "gross monthly income" blank of the calculator at: . (You should try both numbers, actually) See further down in the email about what to put in the calculator about your loans.

If you qualify using number A or B, write whichever is lower in the blank after "My monthly income is:"

If you qualify using number A or B, you will likely need to send in one of the following forms of documentation:
  • Using number A: Submit a copy of your most recent tax return. OR
  • Using number B: Submit a copy of two consecutive pay stubs.
Note: If you qualify using both numbers, you will likely find it much easier to gather documentation for number A.

I had some wage income during tax year 2007, and I filed a joint tax return: This applies to you if you TA'd or did some other form of work that generated a W2 AND you are married AND you filed a joint tax return. (As above, this also assumes that you received a paycheck from only one employer, eg Med School X. If you had multiple sources of wage income, you need more help than this email).

You need to follow the instructions listed immediately above, but if your spouse had any form of income, you will most likely only qualify using number B. If for some reason you qualify using number A but not number B, then you will need to submit a copy of your most recent W2 in addition to your most recent joint tax return as supporting documentation.

4. I owe the following amounts:

Some more bloody math. For this part, you are going to need some serious information at your fingertips. For every single one of your federal student loans (again, see qualifying loans in the image further up in the post), you need to know the following:
  • Balance (total amount of the loan if you haven't made any payments)
  • Interest rate
  • Term (normally 10 years, possibly longer)
You can get a summary of your loans, as well as each of their balances, at the website: . For the interest rate and term, you will probably have to go to each of your loans' lenders/servicers to determine this information. You can check on the web, or, if you click on the number to the left of each loan on the NSLDS website, it will give you more detail including phone numbers of your lenders/servicers. If you have a Perkins loan, that's easy: the interest rate is 5% and the term is 10 years.

For loans with 10-year terms: Figure out your monthly payment. Easiest way is probably to input each of your loans, one-by-one, with their corresponding interest rates and terms into a calculator like this: . Leave loan fees as 0%; leave minimum payment at $50. Take the various monthly payments which were spit out by the calculator for each of your 10-year-term loans and sum them together. This is number C.

For loans with greater than 10-year terms: Simply sum the balances for all of your loans with terms greater than 10 years. This is number D.

Now, you have all of the information necessary to determine if you truly qualify for economic hardship. First, download and open the LoanStandardizer.xls spreadsheet. In the white area, input each of your loans, line-by-line, with each of their balances, interest rates, and terms. Then, use the information that is returned in the yellow fields to the right and go to a calculator such as: . Fill out the fields with all appropriate information as discussed above, select your family size (eg, 1 if single, 2 if married, 3 if you have a kid, etc). Choose the year 2008 and hit calculate.

If the calculator says that you will probably qualify, then all of this work has not been in vain, and you should continue. If it says you will not qualify, really the only thing you can tweak is your monthly income as discussed above (ie, the difference between numbers A and B).

Now, back to the form. Enter number C in the first blank (For all of my loans that have a repayment period of 10 years or less, the total amount that I pay each month is $_________.) Enter number D in the second blank (For all of my loans that have a repayment period of more than 10 years, the total amount I owed when the loans entered repayment is $_________.)

Documentation Required:
In addition to documentation of your monthly income, you will need to include documentation of your federal student loan debt. This may be taken care of for you if you are completing an online form. I don't actually know what suffices as proper documentation if you are submitting by mail, but I would imagine that if you printed out your loan summary from and included hand-written columns with loan terms and interest rates, that would suffice. CONFIRM WITH YOUR LENDER!!

Section 3 (Almost there)

Obviously, read this statement and fully understand it. As for the check box, I leave that up to you to figure out. My guess is that, if you can afford it, it's probably a good idea to make interest payments on your unsubsidized loans during your deferment. That way, I'm guessing that the otherwise-unpaid interest won't capitalize when your deferment ends. But that's probably a question for your student loan office.

Sign and date the form. Mail it to your lender. If you go to your lender's website to download the form, they will generally include a page which tells you where to mail it. If you completed the form online, you will either be hunky-dorey or the website will tell you where you need to mail/fax supporting documentation.

FINALLY, some important points:

  • When can I submit this horrible, horrible form? You can only submit to any particular lender 30 days prior to the day your loan goes into repayment.
  • You only need to submit the full form (ie, checking box #5 or #6) to ONE lender.
  • You need to submit follow-up forms (see above; in brief: checking box #1) to EACH of your REMAINING lenders - including the government, a la Perkins loans.
  • You will have to stay on top of when various loans are entering repayment. For instance, a subsidized Stafford loan issued for the last academic school year will not enter repayment until after its six-month grace period following graduation, eg 1/1/2009. You will need to submit a "follow-up" form some time up to 30 days prior to when the loan goes into repayment, eg on or after 12/1/2008.
  • If you qualify for a deferment a year from now, you will have to submit a full form, with contemporary monthly income and loan data, to the same lender as the first time. You'll have to repeat the process (again) for subsequent lenders.
Read carefully, take everything as a nonprofessional opinion, and verify with your lender!


Dr J said...

great guide! posted a link to your post on our class blog with full credit if you dont mind!

-almost dr j

Anonymous said...

I am impressed with your knowledge wit and wisdom. Thank you for the time energy and commitment you demonstrate here. This is very helpful for all students including medical students. I can also add even for financial aid counselors. I wish we have students like you here at Stanford Medical School.


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