Student loans can be a great way to help you get the education you need to land a job and start your career, but if you’re struggling to make payments on your student loans, it can be hard to know what options are available to you.
There are several different ways that student loan borrowers can apply for financial hardship deferment, which will allow them to postpone their payments for a set period of time. This article will explain how financial hardship deferment works, who qualifies for it, how long you’ll be eligible, and what happens when your deferment ends.
What Is Financial Hardship Deferment?
Financial hardship deferment is an option that allows borrowers experiencing financial difficulty due to circumstances beyond their control (such as medical issues or unemployment) to postpone their payments while they work through those issues. The idea behind this type of deferment is that being able to continue making payments will improve your chances of being able to pay off your debt in full once your situation improves again.
Who Qualifies For Financial Hardship Deferment?
You may qualify for financial hardship deferment if:
- You have already been granted other types of deferments on your federal student loans in the past 12 months (including the standard grace period
Financial Hardship For Student Loans
The financial hardship provision allows those who are applying for bankruptcy or making a consumer proposal to have their student debts included in the proceedings.
This will apply if you have been out of school for more than five years but less than seven years, and your student loan debts otherwise would not be discharged with your other debts.
If it has been only five years since you stopped being a student, and you are or have been bankrupt, you may apply for an early discharge of your student loan debts under the “hardship provision.”
It is important to note that it must be five years since you stopped being a student, not how old the loan is. If you went back to school, part-time or full-time, this might affect your eligibility for the hardship provision.
When you apply for financial hardship along with bankruptcy, you are asking the court to lower the seven year rule to five years.
The courts are looking to satisfy the following two conditions to judge if you qualify for the hardship provision:
- If you “acted in good faith” when you took out the loan, and when repaying your student loans; and
- If you experienced, and will continue to experience, financial difficulty in repaying these debts.
Simply, this means that you tried your best to make your loan payments, but due to your financial circumstances you were not able.
How can I show financial hardship?
Each and every case is decided individually. Everyone has a different set of circumstances, and if you apply for the financial hardship provision, your case will be considered based on your individual financial situation.
The courts may consider a variety of factors when considering if you “acted in good faith,” such as:
- How you used the student loan money,
- Whether you attempted to repay the loans, for example, using the federal government’s Repayment Assistance Plan,
- If you made an effort to complete the educational program.
- Your current income
- Your living expenses
- What other debts do you have
- Whether your student loans are the source of your financial difficulty
The hardship provision is generally granted if repaying your student loan debt is causing you financial difficulty. For example, if you are unable to meet your living expenses due to your student loan payments, the courts will consider this in your application.
Each case is treated separately but these guidelines can help provide some clues on how the courts may treat your case if you apply for the hardship provision.
How do I file for financial hardship when I owe student loans?
You would typically apply for the hardship provision after you apply for bankruptcy.
It is up to the courts to decide if you qualify for a hardship provision for the student loans. The applications are considered on a case-by-case basis, each on their own merit, to see if they qualify for the financial hardship provision for student loan debt.
While you can legally apply for the hardship provision yourself, it is essential to seek professional advice when considering a bankruptcy filing, especially if you want to discharge your student loans.
student loan hardship forgiveness
Types of Forgiveness, Cancellation, and Discharge
The summaries below offer a quick view of the types of forgiveness, cancellation, and discharge available for the different types of federal student loans.
The PSLF Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
PSLF Resources
- Public Service Loan Forgiveness (PSLF) Help Tool
- Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application
- Limited PSLF Waiver Information
- Public Service Loan Forgiveness Program FAQ
- Submit a Public Service Loan Forgiveness Reconsideration Request
Qualifying for PSLF
To qualify for PSLF, you must
- be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service);
- work full-time for that agency or organization;
- have Direct Loans (or consolidate other federal student loans into a Direct Loan);
- repay your loans under an income-driven repayment plan*; and
- make 120 qualifying payments.
To ensure you’re on the right track, you should submit a Public Service Loan Forgiveness (PSLF) & Temporary Expanded PSLF (TEPSLF) Certification & Application (PSLF Form) annually or when you change employers. We’ll use the information you provide on the form to let you know if you are making qualifying PSLF payments. This will help you determine if you’re on the right track as early as possible.
*This provision will be waived through October 31, 2022 as part of the limited PSLF waiver.
Suspended Payments Count Toward PSLF and TEPSLF During the COVID-19 Administrative Forbearance
If you have a Direct Loan and work full-time for a qualifying employer during the payment suspension (administrative forbearance), then you will receive credit toward PSLF or TEPSLF for the period of suspension as though you made on-time monthly payments in the correct amount while on a qualifying repayment plan.
To see these qualifying payments reflected in your account, you must submit a PSLF form certifying your employment for the same period of time as the suspension. Your count of qualifying payments toward PSLF is officially updated only when you update your employment certifications.
Digital signatures from you or your employer must be hand-drawn (from a signature pad, mouse, finger, or by taking a picture of a signature drawn on a piece of paper that you then scan and embed on the signature line of the PSLF form) to be accepted. Typed signatures, even if made to mimic a hand-drawn signature, or security certificate-based signatures are not accepted.
Note: In-grace, in-school, and certain deferment, forbearance, and bankruptcy statuses are not eligible for credit toward PSLF.
Have questions? Find out what loans qualify and get additional information about student loan flexibilities due to the COVID-19 emergency.
Qualifying Employer
Qualifying employment for the PSLF Program isn’t about the specific job that you do for your employer. Instead, it’s about who your employer is. Employment with the following types of organizations qualifies for PSLF:
- Government organizations at any level (U.S. federal, state, local, or tribal) – this includes the U.S. military
- Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
Serving as a full-time AmeriCorps or Peace Corps volunteer also counts as qualifying employment for the PSLF Program.
The following types of employers don’t qualify for PSLF:
- Labor unions
- Partisan political organizations
- For-profit organizations, including for-profit government contractors
Contractors: You must be directly employed by a qualifying employer for your employment to count toward PSLF. If you’re employed by an organization that is doing work under a contract with a qualifying employer, it is your employer’s status—not the status of the organization that your employer has a contract with—that determines whether your employment qualifies for PSLF. For example, if you’re employed by a for-profit contractor that is doing work for a qualifying employer, your employment does not count toward PSLF.
Other types of not-for-profit organizations: If you work for a not-for-profit organization that is not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, it can still be considered a qualifying employer if it provides certain types of qualifying public services.
Full-time Employment
For PSLF, you’re generally considered to work full-time if you meet your employer’s definition of full-time or work at least 30 hours per week, whichever is greater.
If you are employed in more than one qualifying part-time job at the same time, you will be considered full-time if you work a combined average of at least 30 hours per week with your employers.
If you are employed by a not-for-profit organization, time spent on religious instruction, worship services, or any form of proselytizing as a part of your job responsibilities may be counted toward meeting the full-time employment requirement.
Eligible Loans
Any loan received under the William D. Ford Federal Direct Loan (Direct Loan) Program qualifies for PSLF.
Loans from these federal student loan programs don’t qualify for PSLF: the Federal Family Education Loan (FFEL) Program and the Federal Perkins Loan (Perkins Loan) Program. However, they may become eligible if you consolidate them into a Direct Consolidation Loan.
Student loans from private lenders do not qualify for PSLF.
Under normal PSLF Program rules, if you consolidate your loans, only qualifying payments that you make on the new Direct Consolidation Loan can be counted toward the 120 payments required for PSLF. Any payments you made on the loans before you consolidated them don’t count. However, if you consolidate these loans into a Direct Loan before October 31, 2022, you may be able to receive qualifying credit for payments made on those loans through the limited PSLF waiver.
Qualifying Payments
A qualifying monthly payment is a payment that you make
- after Oct. 1, 2007;
- under a qualifying repayment plan;
- for the full amount due as shown on your bill;
- no later than 15 days after your due date; and
- while you are employed full-time by a qualifying employer.
Most of the PSLF qualifying payment rules have been suspended through October 31, 2022. Under this temporary waiver, you may get credit for payments you’ve made on loans that would not normally qualify for PSLF. These payments will count even if you didn’t pay the full amount or on-time. However, only payments made after Oct. 1, 2007 can count as qualifying payments. For more information, visit the limited PSLF waiver page.
You can make qualifying monthly payments only during periods when you’re required to make a payment. Therefore, you can’t make a qualifying monthly payment while your loans are in
- an in-school status,
- the grace period,
- a deferment, or
- a forbearance.
If you want to make qualifying payments, but you’re in a deferment or forbearance, contact your federal student loan servicer to waive the deferment or forbearance. However, you can still receive credit toward PSLF during the COVID-19 payment pause.
Your 120 qualifying monthly payments don’t need to be consecutive. For example, if you have a period of employment with a nonqualifying employer, you will not lose credit for prior qualifying payments you made.
The best way to ensure that you are making on-time, complete payments is to sign up for automatic debit with your loan servicer.
