Student Loan Myth II: A deferment or forbearance won’t make my payment go up

As we continue part two of leg one, we will cover another common forbearance and deferment myth.  This one has to do with how forbearances or deferments affect your future payments.

What you think happens. You are unable to make your payments or a lower payment so you simply sign up for a forbearance or deferment.  Once you are off you start making the regular payment you were before because if you couldn’t make the payment before how could the government expect you to make a higher payment?  Plus this was the payment they set.

What actually happens. It was the payment they set without any interruptions.  However for your unsubsidized loans for deferments and all your loans during forbearances your interest was still accruing.  And the government wants you to pay off your loan in the number of years you agreed to.  When you exit a deferment or forbearance your interest does what is called capitalize or get added to the principal.  This not only makes your principal larger, but daily interest bigger as well.  What it also does is make it harder to pay off your loan on time at the same amount.  As a result about once a year your company will look at your loans to make sure you can still pay them off in your same term.  This is done to avoid a balloon payment at the end.  If you can not your loans will redisclose and you will find yourself with a larger payment.

Where there may be a morsel of truth to this.  This doesn’t always happen.  For example if you only have a forbearance for a month or two your overall payment may not go up as your final payment will be enough to handle the increase without exceeding your monthly payment.  Or for the Standard Repayment plan your minimum is $50.  If your monthly payment without the minimum was $30 and now would raise to $40, it is still below the $50 mark and you monthly payment will stay as is without interruption.