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1 [1] (February 3, 2025)

handle is hein.crs/govesiz0001 and id is 1 raw text is: Congressional Research Service Informing 11w eg~sIative debate rnnco 1914 February 3, 2025 Direct Loan Program Student Loans: Deferment and Forbearance Upon borrowing a loan under the William D. Ford Federal Direct Loan (Direct Loan) program, borrowers assume a contractual obligation to repay the debt over a period of time that may span a decade or more. Typically, once a loan has entered repayment borrowers must make monthly payments toward repaying it. Deferment and forbearance options offer borrowers temporary relief from their monthly loan payments in specified circumstances. As of June 30, 2024, borrowers owed approximately $1.4 trillion in Direct Loan program loans. Of that, about 21% ($302 billion) was in a deferment or forbearance status (Figure 1). Figure I. Outstanding Direct Loans by Status As of June 30, 2024 Source: U.S. Department of Education, Office of Federal Student Aid, Data Center, Direct Loan Portfolio by Loan Status, https://studentaid.gov/sites/default/files/fsawg/datacenter/library/ PortfoliobyLoanStatus.xls. Notes: Grace includes eligible loans that have entered a six-month grace period after the borrower is no longer enrolled in an eligible program on at least a half-time basis and during which borrowers are not required to make payments. In-school includes loans that have never entered repayment as a result of the borrower's being enrolled in an eligible program on at least a half-time basis. Other includes loans that are in a nondefault bankruptcy or disability status. For a detailed description of loan deferment and forbearance, see CRS Report R45931, Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program: Terms and Conditionsfor Borrowers. Deferment Deferment allows borrowers to temporarily suspend making monthly payments on their Direct Loans. During this time, interest does not accrue on Direct Subsidized Loans or on the portion of a Direct Consolidation Loan that was used to repay a Direct Subsidized Loan (i.e., the interest is subsidized). Generally, interest continues to accrue on all other types of loans during a deferment. While in deferment, borrowers have the option to pay the interest as it accrues or at a later time. The Higher Education Act (HEA) requires that the U.S. Department of Education (ED) capitalize unpaid accrued interest (i.e., add it to a loan's principal balance) at the end of deferment periods. Eligibility criteria for borrowers to receive a deferment on their loan typically address instances in which borrowers may have a short-term hardship that impedes their ability to make monthly payments. Currently, about 10 different deferment options are available to borrowers. For example, borrowers may defer loan payments while they are enrolled at least half-time in qualifying postsecondary education, participating in a graduate fellowship program or rehabilitation training program, unemployed or experiencing an economic hardship, performing or having recently completed qualifying military service, or receiving treatment for cancer. The National Defense Authorization Act for Fiscal Year 2024 (P.L. 118-31) authorized deferment for dislocated military spouses, but ED has not yet implemented this deferment. Typically, borrowers must proactively request a deferment. In most cases (e.g., cancer treatment deferment), the deferment period lasts as long as the borrower qualifies for the deferment. Other types of deferment are initially granted for a limited period of time and a borrower may subsequently renew them for a maximum period of eligibility. For example, ED may grant a borrower an economic hardship deferment for up to one year at a time and may extend the deferment up to a cumulative maximum of three years. Forbearance Forbearance allows borrowers to temporarily suspend making monthly payments or to temporarily make smaller payments on their Direct Loan program loans. Interest accrues on all Direct Loan types during forbearance. While in forbearance, borrowers have the option to pay interest as it accrues or at a later time. ED does not capitalize unpaid accrued interest at the end of forbearance periods. Grace -- $32.40 B $90.40 B in-Schnoo $93.50 B Deferment $127.90 B Forbearance $173.80 B $6.60 B

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