Jim Wang recently served up a great article for college students over at his blog Blueprint For Financial Prosperity: “Student Loan Deferment vs. Forbearance.” If you’ve got student loans, and you’re near graduation or already paying them back, you should take a look and educate yourself.

I recently had a run-in with these terms when the Federal Direct Loan people sent me a letter saying I have payments coming due the 15th of this month! And I was still under the impression that my loans wouldn’t come due until July 2007, because that’s what my paperwork originally said. And I never received notice that the date was moved forward until November 28th. Oh well, it will be a bit of a pain for me to prepare to pay an extra $120 a month in bills on such short notice, but I guess it was my responsibility in the first place. I should have realized that by dropping from half-time units to just one class this semester, I was no longer eligible for the deferment. (I just wish they’d told me earlier on!)

Anyway, after reading Jim Wang’s post, now I understand that if I go into forbearance my loan still starts accumulating interest this month, and at the end of the forbearance period it capitalizes (or becomes part of the total loan, and accrues interest on that interest!). That’s important to know. Unfortunately they didn’t tell me this over the phone when I called to find out what was up with the sudden news that I had to start paying, and found out that I was only eligible for forbearance (not deferment) if I wanted to postpone my payments at all. So, while I may go into forbearance for a month or two to make preparations to accommodate this extra expense in my budget, now I know the best route is to pay that interest that accrues during forbearance up front with my first payment, before it capitalizes. So, read up! And learn from my mistakes.

Most important things to remember about repaying student loans:

• You are only eligible for deferment if you are still enrolled half-time or more.
• KNOW your own eligibility status! And know when you come into repayment. Don’t depend on the loan officer to let you know about changes in your due date!
• If you go into forbearance, do it only for as little amount of time as necessary. And…
• Pay off any interest accrued during forbearance before it capitalizes.