Here's what happens to your student loans if you take a year off from college

You’ll need to start making monthly payments after six months, but there are options available if you can’t make them. (iStock)

Taking a hiatus from college can be a great way to gain new experiences, overcome burnout, and resolve financial challenges.

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During the last few months, internet searches for the term “gap year” have spiked. For many students, the idea of taking some time off may be more appealing than the prospect of paying the same tuition for a diminished online experience. And for some, the coronavirus pandemic may present unique financial challenges that can make it difficult to stay in school.

If you’re considering taking some time off, though, it’s important to understand what happens with your student loans and what you can do if you’re struggling to afford your monthly payments.

What happens to your student loans if you take a year off

For most student loan borrowers — federal and private — loan payments are deferred until you graduate, leave school for other reasons or drop below half-time enrollment. Once that occurs, there’s a six-month grace period, during which you don’t have to worry about making payments.

After that, though, you’ll be expected to pay your monthly bill, at least until you return to school. At that point, your loans will go back into deferral, and you won’t need to continue making payments.

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If you’re working during your hiatus, making your monthly payments may not be too difficult. But if your cash flow can’t support monthly student loan payments, you may have one or two options available to you:

  • Forbearance: All federal loan servicers and most private student lenders provide some form of forbearance to borrowers who are struggling. With forbearance, you can pause your monthly payments for a set period, which varies depending on your lender. In general, you’ll need to provide documentation to support your claim of financial hardship. But if you qualify, it can help you avoid monthly payments for most, if not all, of your break from school.
  • Income-driven repayment plans: If you have federal student loans, income-driven repayment plans reduce your monthly payment to just a fraction of how much you make—between 10 percent and 20 percent of your discretionary income. While some plans require you to prove financial hardship, others don’t, making it an easy way to decrease how much you owe.

With both of these options, it’s important to consider the potential long-term consequences. With forbearance, for instance, interest still accrues on your loans even if you’re not making payments. If you opt for an income-driven repayment plan, which can have a repayment term of 20 or 25 years, you can’t change it back to the standard 10-year plan later without student loan refinancing. You can easily compare student loan refinancing options and rates from various lenders by visiting Credible.

Is taking a gap year right for you?

Taking time away from college may sound like a good idea now, but many college students who leave may never find their way back to school, even if they originally intended to. Even if you do, your university may be more interested in bringing in new freshmen and transfers than readmitting students who have taken a break.

Also, if you anticipate not being able to make student loan payments after your six-month grace period ends, you may be forced to make a decision with your student loan debt that has long-term implications.

That’s not to say a gap year is the wrong choice. Depending on your situation, it may give you much-needed time to resolve financial or health concerns or provide you with an opportunity to experience something you may not have a chance to after you graduate.

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But it’s important to consider all aspects of the decision before you make it.

If you’re concerned about paying tuition because you’ve lost your job, student loans aren’t ideal, but they can help bridge the gap between what you can afford and what you owe. More importantly, they can help you avoid a year’s delay in your graduation and career.

If you’re considering student loans as an undergraduate student, start with federal loans. If you still have a need after that, visit Credible to compare rates for private student loans from multiple lenders. For graduate students and parents planning to borrow money, compare private loan rates with what’s available through the federal government to ensure you get the lowest rate possible.