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Losing a job or having a health emergency can make it hard to keep up with student loan payments. When money is tight, payment relief options, such as deferment, can give you a break until you're in a better financial position.
Student loan deferment is a period in which you delay payments, and interest may or may not be charged during the payment break depending on the type of loan you defer. Read on to learn how student loan deferment works and how to apply.
How Does Student Loan Deferment Work?
Student loan deferment is a temporary payment pause on federal student loans that's generally limited to 36 months. During deferment, you don't have to worry about late fees, and the pause won't negatively affect your credit score. The government offers seven different deferment types:
- Cancer treatment deferment
- Economic hardship deferment
- Graduate fellowship deferment
- In-school deferment
- Military service and post-active-duty deferment
- Parent PLUS borrower deferment
- Rehabilitation training deferment
Direct loan, Perkins loan and Federal Family Education Loan (FFEL) program borrowers are all eligible for the deferment options above, but to qualify, your loans can't be in default.
Private student loans do not qualify for federal deferment, but lenders may offer their own hardship plans that allow for paused payments. Availability and terms vary, so contact your lender directly to find out if your private loan may qualify and learn how to apply.
The Difference Between Forbearance and Deferment
Student loan forbearance and deferment are similar in that they both temporarily stop payments, but interest works differently in each scenario.
During deferment, you're usually not charged interest on subsidized loans and Perkins loans, but interest continues to accrue on unsubsidized loans and direct PLUS loans. Subsidized portions of FFEL and consolidated loans will not accrue interest during deferment, but the unsubsidized portions will.
During forbearance, interest is always charged no matter your loan type. If you don't pay interest that accrues during forbearance, the unpaid interest is added to your principal balance (or "capitalized") when payments start again.
Over time, capitalized interest can cause loan debt to snowball since you're essentially paying interest on interest. That's why it's a good idea to at least pay the interest that accrues during periods of forbearance and deferment, even if it's not required.
Pros and Cons of Deferring Student Loans
Before deferring student loans, you'll have to determine if the pros outweigh the potential cons. Here's a breakdown of the advantages and disadvantages.
- Pausing payments won't affect your credit.
- Deferment offers relief if you're going back to school or experiencing financial stress.
- Deferment provides a payment pause if you're undergoing cancer treatments or rehabilitation.
- Interest isn't charged during deferment periods if you have a Perkins loan or subsidized loan.
- Deferring payments can delay certain types of student loan forgiveness.
- Unpaid interest accruing on unsubsidized loans while in deferment can get expensive.
- Deferring can throw off your repayment timeline and take you longer to pay off debt.
Should You Defer Your Student Loan Payments?
Whether you should or shouldn't defer your student loans depends on how dire your financial situation is. If your income drops while going through cancer treatment, going back to school or joining the Peace Corps, deferring may be a financial necessity.
However, it's important to consider that deferring unsubsidized loans can get costly since interest continues to accrue. After prolonged periods of deferment, there's a risk you could wind up with a higher balance that's even harder to pay off if you let the interest capitalize.
Getting on an income-driven repayment (IDR) plan could be a better option. IDR plans set your payment to a percentage of your discretionary income, and those lower payments still count toward the 120 payments needed to receive Public Service Loan Forgiveness (PSLF). Even if you don't qualify for PSLF, the remaining balances on your loans may be eligible for forgiveness after 20 to 25 years of paying under an IDR plan.
How to Qualify for Loan Deferment
Applying for federal loan deferment starts with filling out a request form. Here's an overview of how deferring student loans works:
- Reach out to your loan servicer. Find out what the process is for putting in a deferment request.
- Review the eligibility criteria. Check the eligibility requirements for each type of deferment available to see which one you qualify for.
- Gather supporting documents. Loan servicers may request documentation to back up your reason for requesting a deferment.
- Submit the request and wait for approval. Keep making payments as normal until your loan servicer comes to a decision. Beware that missing payments before you're officially approved for deferment could result in late fees and a credit hit.
Alternatives to Deferment
When student loans are hard to manage, deferring isn't the only option. Below are alternatives to consider:
The Bottom Line
Deferment may provide the payment break you need to prioritize your health, serve the country or further your education. However, deferment shouldn't be thought of as a "get out of paying" free card because it puts off payments that you eventually must make.
Exploring IDR plans and different loan term options could be a better way to reduce payments to a manageable level. If deferment isn't an option for your private student loans, refinancing to change your term or rate may lower your payment. Comparing refinancing options with different lenders and working to improve your credit score could help you find a new loan with terms that work for your budget.