What is Student Loan Deferment?
There are many situations in which you may end up short of the money you need to pay your student loan bill. Because of this, public (and sometimes private) student loan providers offer the option of deferring student loans — basically, pausing repayment for a set period of time.
Deferment can be a financial life-saver for some, but a costly mistake for others. In order to learn about deferment and whether it’s right for your particular situation, let’s look at the following topics:
What deferring student loans does
As the Department of Education explains, a deferment to your student loans is a period during which repayment of the principal and interest of your loan is temporarily delayed.
During a period of deferment, you don’t need to pay anything on your loan. There is typically an agreement on the length of time you’re allowed to defer, depending on the program. Borrowers should also note that although deferment can include not having to pay the interest on their loan, this actually depends on the situation.
Loan types that do not require payment of interest when deferring student loans include:
- Direct subsidized loans
- Subsidized Stafford loans
- Perkins loans
- Direct consolidation loans (subsidized portion)
- FFEL consolidation loans (subsidized portion)
Loan types that do require payment of interest when deferring student loans include:
- Direct unsubsidized loans
- Unsubsidized federal Stafford loans
- Direct PLUS loans
- FFEL PLUS loans
- Direct consolidation loans (unsubsidized portion)
- FFEL consolidation loans (unsubsidized portion)
Depending on the category your student loans fall into, the government may or may not pay the interest on them. But if the interest isn’t covered, then you’ll either have to make monthly interest payments or allow the interest to capitalize, meaning it gets added to the total principal of the loan.
In most cases, you’ll need to apply for deferring student loans. If you’re deferring while in school — a situation in which your loan may be deferred automatically as your school reports your enrollment — you should speak with a financial aid representative who can help make sure deferment for both your public and private loans goes through.
If your loan came through the federal government, log in to the Federal Student Aid website to find the name of your servicer. If your loan is private, your job might be even easier: Call up the company through which your loan was financed. (And if you don’t know who your student loan servicer is, here’s how to track it down.)
Keep in mind that while forbearance is not the same as deferment, it might be another option to help manage your student loans.
Pros and cons of deferring student loans
Putting your student loan payments on pause may seem like a blessing, especially if you’re living paycheck-to-paycheck. However, you should also note potential downsides to deferment.
Pros of student loan deferment
Deferring your student loans in extreme cases of hardship could help you pay other immediate bills, such as rent and electricity. If you’re volunteering your time or serving in the military, temporarily not having student loan obligations might help give you back to your community without an additional burden on your mind.
Cons of student loan deferment
There are also drawbacks to student loan deferment, particularly if your loans aren’t subsidized by the federal government. The interest will continue to accumulate at the regular rate and then get added to the total of the loan.
For example, say the principal balance on your 10-year PLUS loan is $20,000 with a 4.8% interest rate. Applying for a six-month deferment will save you a significant amount in payments in the short term.
But if you use our calculator to run the numbers, you’ll see that you will have incurred $478 worth of interest.
This will also extend the amount of time it will take you to pay the principal. And if your ultimate goal is to conquer those student loans quickly, adding additional time and money to your payoff plan is not going to help.
In addition, you should consider that student debt in deferment can affect you if you’re involved in certain student loan forgiveness programs. For example, Public Service Loan Forgiveness requires 120 eligible payments to qualify. If you defer the loan for three months, the payments you miss during that time would not count toward the 120, even if you’re still working for a qualified nonprofit.
When to defer your student loan
Your situation should guide whether deferring student loans is the right or wrong move. If you’re returning to school, joining the Peace Corps or taking care of a child before returning to school, for example, deferring student loans may be an absolute lifesaver and totally necessary to get by.
On the other hand, if you suffer a financial hardship but might still be able to keep paying down your loan, you might benefit from doing so, since it will get you out of debt all the sooner. Or you could just pay the interest on your loan each month to stop it from adding to the total balance of the loan.
Alternatives to student loan deferment
If you decide deferring student loans isn’t the best option for you, there are several other ways you can reduce your student loan burden to make it manageable.
Work out a repayment plan
If you have private student loans, the first might be going straight to your lender and trying to work out a repayment plan. Lenders would rather see some of the money come back to them than none of it, so they may be willing to reduce your payments or work out another solution.
Income-driven repayment plans
With federal loans, meanwhile, you have some great alternatives. The government offers many income-driven repayment plans that can reduce your payments to an affordable portion of your disposable income.
Employer payment programs
With either private or federal debt, your employer may also have a program to help you pay off your loans. Check with your supervisor or human resources department to find out what programs might be offered.
Likewise, refinancing your student loans may be a way to help reduce your payments and, potentially, also cut the interest you pay. Just be careful about refinancing federal student loans, as you could lose access to some federal student loan options, like income-driven repayment.
Making the deferment decision
Student loan deferments give borrowers experiencing financial difficulty a temporary break from the pressures of loan payments. In some cases, it makes sense to apply for a deferment, but there are also alternatives that may better fit your particular situation.
Talk to your servicer or provider and ask them about your options — including deferment, but also income-driven repayment and other possibilities — to keep yourself in your best financial situation possible.