What is student loan deferment?

Key points

• If you are unable to make your student loan payments, you can apply for a deferment.
• A deferment does not mean you don’t have to pay the loan back; you still do.
• Some typical reasons for obtaining a deferment include losing your job, getting treatment for cancer and military service.

During the COVID-19 pandemic, the federal government gave student loan borrowers a break. To ease borrowers’ financial struggles, the government froze loan principal and interest payments.

But after several extensions, these payments could begin again, depending on whether the Supreme Court rules in favor of the Biden-Harris Administration’s federal student loan forgiveness plan. If the plan’s legality hasn’t been decided by June 30, 2023, loan payments will resume 60 days after that.

According to Bankrate, 40% of students who opted out of making monthly payments used the cash to cover household bills while 31% used it to cut down on other debt. Twenty-four percent opted to use the extra funds for housing and rent.

Uncle Sam did allow borrowers to keep repaying their loans, without interest, during the loan payment suspension period. But only about 1% of them continued to make payments on their student loans.

Even without a pandemic, paying back student loans can be difficult at times. A deferment is one option you have, whether you have a federal or private student loan, to avoid defaulting on your loans. But there are a number of caveats to be aware of.

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What is student loan deferment?

“Student loan deferment is a period of time where you’re permitted to cease making student loan payments, usually for up to three years,” says Marcos Cordero, chief executive officer at SavingforCollege.com. “For subsidized federal loans, you don’t have to pay interest; instead, the government foots the bill. Private and unsubsidized loans will accrue interest during loan deferment, which you’ll be responsible for paying once your deferment ends.”

Cordero points out an important distinction about student loan deferment—it doesn’t entail loan forgiveness. “You’ll still have to resume your payments once the deferment period ends,” he says.

Here are some of the reasons for which deferments are granted:

• Unemployment.
• Rehabilitation training.
• Economic hardship.
• Peace Corps service.
• Graduate fellowship.
• Cancer treatment.
• Active- and post-duty military service.

Keep in mind that student loan deferment is different from student loan forbearance. While both student loan programs enable borrowers to temporarily postpone or reduce federal student loan payments, deferment borrowers with subsidized government loans will see no interest accrue in their loan account.

In contrast, these borrowers who opt for student loan forbearance will see interest accrue in their loan accounts during the forbearance period. (For both deferment and forbearance, interest does accrue for unsubsidized government loans and private lender loans.)

Pros and cons of student loan deferments

At first glance, getting your student loan payments suspended seems like a good idea, especially if you’re facing significant financial woes. Having no monthly student loan payments means extra cash in the bank.

Not so fast. The reality is that deferments have myriad downsides. Here, Cordero shares some pros and cons of student loan deferments.

PROS	CONS
No obligation to make student loan payments for up to three years	Accrued interest can be costly for unsubsidized loans
No direct impact on credit score	Obligation to resume payments after the deferment period
Reduced stress	Deferment may not count toward eligibility for specific federal student loan forgiveness programs
More time to focus income on other pertinent expenses

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How to get a deferment

The first step in the student loan deferment process is to see if you’re eligible for payment suspensions.

There are some scenarios where deferments are easier to obtain. For example, federal student loans can be deferred while students are still in undergraduate or graduate school (you typically have to be enrolled at least half-time to qualify). Specific programs like active military service or Peace Corps deferments are also in play, as are loan deferment programs for borrowers suffering unique economic hardships or unemployment or who are suffering from a serious illness.

For federal loans, contact your loan servicer to discuss your situation or check out the U.S. Department of Federal Student Aid website and review the agency’s deferment form options. You’ll generally need to submit a deferment form to your servicer, but be sure to double-check the eligibility requirements first.

If you got your loan from a private lender, you might still be able to apply for deferment or forbearance. However, this will depend on if the lender provides these assistance options. Be sure to reach out to your lender to see what help might be available to you. Keep in mind that private deferment and forbearance are often approved on a case-by-case basis, so be prepared to explain your situation.

What else to know

Getting educated on how the process works can help you avoid making deal-breaking mistakes — before, during and after your deferment. Leverage these tips to get the job done right, or even to help you decide whether you need a deferment at all.

Make deferments a last resort

Just like those “break glass in emergency” signs in buildings, a student loan deferment should only be used if the borrower has no other recourse. This is because interest will often keep accruing during the deferment period, which will increase your overall interest charges and could extend your loan term.

For federal loans, it may be wiser to opt for an income-driven repayment (IDR) plan, particularly if cash-flow problems had you seeking a deferment in the first place. IDR plans cap your monthly dues at a percentage of your earnings and are better than deferments and forbearance plans because they keep you actively engaged in your repayment.

Keep paying while you are applying for deferment

Always ensure you make timely student loan payments while waiting for your lender’s decision. “Failure to do so could result in loan default,” Cordero says.

Stay ahead on interest payments

If your deferment is for a private loan or an unsubsidized federal loan, try your best to pay the accrued interest as you go. “Otherwise, you’ll be left with a massive bill at the end of the deferment period,” Cordero notes. “A nice bonus is that these payments are reported to the credit bureau, improving your credit history.”