- 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 if you lose your job, if you are getting treatment for cancer and if you are in the military.
During the 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, those payments will be due again as of Aug. 31, 2022.
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:
Peace Corps service
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.
No obligation to make student loan payments for up to three years
No direct impact on credit score
More time to focus income on other pertinent expenses
Accrued interest can be costly for unsubsidized loans
Obligation to resume payments after the deferment period
Deferment may not count toward eligibility for specific federal student loan forgiveness programs
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.
“Thoroughly explain your financial situation in requesting the deferment. Your servicer would then direct you to complete and submit a form in most cases,” says Andrew Pentis, certified student loan counselor at Student Loan Hero.
Pentis says it’s a good idea to review the eligibility requirements for deferments at StudentAid.gov before you take the steps of completing the form.
What if you got your loan from a private lender? “Deferments aren’t awarded blindly or automatically, and that’s especially true with private lenders that generally don’t share eligibility criteria as transparently,” Pentis says. “Banks, credit unions and other lenders often award deferments and forbearances on a case-by-case basis, meaning that you’ll have to state your case.”
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.
“That’s because taking a break from repayment will increase the amount of interest you owe on your debt and extend your loan term,” says Pentis.
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.”