What is student loan deferment?

Featured

Written by:

Student loan deferment allows you to postpone student loan payments temporarily. You can often defer student loans while you’re enrolled in school, but you might also qualify due to financial hardship or other reasons. While student loan deferment can offer financial relief, it’s not without its downsides. Your student loans might accrue interest during this period, making your loan more expensive overall. Let’s take a closer look at student loan deferment, including your options for both federal and private student loans. 

Related: Quiz: Should I refinance my student loans?

Image Credit: Damir Khabirov / istockphoto.

What Is Student Loan Deferment?

______________________

SPONSORED: Find a Qualified Financial Advisor

1. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you're ready to be matched with local advisors that can help you achieve your financial goals get started now.

______________________

 

 

 

Paying off student loans fast is clearly the best option. But sometimes it’s just not possible. Deferment allows you to pause payments on your student loans without penalty. Unless you’re still enrolled in school, most student loan deferments are not automatic. 

You’ll often need to request a deferment and get it approved by your loan servicer before you can stop making payments. Deferring student loans is usually a temporary measure until you graduate or can resume repayment for another reason. Most federal student loans are eligible for deferment if you have a qualifying circumstance. 

Some private lenders will also let you defer payments on your student loans temporarily, though this varies by lender. Although deferring student loans can be the right choice in certain circumstances, it can have negative consequences. Most loans, such as direct unsubsidized loans and private student loans, accrue interest during deferment. As a result, you could face a bigger balance at the end of your deferment than you started with. 

To avoid these problems, students often pursue scholarships. But they are not always possible.

Image Credit: DepositPhotos.com.

Considerations Before Student Loan Deferment

Now that you know the answer to “What is student loan deferment,” it’s time to delve into the details. Before requesting a student loan deferment, consider the following questions to make sure it’s the right move for you. 

Image Credit: simonapilolla / istockphoto.

Are Your Loans Subsidized Federal Loans or Perkins Loan?

While direct unsubsidized loans accrue interest during deferment, direct subsidized loans and Perkins loans do not. If you have either of these loan types, the federal government will cover any interest charges that accrue during a deferment. 

As a result, your balance won’t grow while your payments are on pause. As mentioned, however, interest charges will add up on other loan types, such as unsubsidized loans, parent PLUS loans, or grad PLUS loans. 

Image Credit: tommaso79/ iStock.

Can You Afford a Reduced Loan Payment?

Instead of pausing payments completely, you might consider reducing your loan payments with a new repayment plan. Federal student loans are eligible for income-driven repayment plans, such as Pay As You Earn (PAYE) and Income-Based Repayment (IBR). Income-driven plans cap your monthly payments as a percentage of your discretionary income while extending your loan terms to 20 or 25 years. 

If you can afford this lower monthly payment, it might be a preferable option to pausing payments completely with deferment. 

Not only will you be making some progress on debt repayment, but you could also qualify for loan forgiveness if you still have a balance at the end of your term. 

Image Credit: depositphotos.com.

Can You Restart Payment Soon After Deferment?

If you’ll be able to resume payments on your loans soon, student loan deferral could be a helpful strategy. But it’s not meant to be a long-term solution to your student loans. A deferment will end eventually, so it’s important to come up with a plan for dealing with your student loans. An income-driven plan, for example, might be a better approach in the long run. 

Image Credit: DepositPhotos.com.

Qualifying for a Student Loan Deferment

Unless you qualify for in-school deferment, you’ll need to get approved to get your student loans deferred. The steps you need to take will depend on whether you have federal or private student loans. 

Image Credit: DepositPhotos.com.

Federal Student Loan Deferment

With the exception of in-school deferment, you’ll need to apply to postpone payments on your federal loans. To get started, head to the Federal Student Aid Repayment Forms website. Once there, you can click on “Deferment” and fill out an application. Since there are different circumstances that qualify for deferment, you’ll choose the application that matches yours. Along with filling out this form, it could also be worth contacting your loan servicer for guidance.

Image Credit: fizkes / istockphoto.

Private Student Loan Deferment

There are many issues to consider in federal vs. private student loans. Some private lenders also offer student loan deferment, though it’s not guaranteed. You’ll need to contact your loan servicer to discuss your options. You might also be able to find information on deferment options on your lender’s website. 

Some common reasons for private student loan deferment are being enrolled in school, serving in the military, or experiencing unemployment or financial hardship. Note that some lenders might use the term forbearance rather than deferment. 

Unlike federal subsidized loans, private student loans typically accrue interest during deferment. If you can swing interest-only payments during this time, you can prevent your balance from ballooning. 

Image Credit: DepositPhotos.com.

Types of Federal Student Loan Deferment

There are a variety of reasons you could qualify to defer your federal student loans. 

Image Credit: GaudiLab / istockphoto.

1. In-School Student Deferment

Direct subsidized loans, direct unsubsidized loans, grad PLUS loans, and most private student loans are automatically placed in deferment while you’re enrolled at least half-time in school and for six months afterward. This period is known as your grace period. While you’re not required to make payments, you could consider voluntarily making payments during this time.

You might also qualify for deferment if you’re enrolled in an approved graduate fellowship program, but you’ll need to request it. 

Image Credit: DepositPhotos.com.

2. In-School Parent Deferment

Unlike other federal student loans, parent PLUS loans are not automatically placed in deferment. Parent PLUS borrowers must make payments right away unless they request deferment while their child is in school and for six months after they graduate or drop below half-time enrollment. 

Image Credit: DepositPhotos.com.

3. Unemployment Deferment

Borrowers who are receiving unemployment or unable to find a full-time job might qualify for student loan deferment for up to three years. If you took out loans prior to July 1, 1993, it could also be worth reaching out to your loan servicer to see if you’re eligible for additional deferment options. 

Image Credit: AndreyPopov / istockphoto.

4. Economic Hardship Deferment

You can defer your federal student loans for up to three years if you qualify for economic hardship. You might be eligible if you’re receiving certain benefits such as welfare or work full-time but earn less than 150% of the poverty guideline for your family size and state of residence.

You’ll need to reapply for economic hardship deferment on an annual basis. 

Image Credit: DepositPhotos.com.

5. Peace Corps Deferment

If you’re serving in the Peace Corps, you might also qualify for economic hardship deferment for up to three years. In this situation, however, you wouldn’t need to reapply for the deferment every year. 

Image Credit: yacobchuk / istockphoto.

6. Military Deferment

Student loan borrowers on active duty could also qualify for student loan deferral. If you’re on active duty military service in connection with a war, military operation, or national emergency, you could defer your student loans during this time and for 13 months after you complete your service. 

Image Credit: DepositPhotos.com.

7. Cancer Treatment Deferment

Borrowers who are undergoing cancer treatment can make a Cancer Treatment Deferment Request to pause their student loans deferred while they’re undergoing treatment and for six months afterward. 

Image Credit: DepositPhotos.com.

8. Rehabilitation Training Deferment

The Department of Education also offers deferment options to borrowers who are enrolled in an approved rehabilitation training program for the purpose of providing treatment for vocational, drug abuse, mental health, or alcohol abuse.

Image Credit: istockphoto.

The Cost of Student Loan Deferment

Although it can provide some immediate financial relief, student loan deferral can cost you overall. Unless you have direct subsidized loans, interest will keep adding up on your student loans. Often, that interest is capitalized, or added on to, your balance at the end of your deferment. Essentially, you end up paying interest on top of interest, resulting in a costlier loan. 

Let’s say, for example, that you owe $30,000 in student loans with a 5.0% interest rate on a 10-year repayment term. If you defer payments for three years, your loan will accrue $4,500 in interest charges. When the deferment ends, you’ll face a $34,500 balance, and your monthly payment will increase by almost $50. 

Before requesting student loan deferment, it could be worth crunching the numbers with a student loan calculator to see if pausing your payments is worth the extra interest costs. 

Image Credit: DepositPhotos.com.

The Takeaway

Pausing payments through deferment isn’t the only strategy for managing student loans. Depending on your credit rating and income, you could qualify for a lower interest rate if you refinance your student loans. Along with lowering your rate, you’ll get the chance to restructure your debt with new repayment terms. 

There are benefits to refinancing student loans. Refinancing isn’t the right choice for everyone, however. If you refinance federal student loans, for example, you lose access to federal benefits, including federal deferment, income-driven plans, and forgiveness programs. Make sure you’re comfortable sacrificing federal perks before making changes to your federal student loans. 

Learn More:

This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.

Lantern by SoFi:

This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org)

All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.

*Check your rate: To check the rates and terms you qualify for, Lantern and/or its network lenders conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.

Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Personal Loan:

SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and DisclosuresTerms of Service, and Privacy Policy.

Personal loan offers provided to customers on Lantern do not exceed 35.99% APR. An example of total amount paid on a personal loan of $10,000 for a term of 36 months at a rate of 10% would be equivalent to $11,616.12 over the 36 month life of the loan.

Student Loan Refinance:

SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and DisclosuresTerms of Service, and Privacy Policy.

Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).

Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 05/01/22. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.

Auto Loan Refinance:

Automobile refinancing loan information presented on this Lantern website is from Caribou. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.

Secured Lending Disclosure:

Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.

Life Insurance:

Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC. Click here to view our licenses.

Image Credit: DepositPhotos.com.

More from MediaFeed

What happens to your debt when you die?

Image Credit: DepositPhotos.com.

AlertMe