Douglas Olsen
Student loan deferment is a way to temporarily reduce or postpone loan payments if you're returning to college, going to graduate school, or entering an internship, law clerkship, fellowship, or residency. While deferment can be a helpful short-term solution, it's important to note that interest will continue to accrue, increasing the total loan cost. Federal student loan forbearance is another option to pause payments for up to 12 months in cases of financial difficulty, but it also has limitations and may not be a long-term solution. To qualify for these options, borrowers typically need to meet certain requirements, such as making consecutive monthly payments on time and in full. Additionally, deferment and forbearance may not be indefinite, and borrowers should explore other repayment plans or solutions to manage their student loan payments effectively.
| Characteristics | Values |
|---|---|
| Student loan deferment | A temporary reduction or postponement of payments on your loan(s) if you’re returning to college, going to graduate school, or entering an internship, law clerkship, fellowship, or residency. |
| Student loan forbearance | A break in payments for a set amount of time, usually capped at 12 months. |
| Deferment request | Must be approved by the lender. |
| Deferment period | Can be removed at any time if the borrower wants to return to making principal and interest payments. |
| Re-requesting deferment | Can be done every 12 months until the maximum allowed months of deferment are reached. |
| Interest during deferment | Interest will continue to accrue during the deferment period, increasing the total loan cost. |
| In-school deferment | Depends on the number of credits/units taken. For example, taking 4 credits might cost $630 for the semester, while taking 6 units might cost $305 per semester. |
| Total deferment period | Up to 48 months for a Sallie Mae undergraduate or graduate student loan. |
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What You'll Learn
Student loan forbearance
Federal Student Loans
If you have a federal student loan, your loan servicer can grant forbearance for up to 12 months at a time. You will generally need to apply to your loan servicer for forbearance, often over the phone. You must continue making payments until you receive confirmation that your forbearance request has been approved. Interest will continue to accrue during forbearance, and you can choose to pay this interest or have it added to your loan balance when the forbearance period ends.
Private Student Loans
Private student loan forbearance varies and is typically more limited than federal loan forbearance. The terms and fees associated with postponing private student loan payments depend on your contract and applicable laws. These terms may differ for each loan servicer and may not be as favourable as those for federal student loans.
Deferment
As an alternative to forbearance, you may be able to enrol in a deferment plan. A deferment allows you to temporarily reduce or postpone loan payments if you're returning to college, attending graduate school, or entering an internship, law clerkship, fellowship, or residency. Unlike forbearance, interest does not accrue during deferment on subsidized federal student loans. However, interest will continue to accrue on other types of loans, including unsubsidized federal loans and private loans, increasing your total loan cost.
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Student loan deferment
A student loan deferment allows you to temporarily reduce or postpone loan payments if you're returning to college, attending graduate school, or entering an internship, law clerkship, fellowship, or residency. Deferment lets you avoid making principal and interest payments during this period. However, it's important to note that interest will continue to accrue, increasing your total loan cost.
To request a deferment, you must apply to your loan servicer, and you should continue making payments until your deferment is approved. You can request deferment for up to 48 months for undergraduate or graduate student loans, provided you're enrolled at least half-time. Your school's enrollment verification is typically required for approval.
The terms of deferment vary between lenders. For federal loans, you don't have to pay interest during deferment if you have a subsidized loan. In contrast, you are responsible for the interest if you have an unsubsidized loan. Private student loans may or may not offer deferment options, and the rules differ among lenders. It's advisable to contact your loan servicer early on to explore this option and understand the associated terms and fees.
While deferment provides temporary relief from loan payments, it's important to be mindful of the potential long-term costs due to accruing interest. Forbearance could be another option if you're facing challenges in repaying your federal student loans. Additionally, exploring income-driven repayment plans can help identify alternatives that better suit your financial circumstances.
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Interest accrual
The interest rate on a student loan is a percentage of the amount borrowed that must be paid back in addition to the principal. Interest accrual begins when a private student loan is disbursed, but payments may be deferred while a borrower is in school. The annual percentage rate (APR) is divided by 365 days to determine a daily interest rate, and interest is charged each day on the total amount owed. This interest is added to the total balance, and the borrower is charged interest on the new balance, resulting in interest accruing on interest until the loan is paid off. This is known as capitalization, and it can make understanding student loan interest rates challenging.
The interest rate on a loan is influenced by various factors, including market conditions, loan type (federal or private), loan term, income, credit history, and the income and credit history of a cosigner. Typically, a shorter loan term, higher income, and better credit score contribute to a lower student loan interest rate. Federal student loans offer fixed rates set annually, resulting in a fixed monthly payment over the life of the loan.
Private student loans may have fixed or variable interest rates, with most private lenders using a base rate plus the SOFR rate determined by a group of banks. Variable-rate student loans can lead to fluctuating monthly payments as the interest rate changes, although there are usually caps on how much the rate can rise. Understanding when interest starts accruing and how it is capitalized is crucial for managing repayment effectively.
Deferment allows borrowers to temporarily postpone loan payments due to qualifying circumstances such as returning to school, unemployment, economic hardship, or active military duty. For subsidized federal loans, deferment can also pause interest accrual. However, with private student loans, interest may continue to accrue during deferment, increasing the total loan cost. Making extra interest payments during deferment can help lower the total loan cost.
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Repayment options
If you are finding it difficult to make your student loan payments, there are several options available to you. Firstly, you can consider applying for a deferment, which allows you to temporarily reduce or postpone your payments. A deferment can be requested if you are returning to college, attending graduate school, or entering an internship, law clerkship, fellowship, or residency program. During the deferment period, you won't be required to make principal and interest payments, but interest will continue to accrue, increasing your total loan cost. The maximum allowed deferment period is 48 months for undergraduate and graduate student loans, and you must be enrolled at least half-time.
Additionally, there are various repayment plans offered by the U.S. Department of Education, such as the Income-Based Repayment Plan, Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) Plan. These plans are designed to help borrowers better manage their loan repayments by offering flexible options based on income. Borrowers can use the Loan Simulator to compare available repayment plans, estimate monthly payments, and determine their eligibility for different plans.
If you are a member of the military, you may be eligible for benefits under the SCRA program, which can provide assistance with student loan repayments.
It is important to note that borrowers in the SAVE Plan should consider transitioning to a legally compliant repayment plan, as the SAVE Plan has been deemed illegal by federal courts. This plan does not provide access to important loan benefits and does not facilitate progress toward loan discharge programs.
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Eligibility criteria
The most common ways to delay student loan payments are student loan forbearance and student loan deferment. However, eligibility criteria for these options vary.
Student Loan Forbearance
Student loan forbearance is when your lender allows you to pause or reduce your payments for a set amount of time, usually up to 12 months. Forbearance is typically capped at 12 months, and there is a limit to how many times you can request it. Federal student loan forbearance is limited to 12 months, while private student loan forbearance depends on your lender. To qualify for forbearance, you generally must demonstrate financial hardship or other valid reasons for needing a break in payments. There are two types of forbearance available to federal borrowers: general forbearance and mandatory forbearance. General forbearance may be granted if you face sickness, job loss, financial troubles, or other extenuating circumstances. Mandatory forbearance is typically reserved for federal programs such as AmeriCorps, the National Guard, or Medical Residency. To be eligible for mandatory forbearance, you must meet the requirements of the specific program.
Student Loan Deferment
Student loan deferment allows you to temporarily postpone or reduce your loan payments if you are returning to college, attending graduate school, or participating in an internship, law clerkship, fellowship, or residency program. Deferment requests are typically valid for up to 48 months for undergraduate or graduate student loans, provided you are enrolled at least half-time. To qualify for deferment, your school must verify your enrollment, either electronically or through a submitted form. During the deferment period, interest will continue to accrue, increasing your total loan cost. Additionally, you may be required to continue making interest payments during this time. It is important to note that deferment does not count toward the loan forgiveness period; it only pauses the payments.
Other Considerations
While forbearance and deferment can provide temporary relief, they are not long-term solutions. Before applying for these options, explore other repayment plans, such as income-driven repayment plans. Additionally, some lenders may require you to have made a minimum of six consecutive monthly payments on time and in full to qualify for forbearance or deferment. It is essential to understand the specific eligibility criteria and potential limitations of each option before making a decision.
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Frequently asked questions
You may be able to delay your student loan payments through student loan forbearance or deferment, but the amount of money you can pay monthly during this period is unlikely to be as low as $5. Federal student loan forbearance is capped at 12 months and private student loan forbearance depends on your lender. Deferment lets you temporarily reduce or postpone payments on your loan(s) if you’re returning to college, going to graduate school, or entering an internship, law clerkship, fellowship, or residency.
To qualify for student loan forbearance, you must make at least 6 consecutive monthly payments on time and in full. Forbearance is a good option if you’re facing an emergency and need a short-term solution.
To qualify for student loan deferment, you must be enrolled at least half-time in a college or graduate school program. You will need your school to verify your enrollment.
