Janice Lozano
Deferment is an option for those facing financial hardship and needing temporary relief from student loan payments. While deferment allows you to suspend or reduce payments, it is beneficial to continue making payments if possible, as this will lower your overall balance and prevent interest accrual from increasing the total loan cost. For federal loans, you must request a deferment and prove eligibility, while private loan deferment options are more limited. Understanding the implications of deferment and exploring alternative repayment plans is essential before seeking this option.
| Characteristics | Values |
|---|---|
| Can you pay on student loans while in deferment? | Yes, you can pay down student loans while in deferment. |
| Should you pay on student loans while in deferment? | Yes, it is advisable to continue making payments if you can. |
| Why should you pay on student loans while in deferment? | To reduce the total loan cost and keep your overall balance low. |
| How does deferment affect your credit score? | Deferment will not hurt your credit score, but it will be visible to prospective lenders. |
| How long can you defer student loans? | You can defer federal student loans for up to three years and Sallie Mae student loans for up to 48 months. |
| What is the process to defer student loans? | You need to request a deferment by submitting a form to your student loan servicer, proving that you meet the eligibility requirements. |
| What happens if my deferment request is approved? | You don't have to make principal and interest payments during the deferment period, but interest may continue to accrue, increasing the total loan cost. |
| What happens if I don't want deferment anymore? | You can ask to have the deferment removed at any time to return to making principal and interest payments. |
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What You'll Learn
Benefits of continuing to pay loans in deferment
Deferment allows you to temporarily reduce or postpone payments on your student loans in special circumstances. However, interest will continue to accrue while you're in deferment, which will increase your total loan cost. Here are some benefits of continuing to pay loans during deferment:
Avoid Capitalized Interest
If you have unsubsidized loans, interest continues to accumulate during the deferment period and will be capitalized (added to the principal balance) at the end of the deferment. By making payments during deferment, you can avoid this capitalized interest, reducing your total loan cost.
Lower Total Loan Cost
Regardless of whether you have subsidized or unsubsidized loans, making payments during deferment can help lower the total cost of your loan. By paying towards your loan, you can reduce the principal balance, which will decrease the overall amount you pay over the life of the loan.
Stay Ahead of Your Payments
Continuing to make payments during deferment can help you stay ahead of your loan repayment schedule. This can reduce the financial burden once the deferment period ends, as you will have already made progress in paying down your debt.
Maintain Financial Discipline
Making payments during deferment requires financial discipline and demonstrates a commitment to managing your debt. By continuing to make payments, you maintain this discipline and build good financial habits that can benefit you in the long run.
Take Advantage of Flexible Repayment Options
Many lenders offer flexible repayment options during deferment. For example, you may be able to make interest-only or fixed payments during this period. By taking advantage of these options and continuing to make payments, you can better manage your loan repayment and reduce the overall cost.
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Interest accrual during deferment
Whether or not your student loans accrue interest during deferment depends on the type of loan you have. If you have a subsidised loan, it should retain its in-school interest subsidy while in deferment. However, all other loan types will accrue interest on a daily basis, according to the simple interest formula. This means that interest on unsubsidised loans starts to accrue as soon as the loan is disbursed.
For example, if you are in grad school and have loans in deferment from undergrad, any subsidised loans will not accrue interest. However, any unsubsidised loans will accrue interest daily.
It is important to note that the specific terms of your loan may vary, so it is always a good idea to log into your student loan account and review the details of your loan to understand exactly how interest is accruing. This will help you make informed decisions about managing your student loan debt.
Additionally, there may be other options available to help manage your student loan debt, such as income-driven repayment plans or loan forgiveness programmes, depending on your specific circumstances and the country you reside in. These options can provide alternative pathways to managing your student loan debt and should be explored to identify the best course of action for your situation.
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Eligibility for deferment
Eligibility for student loan deferment depends on the type of loan and the borrower's circumstances. Deferment allows borrowers to postpone their loan payments for a specific period, during which interest may continue to accrue, increasing the total loan cost.
For federal student loans, eligibility requirements vary, and borrowers must submit a request along with supporting documentation. Here are some common eligibility criteria for federal student loan deferment:
- In-School Deferment: Borrowers enrolled at least half-time in an eligible school can qualify for in-school deferment.
- Military Service and Post-Active-Duty Deferment: Active-duty military members may be eligible for deferment during their service, and those returning from duty can receive an additional 13-month deferment.
- Parent PLUS Borrower Deferment: Parents who took out Parent PLUS loans can request deferment while their child is enrolled at least half-time and up to six months afterward.
- Rehabilitation Training Deferment: Borrowers enrolled in approved rehabilitation programs for drug, mental health, or alcohol issues may qualify for deferment.
- Unemployment Deferment: Individuals receiving unemployment benefits or actively seeking full-time employment may be eligible for up to three years of deferment.
- Economic Hardship Deferment: Borrowers facing financial difficulties, such as earning below 150% of the poverty guideline or receiving means-tested benefits, may qualify for up to three years of deferment.
- Cancer Treatment Deferment: Borrowers undergoing cancer treatment and for up to six months afterward may qualify for deferment.
- Graduate Fellowship Deferment: Graduate students enrolled in approved fellowship programs may be eligible for deferment.
For private student loans, such as those offered by Sallie Mae, eligibility for deferment may vary. For undergraduate and graduate student loans, borrowers can request a deferment of up to 48 months while enrolled at least half-time. During internships, law clerkships, fellowships, or residencies, borrowers may also be eligible for deferment.
It's important to note that deferment criteria can vary by loan provider, and borrowers should carefully review the requirements and consult their loan servicer for specific eligibility information.
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Federal vs. private student loan deferment
Deferment allows you to temporarily postpone or reduce loan payments. Federal and private student loans offer deferment options, but there are differences in the specific terms and conditions.
For federal student loans, deferment is generally available for students who are still enrolled in school at least half-time, returning to college, going to graduate school, or participating in certain internships, residencies, or fellowship programs. The maximum deferment period for undergraduate federal loans is 60 months, and during this time, interest continues to accrue, increasing the total loan cost. After the deferment period ends, the loan returns to the initial repayment terms.
Private student loan deferment options and requirements can vary by lender. For example, Sallie Mae, a private student loan provider, offers deferment for undergraduate and graduate loans of up to 48 months if the borrower is enrolled at least half-time. Similar to federal loans, interest continues to accrue during the deferment period, increasing the total loan cost. Additionally, Sallie Mae offers deferment for specific graduate programs, such as law, medical, and dental school, with a maximum deferment period of 48 months.
It's important to note that private lenders may have different criteria for approving deferment requests. For instance, some private lenders might require the borrower to be enrolled in a program that requires a bachelor's degree as a prerequisite. Borrowers should carefully review the terms and conditions of their private student loans and contact the lender directly to understand their specific deferment options and requirements.
In summary, both federal and private student loans offer deferment options, but the specific terms and eligibility criteria may differ. Borrowers should understand the implications of deferment, such as continued interest accrual, and explore other alternatives offered by their lenders, such as forbearance or income-driven repayment plans, to make an informed decision regarding their loan repayment strategy.
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Forbearance as an alternative
Forbearance is another option to consider when thinking about pausing student loan payments. It refers to a temporary postponement or reduction of monthly payments due to financial hardship or other qualifying circumstances. Forbearance can be a good short-term strategy to maintain good standing and avoid delinquency, which can harm your credit score and lead to long-term financial damage. However, it is not a long-term solution as interest continues to accrue across all loan types, increasing the amount you owe over time.
There are different types of forbearance, each with its own eligibility requirements and time limits. For federal loans, forbearance can be approved in increments of up to 12 months, with a lifetime cap of three years in total. Mandatory forbearances follow the 12-month rule but can be renewed if eligibility continues. For private loans, the terms depend on the lender and loan program.
To apply for forbearance, communicate early and openly with your loan servicer to understand your options and eligibility. You will need to fill out the relevant forbearance request form and provide supporting documentation, such as a layoff letter, medical bills, or pay stubs. Remember that forbearance should be a temporary bridge and not a long-term crutch.
When deciding between deferment and forbearance, it is essential to consider your loan type and financial circumstances. While forbearance allows you to pause or reduce payments, interest continues to accrue, which can increase your overall loan balance. On the other hand, deferment may offer a more cost-effective solution, especially for subsidized federal loans, as interest does not accrue during this period. Ultimately, the choice between deferment and forbearance depends on your eligibility and specific needs.
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Frequently asked questions
Deferment is a temporary pause to your student loan payments for specific situations such as active-duty military service and reenrollment in school.
Yes, you can pay down student loans while in deferment. In fact, it is advisable to continue making payments to keep your overall balance low.
If you are responsible for the interest that accrues while your student loan is in deferment, making payments toward your loan will be to your advantage. For example, if you borrow $37,000 at an interest rate of 4.45% for 10 years, you will pay $8,908 in interest. If the length of the loan is extended through deferment, it will continue accruing interest, increasing the total cost of the loan.
You can apply for a deferment with your loan servicer, and you must continue to make payments until you've been notified that your deferment has been approved. In most cases, deferments are not automatic, and you will need to submit a request proving that you meet the eligibility requirements.
