Savanna Hoffman
Student loan deferment is a short-term solution for those facing financial difficulty. It allows qualified applicants to pause payments on their loans or reduce their payments for up to three years. Interest accrual during the deferment period depends on the type of loan. For subsidized federal loans or Perkins Loans, no interest accrues as the government pays the interest. However, for unsubsidized loans, interest does accrue and is added to the amount due at the end of the deferment period. The Biden Administration's SAVE Plan, which offered loan cancellation and zero monthly payments, was deemed unlawful by federal courts. As a result, borrowers in the SAVE Plan will see their loan balances grow when interest starts accruing.
Characteristics and Values Table
| Characteristics | Values |
|---|---|
| Student loan deferment | Pauses payments on student loans for up to three years for qualified applicants |
| Interest accrual during deferment | No interest accrues on federally subsidized loans as the government pays the interest; interest accrues on unsubsidized loans |
| Forbearance | A temporary fix for short-term financial difficulty; interest always accrues during forbearance |
| Income-driven repayment (IDR) plan | A better option for long-term financial difficulty |
| SAVE Plan | A Biden Administration plan to implement illegal student loan bailouts; blocked by federal courts in June 2024 |
| Current status of federal student loans | Payments will resume in October with a 12-month "on-ramp" to protect borrowers from default |
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What You'll Learn
Interest accrual on deferred student loans
Deferment and forbearance are two options for postponing student loan payments. However, interest accrual on deferred student loans depends on the type of loan and the borrower's eligibility.
During a period of deferment, qualified applicants can pause or reduce their monthly loan payments for up to three years. However, whether interest accrues during this period depends on the type of loan:
- Subsidized Federal Loans or Perkins Loans: No interest accrues on these loans during deferment. The government pays the interest, ensuring that the borrower owes the same amount at the end of the deferment as they did at the beginning.
- Unsubsidized Federal Loans: Interest does accrue on these loans during deferment. It is added to the loan amount due at the end of the deferment period, increasing the borrower's total debt.
Forbearance as an Alternative
Forbearance is another option for borrowers who do not qualify for deferment or need a temporary solution. However, interest always accrues during forbearance, increasing the total amount owed. While forbearance can be a less expensive option than taking out additional loans, it is not a sustainable long-term solution.
Recent Changes to Federal Student Loan Interest Rates
It is important to note that student loan interest rates have been a topic of discussion for the US government. During the COVID-19 emergency relief period, the interest rate on ED-owned student loans was automatically set at 0%. This period ended in September 2023, and borrowers are now responsible for paying interest again. Additionally, the Biden Administration's SAVE Plan, which offered a zero percent interest rate, was blocked by federal courts and deemed unlawful. As a result, interest will begin accruing on impacted loans starting on August 1, 2025.
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Interest-free periods during the pandemic
The US government paused federal student loan payments during the coronavirus outbreak. This pause included a suspension of interest accrual, meaning that borrowers did not accumulate interest during this time. This interest-free period began on March 13, 2020, and ended on September 30, 2020.
During the interest-free period, borrowers were not required to make monthly payments. However, those who were able to continue making payments benefited from paying off their loans faster and lowering the total cost of their loans over time.
Despite the initial pause, the government has since resumed student loan debt collections. As of July 2025, interest payments are expected to increase by thousands of dollars per year for borrowers. This has created a confusing and challenging landscape for borrowers, with default and delinquency rates on the rise.
To assist borrowers during the COVID-19 emergency relief period, the government implemented a 12-month "on-ramp" period. This period aimed to protect borrowers from the consequences of skipping student loan payments, such as default or credit harm. However, it is important to note that this "on-ramp" period was not a continuation of the interest-free pause during the pandemic.
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Student loan deferment criteria
The US Department of Education offers eligible federal student loan borrowers the option to defer their payments for a variety of reasons. These include economic hardship, cancer treatment, in-school deferment, military duty, and more. Each type of federal loan deferment has its own specific criteria.
For instance, if you are enrolled in an approved graduate fellowship program, typically for doctoral students, you may qualify for deferment for the duration of your program. Similarly, if you are enrolled in an approved rehabilitation training program for vocational, drug abuse, mental health, or alcohol abuse treatment, you may be eligible for deferred payments.
Students enrolled at least half-time at an eligible college or vocational school are automatically considered for loan deferment, with an additional six months of deferment after graduation, leaving school, or dropping below half-time status. The same criteria apply to parents who take out PLUS loans to help their children, except that parent PLUS borrower deferment is not automatic and must be applied for.
If you are receiving certain government benefits, such as welfare, or have earnings below 150% of the federal poverty guideline, you may be eligible for up to three years of deferment. Similarly, if you are serving in the Peace Corps or are on unemployment benefits, you may qualify for up to three years of deferment.
Active-duty military service members or those who have recently completed qualifying active-duty service may also qualify for deferment. This deferment lasts for 13 months after the conclusion of their service or until they return to college or career school on at least a half-time basis, whichever is earlier.
It is important to note that while federal loan deferment can be beneficial, it is not always available and may not be the best option for everyone. There are also forbearance options offered by loan servicers, which can be beneficial in cases of financial difficulties, changes in employment, or other challenges.
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Forbearance vs. deferment
Deferment and forbearance are two options available to borrowers who need to take a break from making payments on their student loans. While both options can be applied retroactively to prevent loan default in the event of missed payments, there are several key differences between the two.
Firstly, deferment is interest-free for certain types of federal loans, whereas interest accrues during forbearance. This means that deferment can be a more cost-effective option, especially for borrowers with subsidized federal student loans or Perkins loans. However, to qualify for deferment, borrowers must meet certain criteria, such as attending school at least half the time, being unemployed, receiving state or federal assistance, or experiencing significant financial hardship. On the other hand, forbearance may be a better option for borrowers who do not qualify for deferment and expect their financial challenges to be temporary.
For example, if a borrower has to pay an unexpected large medical bill and doesn't have enough money to cover this expense and their other bills, they can put their loans into forbearance. This will allow them to use the money that would have gone towards their student loan payment to cover their other expenses. While forbearance may result in additional interest costs, it can still be a less expensive option than taking out a payday loan or personal loan.
It's important to note that neither deferment nor forbearance is considered a good long-term solution. If borrowers anticipate that their financial situation will not improve, they may want to consider enrolling in an income-driven repayment plan instead of pausing repayment. Additionally, borrowers should remember that interest will accrue for most borrowers on a general forbearance, so it is not a completely cost-free option.
In conclusion, while both deferment and forbearance can provide temporary relief for borrowers struggling to make student loan payments, the right choice between the two will depend on the borrower's specific circumstances and the type of loan they have. Deferment can be a better option for those who qualify and have interest-free loans, while forbearance may be more suitable for temporary financial challenges or when deferment is not available. However, borrowers should also explore other alternatives, such as income-driven repayment plans, to find a long-term solution that fits their needs.
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Income-driven repayment plans
The US federal government has offered interest-free periods on student loans during the COVID-19 pandemic. From March 13, 2020, to the end of the COVID-19 emergency relief period, the interest rate on ED-owned student loans was automatically set at 0%. However, it's important to note that this interest-free period is not a continuation of the pandemic payment pause, and borrowers are encouraged to continue making payments if they are able to.
The US Department of Education offers several income-driven repayment plans for federal student loans. These plans are designed to make loan repayment more manageable for borrowers by capping monthly payments at a certain percentage of their discretionary income. Here is some information about the different income-driven repayment plans:
Income-Based Repayment (IBR) Plan:
The Income-Based Repayment (IBR) Plan is best suited for borrowers experiencing financial difficulties, with low incomes relative to their debt, or those pursuing careers in public service. This plan allows borrowers to make monthly payments based on their income and family size. It is important to note that borrowers are not locked into this plan and can choose to pay off their loans more rapidly if their circumstances change.
Income-Contingent Repayment (ICR) Plan:
The Income-Contingent Repayment (ICR) Plan is similar to the IBR plan, as it also caps monthly payments at a percentage of the borrower's discretionary income. However, the specific definition of discretionary income and the percentage cap may differ between the two plans.
Repayment Assistance Plan (RAP):
The Repayment Assistance Plan (RAP) is a new income-driven repayment option that will be available to borrowers from July 1, 2026. This plan counts toward Public Service Loan Forgiveness (PSLF) but has stricter eligibility rules. It is expected to be more expensive than existing IDR plans, and loan cancellation will only occur after 30 years of qualifying payments.
SAVE Plan:
The SAVE Plan, a Biden-era income-driven repayment option, has been blocked by a federal court order since June 2024. Interest started accruing on SAVE plans from August 1, 2025.
It is important to note that the income-driven repayment landscape is evolving. The One Big Beautiful Bill, or Big Bill, signed into law by President Donald Trump, will bring significant changes. This includes ending the SAVE Plan and other income-driven repayment plans, leaving only the IBR Plan and RAP Plans after July 1, 2028. Parent PLUS borrowers' repayment options will also be affected, with limited access to income-driven repayment plans.
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Frequently asked questions
Student loan deferment allows qualified applicants to stop making payments on their loans or reduce their payments for up to three years.
No interest accrues on federally subsidized loans during the deferment period because the government pays the interest. If the loans are unsubsidized, interest does accrue and is added to the amount due at the end of the deferment period.
You may qualify for student loan deferment based on the following:
- Attending school at least half-time
- Being unemployed
- Receiving state or federal assistance
- Earning a monthly income of less than 150% of your state's poverty guidelines
- Being on active military duty or in the Peace Corps
- Undergoing treatment for cancer
Deferment and forbearance can both postpone student loan payments when you cannot afford them. The main difference is that interest accrues during forbearance, while deferment is interest-free for certain types of federal loans.
The SAVE (Saving on a Valuable Education) Plan was announced by the Biden Administration as a way to implement illegal student loan bailouts. The plan offered loan cancellation and zero monthly payments, but multiple federal courts struck it down as unlawful. Borrowers in the SAVE Plan will be responsible for paying interest on their loans starting on August 1, 2025.
