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Student loan deferment is a temporary postponement of loan payments for specific situations, such as returning to college, serving in the military, or financial hardship. During deferment, interest may accrue, increasing the total loan cost. Deferment requests are typically made to the loan servicer, and payments must continue until the request is approved. While deferment provides temporary relief, it is important to understand that it does not cancel the loan; the loan payments are simply paused, and the loan terms remain unchanged.
| Characteristics | Values |
|---|---|
| Definition | Student loan 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. |
| Application | You can apply for this type of deferment in increments of up to 12 months, up to a maximum of 60 months for undergraduate student loans and up to a maximum of 48 months for graduate school loans. |
| Interest | For most loans (except subsidized loans), interest accrues even during the deferment period. If you have a subsidized loan, you don't have to pay interest on the loan during deferment. |
| Request | To request a deferment, you must submit a form and continue making payments until notified of approval. |
| Removal | You can ask to have the deferment removed at any time if you want to return to making principal and interest payments. |
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What You'll Learn
Interest accrual during deferment
Deferment allows you to temporarily postpone or reduce payments on your student loans. During this time, interest will continue to accrue and grow your total loan cost. This means that interest will be added to your loan's current principal, and from that point, your interest will be calculated on this new amount. This is known as capitalized interest.
For example, if you have chosen the interest repayment option for your student loans, your interest will not capitalize as you have paid it as it accrued throughout school. However, if you are making fixed payments or deferring payments until after school, you can make additional payments to lower your total loan cost. Alternatively, you can pay all or some of your accrued interest before your grace period ends and interest capitalizes to avoid or lower the amount of capitalized interest.
Additionally, there are different types of interest rates that can affect interest accrual during deferment. Fixed interest rates stay the same for the life of the loan, while variable interest rates may change due to increases or decreases in the loan's index. Variable-rate loans applied for on or after April 1, 2021, use the Secured Overnight Financing Rate (SOFR), while those applied for before that date used the London Interbank Offered Rate (LIBOR).
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Maximum deferment period
Deferment allows you to temporarily reduce or postpone payments on your student loans in special circumstances, such as returning to college, attending graduate school, or entering an internship, law clerkship, fellowship, or residency program.
The maximum deferment period for undergraduate student loans is typically 60 months, with a 48-month maximum for graduate student loans. For specific programs like the Sallie Mae Medical School Loan, Dental School Loan, Health Professions Graduate Loan, Law School Loan, and Graduate School Loan, the maximum deferment period is 48 months.
You can request deferment in increments of up to 12 months and re-request it every 12 months until you reach your maximum allowed months. It's important to note that interest will continue to accrue during the deferment period, increasing your total loan cost.
While in deferment, you can make extra interest payments to lower your total loan cost. Additionally, you can request to have the deferment period removed at any time if you wish to resume principal and interest payments.
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Deferment approval
During a deferment, you won't be required to make payments on the principal and interest of your loan. However, interest may continue to accrue, increasing your total loan cost. There are exceptions, such as the federal Perkins loan and subsidized Stafford or direct loans, where the Department of Education pays the interest during the deferment period.
To request a deferment, you must apply with your loan servicer. You can re-request a deferment every 12 months until you reach your maximum allowed months. It's important to note that you must continue making payments until you receive notification that your deferment has been approved.
If you're having difficulty making payments, there may be other options available, such as refinancing to a longer term to lower your monthly payments or applying for forbearance if you're unable to pay your federal student loans.
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Cancelling deferment
First, it is important to contact the loan servicer and inform them of the decision to cancel the deferment. The borrower must continue to make payments until officially notified that the deferment cancellation has been approved. This process may vary depending on the loan servicer and the specific loan agreement.
Second, by cancelling the deferment, the borrower will be responsible for making regular payments according to the initial repayment plan chosen. This includes paying both the principal and interest on the loan. If the borrower had an unsubsidized loan, they will also be responsible for any interest that accrued during the deferment period. This will increase the overall loan cost.
Third, there may be specific forms or documentation required to cancel the deferment. It is important to review the loan agreement and contact the loan servicer to understand the exact process and requirements for cancelling the deferment. This may include submitting a request form or providing certain types of documentation.
Fourth, it's important to consider the financial implications of cancelling the deferment. Returning to regular payments may be a financial burden, especially if the borrower's financial circumstances have not improved since initially requesting the deferment. In this case, it may be beneficial to explore other options, such as income-driven repayment plans or forbearance, to ease the burden of loan payments.
Finally, it's worth noting that cancelling a deferment may not be the only option for borrowers who want to resume making payments. Some loan servicers may allow borrowers to make extra interest payments during the deferment period, which can help lower the total loan cost. This can be a good option for borrowers who want to reduce their debt but are not yet financially able to resume full payments. Cancelling a deferment should be done only after careful consideration of one's financial situation and an understanding of the terms and conditions of the loan agreement. It is always recommended to stay in communication with the loan servicer to explore the best options available.
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Federal vs. private loans
Deferment is a way 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. While federal loans may qualify for mandatory forbearance, private lenders may also offer deferment or forbearance. Federal Direct Subsidized or Perkins Loans do not accrue interest during deferment, and the Department of Education pays the interest for subsidized loans.
Federal loans are funded by the federal government, and there are several types, including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans. Federal loans typically offer more flexible repayment options and borrower benefits than private loans, such as income-driven repayment plans, loan forgiveness programs, and deferment or forbearance options. Federal loans also often have lower interest rates and fees than private loans. However, federal loan amounts may be limited, and the application process may require completing the Free Application for Federal Student Aid (FAFSA).
Private loans, on the other hand, are offered by private financial institutions, such as banks or credit unions. Private loans can be used to cover educational expenses not met by federal loans and may offer higher loan amounts. Private loans may also have fewer eligibility requirements, and the application process may be simpler than for federal loans. However, private loans generally have higher interest rates and fees, and they typically lack the same borrower benefits as federal loans, such as income-driven repayment plans and loan forgiveness programs. Private loans may also have variable interest rates that can increase over time.
When considering federal vs. private loans, it's important to understand the differences in terms of eligibility, repayment options, interest rates, fees, and borrower benefits. Federal loans often provide more flexibility and protection for borrowers, while private loans may offer higher loan amounts and simpler application processes. It's recommended to explore federal loan options first and then consider private loans to cover any remaining costs. Additionally, refinancing federal or private loans can result in lower monthly payments or interest rates, but it may lead to the loss of certain benefits associated with federal loans.
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Frequently asked questions
Student loan deferment is a temporary 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.
You can apply for student loan deferment with your loan servicer. You must continue making payments until you have been notified that your deferment has been approved.
No, paying off your student loan does not cancel the deferment. The deferment is a temporary pause on your payments, and once your loan is paid off, the deferment period will end.
