University Of People: Defer Student Loans?

The University of the People is a tuition-free, online educational institution that offers US-accredited degree programs. Students do not need to take out student loans or pay them back. However, for those who have existing student loans, deferment is a way to delay repayment for a specific period. This can be done through traditional deferment programs or refinancing with a new lender for a lower interest rate. Federal student loans may qualify for a deferment period of up to three years, while private student loan deferment options vary by lender.

Pros and cons of deferring student loans

Deferring student loans can be a great option for those who need to focus on their studies without the burden of loan repayments. It is a common way for students to reduce stress and gain a financial break while they return to school. However, it is important to understand the potential pros and cons of deferment before making any decisions.

Pros of Deferring Student Loans:

• Deferment often happens automatically if you are enrolled in school, even part-time.
• It gives you a break from making payments, allowing you to focus on your studies without working.
• With a subsidized federal loan, the government may pay the interest during the deferment period, so your loan amount doesn't increase.
• Deferment plans can come with federal benefits, such as income-based repayment plans.
• You may be eligible for deferment if you are experiencing financial troubles, are unemployed, or are a graduate in a fellowship program.

Cons of Deferring Student Loans:

• Interest may build up if you have federal loans that are not subsidized. The more you defer, the more interest rates grow, increasing your loan amount.
• Deferring means you are not making progress in paying back your loans, and it can give a false sense of financial freedom when budgeting.
• Adding more years to your deferment plan may lead to paying more interest over time.

While deferment can provide much-needed financial relief, it is important to consider the potential long-term costs and explore all options, such as income-driven repayment plans or refinancing, to make an informed decision.

How to apply for a student loan deferment

A student loan deferment can be a great way to reduce financial stress while you focus on your studies. It offers you a set period of time to stop paying back your loan, and in some cases, it can be interest-free. Here's a step-by-step guide on how to apply for a student loan deferment:

Step 1: Check Your Eligibility

Before applying for a deferment, it's important to make sure you are eligible. Generally, if you are enrolled at a qualified university, either full-time or part-time, you are eligible to apply. Other common eligibility criteria include being unemployed and actively seeking a job, experiencing financial difficulties, being a graduate in a fellowship program, being a volunteer in specific organizations like the Peace Corps, or being enrolled in the military.

Step 2: Understand the Process

Student loan deferments are typically applied for directly through your loan servicer. You will need to provide proof of your eligibility, such as enrolment in a qualified university or documentation of your financial situation. It's important to note that deferments are not always automatic, so you may need to take proactive steps to initiate the process.

Step 3: Enroll in a Qualified University

If you are applying for a deferment based on your student status, you will need to be enrolled in a qualified university. In some cases, you may need to be enrolled full-time to be eligible for a deferment. Make sure to check the specific requirements of your loan servicer.

Step 4: Gather the Necessary Documentation

As mentioned, you will need to provide proof of your eligibility for the deferment. This could include transcripts, enrolment verification letters, financial statements, or other relevant documents. Contact your loan servicer to find out exactly what documentation they require.

Step 5: Submit Your Application

Once you have gathered all the necessary documentation, submit your application for deferment to your loan servicer. This process may vary depending on your loan provider, so follow their specific instructions carefully.

Step 6: Follow Up with Your Loan Servicer

After submitting your application, don't hesitate to follow up with your loan servicer to ensure that your deferment has been approved and processed. They may need additional information or clarification, and staying in communication can help ensure a smooth process.

Step 7: Understand the Terms of Your Deferment

If your deferment is approved, make sure you understand the terms and conditions, including the length of the deferment period and any interest that may accrue. This will help you stay informed and avoid potential surprises down the line.

Remember, while a student loan deferment can be a helpful tool, it is important to consider your long-term financial goals and the potential impact of deferring your loans. Everyone's situation is unique, so be sure to weigh the pros and cons before making a decision.

Interest accrual on federal and private loans during deferment

Deferring student loans is a great way to reduce financial stress while returning to school. However, it's important to understand the implications of interest accrual on both federal and private loans during the deferment period.

Federal Loans

During deferment, interest accrual on federal loans depends on whether they are subsidized or unsubsidized. For subsidized federal loans, the government pays the interest during the deferment period, resulting in no additional interest for the borrower. On the other hand, for unsubsidized federal loans, interest does accrue and is added to the loan amount at the end of the deferment period. This can significantly increase the total amount owed.

Private Loans

For private student loans, the availability of deferment and the terms during this period vary by lender. Not all private lenders offer deferment, and even if they do, interest may accrue during this time. This accrued interest is then added to the loan amount at the end of the deferment period, increasing the total repayment amount. To avoid this, borrowers can choose to pay the interest as it accrues during the deferment period.

It is worth noting that deferment is different from forbearance, where interest always accrues and is added to the loan balance unless the borrower pays it as it accrues. Deferment, especially for subsidized federal loans, can be a more favourable option as it helps borrowers manage their finances without increasing their loan balance.

Additionally, the University of the People, a tuition-free online university, can be an alternative for those who want to avoid student loans and the complexities of deferment and interest accrual.

Student loan deferment eligibility

Student loan deferment allows you to delay repayment of your college debt for up to three years. Deferment is available for both federal and private student loans, but the specific options and requirements vary depending on the type of loan and the lender.

Eligibility for Federal Student Loan Deferment

If you are enrolled at least half-time at a qualified university, you are eligible for an in-school deferment, the only automatic deferment offered by the federal government. This applies to students with subsidized or unsubsidized direct or federal Stafford loans, as well as graduate or professional students with direct PLUS or Federal Family Education Loan (FFEL) PLUS loans. In-school deferment is also available for parents who have taken out PLUS loans for their children's education.

In addition to in-school deferment, there are several other types of federal student loan deferment:

• Unemployment Deferment: You may request this deferment for up to three years if you are unemployed or unable to find full-time employment. To qualify, you must be receiving unemployment benefits or actively seeking full-time work.
• Economic Hardship Deferment: This deferment is available for up to three years if you receive state or federal assistance, including through the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF). It also applies if your monthly income is less than 150% of your state's poverty guidelines.
• Peace Corps Deferment: Serving in the Peace Corps qualifies for a deferment of up to three years.
• Active-duty Military Service Deferment: If you are on active duty in a war, military operation, or national emergency, you may qualify for a deferment, including a 13-month grace period following the end of your service.
• Cancer Treatment Deferment: You can request a deferment during cancer treatment and for six months after completion of treatment.
• Graduate Fellowship Deferment: This deferment is available for students enrolled in an approved graduate fellowship program.
• Rehabilitation Training Deferment: If you are enrolled in an approved rehabilitation training program, you may qualify for this deferment.
• Perkins Loan Forgiveness Deferment: This deferment is for borrowers who received a Perkins Loan and are working toward loan cancellation.
• Additional/Enhanced Deferment Options: If you have a pre-July 1, 1993, direct loan or FFEL, you may have access to additional or enhanced deferment options. Contact your loan servicer for more information.

Eligibility for Private Student Loan Deferment

Private student loan deferment varies by lender, and not all lenders offer it. Many private lenders offer some form of deferment or relief if you are enrolled in school, serving in the military, or unemployed. Some private lenders also provide deferment for economic hardship. Contact your lender directly to discuss your options and eligibility.

Applying for Deferment

To apply for a federal student loan deferment, go to the U.S. Department of Education's Federal Student Aid Forms website and complete an application for the relevant deferment type. For private student loans, contact your lender directly to discuss their specific application process.

Alternatives to student loan deferment

Deferring student loans is a common way to reduce financial stress while returning to school. However, deferment may not be the best option for everyone, as it can lead to increased interest rates and larger loans. Here are some alternatives to consider:

Scholarships and Grants:

Scholarships and grants are attractive alternatives as they are financial awards that do not need to be repaid. Scholarships can be merit-based, need-based, or niche, and are offered by various organizations, including private foundations, public companies, government entities, and educational institutions. Grants are often similar to scholarships and can be merit-based or need-based, with some requiring a service commitment.

Work-Study Programs and Part-Time Jobs:

Work-study programs allow students to work part-time and earn money to pay for their education. The federal work-study program is available to students with financial needs, and most schools require students to find and apply for appropriate jobs. If you don't qualify for work-study, consider a part-time job, such as a traditional retail position or a paid apprenticeship, to earn money for tuition and other expenses.

Employer Sponsorships and Tuition Assistance:

Your employer or your parent's employer may offer scholarship programs, tuition assistance, or reimbursement. Tuition reimbursement programs typically require you to pay for schooling and then reimburse a portion of the expenses. In contrast, tuition assistance programs involve the employer paying the school directly. Check with your human resources department to explore these options.

Payment Plans:

Some universities allow students to set up interest-free monthly payment plans for tuition and other fees. This alternative helps spread out the cost of education and can be adjusted if you receive financial aid. However, there may be fees associated with enrolling in these plans, and not all schools offer this option.

Crowdfunding and Peer-to-Peer Lending:

Crowdfunding platforms like GoFundMe allow you to raise money for your education by soliciting donations from others. Alternatively, peer-to-peer lending platforms enable you to obtain a loan funded by multiple investors, but the interest rates may be higher than traditional loans.

Matched-Savings Programs:

These programs allow you to contribute money to a special account, and a government entity or nonprofit organization will match your savings. Examples include Earn to Learn and Operation HOPE. You can use these savings to help cover college costs.

Income Share Agreements:

Income share agreements provide funding for your education in exchange for a percentage of your future earnings. This alternative does not require good credit or a cosigner, and payments may not be required until you reach a certain income level. However, they lack the benefits and protections of federal student loans.

Home Equity Loans and Retirement Funds:

Home equity loans or lines of credit allow homeowners to borrow against the value of their homes. While these loans can provide lower interest rates, they put your home at risk if you encounter financial difficulties. Similarly, using retirement funds, such as a Roth IRA, for college expenses can impact your ability to retire. Therefore, these alternatives should be approached with caution.

While these alternatives can help finance your education, it is important to carefully consider their eligibility requirements, competitiveness, and potential impact on your financial situation. Student loans, especially federal loans, offer benefits and protections that may make them a more attractive option despite the burden of repayment.

Frequently asked questions