What Is Student Loan Deferment?

Student Debt
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When you’re short on money and loan payments are a burden, student loan deferment may provide relief. That option gives you time to get back on your feet without defaulting on your loan and damaging your credit scores.

What Is Loan Deferment?

A deferment is an arrangement that allows you to postpone loan payments temporarily. Instead of making your scheduled payments, you can pay nothing at all, or choose to pay a portion of your required payment. Any payments you skip during deferment need to be made up later, resulting in a repayment period that’s longer than originally planned.

Depending on the type of loan you have, you may still be responsible for interest charges each month—even when you’re not required to pay anything during deferment. It’s crucial to understand what happens with your interest before you decide on a payment amount.

How to Get a Deferment

If you’re having a hard time making payments, speak with your lender about your options. Deferment is just one of several options, and it might not be the best choice.

Deferments are typically not automatic. Lenders require that you qualify for deferment and submit an application before you stop making payments. In most cases, you submit your request with a form that documents your reason for deferment and provides details about your loan.

Ask your loan servicer which specific form to use, as there may be numerous forms.

Federal student loans have clear rules on eligibility. That said, some private lenders also allow deferment, so it’s crucial to contact your lender as soon as you think deferment might make sense for you. Federal loans that offer deferment include:

  • Perkins Loans
  • Direct Subsidized and Unsubsidized Loans
  • PLUS Loans
  • FFEL Loans, including FFEL PLUS
  • Direct and FFEL Consolidation Loans

In limited cases, like when you enroll at least half-time in an eligible institution, deferment on federal student loans can happen automatically.

Eligibility for Deferment

To qualify for deferment on federal student loans, you need to meet specific criteria. Discuss the details with your loan servicer. Some common examples of satisfying the requirements include:

  • Being enrolled in school at least half-time in an eligible institution
  • Being unemployed or experiencing economic hardship (maximum of three years)
  • Active duty service in the military, including the13-month period following service
  • Participation in approved rehabilitation programs for people with disabilities
  • Participation in a career-related internship or residency program

Again, check with your loan servicer if you’re facing financial challenges. You might qualify for other forms of assistance not shown here.

As an alternative to deferment, income-driven repayment plans could offer some relief and eventually lead to loan forgiveness.

Interest Costs During Deferment

You don’t have to make loan payments, but interest charges might continue during deferment. If you have subsidized loans, the federal government pays your interest costs for you, which prevents your loan from growing during deferment.

With unsubsidized debt, you’re responsible for interest costs. You can pay interest costs each month if you choose, and that approach minimizes your total lifetime cost of borrowing. Alternatively, you have the option of adding those interest costs to your loan balance, or “capitalizing” the interest. In that case, your loan balance grows each month.

If You Don’t Qualify

If you can’t qualify for loan deferment, other options may be available. When you contact your lender, describe your situation, and learn more about which alternatives may apply to you. Some of the options might include:

  • Forbearance: Like deferment, forbearance allows you to temporarily suspend payments. It’s easier to qualify for, especially during financial hardship. Your request may be approved based on your monthly payments taking up a significant amount of your income. Unfortunately, interest will continue to be charged on all loans, including subsidized loans, during forbearance.
  • Income-driven repayment plans: Income-driven plans can also provide some breathing room. Instead of living with the same monthly payment, you can consider stretching out your payments over an extended period and lowering your payments based on your income. If you take that route, remember that you might pay more in interest over the life of your loan. However, after 20 to 25 years (or 10 years, if you work in public service), your loan balance might be forgiven. Note that you may owe taxes on any forgiven balance, so create a strategy with a CPA and financial planner.
  • Loan Consolidation: Consolidating debts might also result in lower payments, especially if you opt for a longer repayment period. Again, this can result in higher lifetime interest costs.
  • A Change in Your Payment Due Date: Sometimes, changing the due date of your payment can make things easier (time it so that you get paid shortly before your payment is due).
  • Credit Counseling: A certified consumer credit counselor might help you gain control of your debt.

If your loans are federal student loans, your odds of getting relief are much better.

With private student loans, relief might still be available, but those programs are less forgiving than federal loans.

Keep Paying

Although money is tight, it’s crucial to keep making your payments until your loan servicer approves your request for deferment and notifies you that you can stop paying.

Don't assume that you'll qualify for deferment and stop making payments prematurely. Missing payments can damage your credit and eventually lead to fees.