A deferment allows federal student loan borrowers to temporarily suspend their loan payments. During periods of deferment, loan payments are not required. If you have subsidized federal student loans, the U.S. government pays the interest on these loans on all qualified deferment periods. However, on unsubsidized student loans, interest continues to accumulate, and any unpaid interest at the end of a deferment can be added to your outstanding principal balance.
It’s important to mention that there are two different methods of suspending student loan payments -- deferment and forbearance. The key difference that you need to know is that deferment is specific to federal student loans and involves the suspension of interest accumulation on subsidized loans. In other words, the government will pay the interest on your subsidized loans during periods of deferment, but not while you’re on a forbearance.
For this reason, forbearance is the only method of repayment suspension offered by some private student lenders. Some may use these terms interchangeably -- after all, since there is no such thing as a private subsidized student loan, deferment and forbearance essentially mean the exact same thing in this context. Just be aware that deferment is a federal-loan-specific term, and that any offer to temporarily stop repayment on a private loan is technically a forbearance, regardless of which term the lender uses.
When is student loan deferment a good idea?
Deferment is one of the most unique features of student loans, and the ability to defer repayment is one of the main advantages student loans have over other types of debts. To be clear, I don’t suggest that you defer your student loans if you don’t need to -- if it’s practical, making regular monthly payments is generally the most desirable way to go. However, there are some circumstances when student loan deferment can be a smart idea.
1. While you’re in school
The most common reason for a student loan deferment is known as an in-school deferment. In simple terms, federal student loan borrowers are not required to make loan payments while they’re enrolled on at least a half-time basis in a degree or certificate program at a qualified college or university. Makes sense -- the idea here is that students should focus on school, not on repaying their loans.
In most cases, an in-school deferment happens automatically. If you take out a federal student loan to help pay for school, the Department of Education assumes that you don’t want to make loan payments while you’re in school and will automatically put your loans in deferment status.
That said, there are some situations when you might have to apply for an in-school deferment. Generally, this happens when you’re in school and you aren’t using federal loans to help fund your education. For example, if you start a graduate degree program and your employer is paying for the entire cost, you might need to request an in-school deferment on any federal loans you may have if you want to suspend repayment.
2. When you’ve just graduated
Technically speaking, this is part of an in-school deferment, but I feel it deserves special mention. Known as a “grace period,” most in-school deferments don’t end until six months after you’ve graduated, left school, or drop below half-time enrollment.
For example, let’s say that you’ve obtained federal student loans to finance your education, and that you graduated in May 2019. As long as your loans have been on a standard in-school deferment, you can expect your first loan payment to be due in November. You’ll likely hear from your student loan servicer (the company you’ll be sending your payments to) several months before then, and if you want your loans to be on any repayment plan other than the standard 10-year plan -- such as one of the income-driven repayment options -- you’ll need to apply for this a few months before your grace period ends.
3. If you’re having a tough time finding a job
Aside from being in school, one of the more common reasons people choose to defer student loans is because of unemployment. This can mean your six-month grace period is running out and you have yet to find a job, or it could mean that you became unemployed after making student loan payments for some time.
In any case, the federal student loan deferment eligibility guidelines allow for an unemployment deferment for as long as three years. This includes times when you can’t find a job at all, or times when you simply can’t find full-time employment.
4. If your bills are becoming too much of a burden
You can also apply for a student loan deferment if you are experiencing an economic hardship. Like unemployment deferments, the time limit on an economic hardship deferment is three years. And it’s important to point out that this is a cumulative time limit. In other words, if you previously were granted an economic hardship deferment for two years, you can only use this for one more year.
I should also mention that although you can request a student loan deferment if you’re facing financial hardship or having trouble finding a job, that doesn’t mean that it’s always the best course of action.
Specifically, there are several income-driven repayment options available to you that can make more sense than a deferment in these situations. These limit your monthly payment to a certain percentage of your discretionary income, and if you don’t have any discretionary income, your monthly payment can even be reduced to $0. This can be especially important to know if you plan on eventually qualifying for some sort of loan forgiveness.
For example, let’s say that you’re a public school teacher who is having a tough time making ends meet while paying down federal student loans. You can potentially qualify for Teacher Loan Forgiveness or Public Service Loan Forgiveness (PSLF), but these are both based on making a certain number of qualifying student loan payments. So you may be able to enroll in income-driven repayment, dramatically reduce your monthly payments, and continue to have payments credited for forgiveness purposes.
5. If you’re in the military or Peace Corps
Serving in the Peace Corps can qualify you for a deferment, and is actually in the same category as economic hardship deferment. You can also qualify for a student loan deferment while you’re on active duty military service “in connection with a war, military operation, or national emergency,” as well as for the 13-month period after that service concludes.
To be clear, this isn’t an exhaustive list of all the situations where deferring your student loan payments might be a smart idea. The key takeaway is that a deferment can be a good idea if making your required student loan payments would either be impractical, impossible, or an undue burden.
How to request a deferment
As I mentioned earlier, most in-school deferments happen automatically. However, some don’t, and the other types of deferments mentioned require applications, so here are the links to the current forms (links open PDFs):
You’ll need to request your deferment with your loan servicer, so that’s where you would submit the appropriate form. These requests can take some time to process, so remember to keep making payments until your deferment request has been approved.