If you're facing difficult financial times, a student loan deferment can give you some relief. This is a provision of the federal student loan program that can allow you to postpone your student loan repayments for a certain amount of time.
However, there's quite a bit that you should know before deciding if a deferment is the right course of action. Here's a guide to student loan deferment, how to qualify, the differences between deferment and forbearance, and whether there might be an even better option for you.
What is student loan deferment?
In a nutshell, a student loan deferment allows a federal student loan borrower to temporarily stop making monthly payments.
A borrower can defer their student loan payments while they are in school, no matter how long it takes to graduate, or for as many as three years once they are out of school. While your student loans are in deferment, here's what you can expect:
- You won't have to make any payments on your loans (although you can if you choose to do so).
- The federal government will pay the interest that accumulates on subsidized student loans while in deferment. So if you enter deferment with $10,000 in subsidized loans, that's how much you'll have when your deferment ends.
- Interest will continue to accumulate on your unsubsidized student loans, and will be added to the principal balance (capitalized) upon the end of your deferment.
Am I eligible to defer my student loans?
As I've mentioned, if you’re enrolled in school on at least a half-time basis, you are eligible to defer your student loans until six months after you graduate or leave school. This also applies if you enter graduate school, even if you don't need to borrow any additional money -- such as when you're enrolled in a fellowship program. This is known as an in-school deferment and typically happens automatically.
You are only allowed to defer your loans for a total of three years when you are not in school. If you haven't done this, you might be eligible for a deferment if any of the following apply:
- You are unemployed or can only find part-time work.
- You are experiencing an economic hardship. Admittedly, this is a vague qualification, and essentially means that anyone who is having trouble making their student loan payments may be eligible for a deferment.
- You're serving in the Peace Corps.
- You are serving on active duty in the military in connection with a war, military operation, or a national emergency. You are also eligible for as long as 13 months after serving in one of these capacities. (Note: The three-year maximum doesn't apply in this case or the next one.)
- You are undergoing cancer treatment or finished your treatment in the past six months.
This is not an exhaustive list, and there are a few other (less common) situations where you may be eligible for a deferment.
In addition to meeting at least one of these requirements, there are a few other criteria that must be met for a student loan deferment.
You need to have eligible federal student loans. This one is pretty obvious but is still worth mentioning. This includes Federal Direct Loans, Stafford Loans, PLUS Loans, and Federal Perkins Loans, just to name some of them. Private lenders may have their own provisions to defer repayment if needed, but the information discussed in this article is specific to federal student loans.
You cannot be in default on your federal student loans. This typically happens when you haven't made your scheduled student loan payments for at least nine months and are not in deferment or forbearance.
Student loan deferment vs. forbearance
Technically, there are two separate ways that federal student loan borrowers can temporarily postpone repayments -- deferment and forbearance.
Both deferment and forbearance can give you temporary student loan relief. If you have a deferment or forbearance, you won't have to make your scheduled student loan payments.
The main difference is that the government will pay the interest on your subsidized student loans during periods of deferment, but interest on these loans will continue to accumulate during forbearance. Interest on your unsubsidized loans accumulates regardless of which program you choose.
So if you have subsidized federal student loans, a deferment is clearly the preferable option. However, it's worth noting that a forbearance can be easier to get, especially if you've exhausted the three-year maximum for deferments. There are some conditions you can meet to get a mandatory forbearance, but you can request a general, or discretionary forbearance for 12 months at a time for a number of reasons, including financial difficulties.
It's also worth noting that if you have private student loans, your lender may have a provision that allows you to suspend your payments during financial hardships. However, regardless of the language the lender uses, these are forms of forbearance, at least in the federal sense of the term.
Will a student loan deferment hurt your credit?
Not necessarily. Having student loans in deferment is effectively the same as paying the account as agreed, as far as your FICO® Score is concerned. You may lose out on the credit benefit that typically comes with your balance declining over time, but you shouldn't see a hit to your credit score once the deferment goes into effect.
On the other hand, be aware that the deferment will be noted in your credit report and will be visible to prospective lenders. It's quite common for a lender to consider what your student loan payment would normally be when deciding to approve your application for credit.
How to defer your student loans
If you're in school, or just re-enrolled in school, your in-school deferment may be automatic. However, if you re-enroll and don't fill out the FAFSA, your loan servicer might not know you've re-enrolled. If an in-school deferment doesn't happen automatically and you're enrolled on more than a half-time basis, contact your school's financial aid office who will then inform your loan servicer of your enrollment.
For anything other than an in-school deferment, it will not happen automatically. So don't simply stop paying your loans and assume you'll be put on deferment.
You can request a deferment directly with your loan servicer (the company to whom you send your monthly loan payments). Most have a simple form to fill out, and you might be expected to provide documentation that confirms your eligibility for a deferment.
Do you really need a deferment?
Don't get me wrong. A student loan deferment can be a useful option, and the ability to defer repayment is one of the biggest advantages of federal student loan debt over other types of borrowing.
Having said that, it's important to look into your other options before deciding to defer your student loan payments. Specifically, if you have a legitimate financial hardship, one of the income-driven repayment options could be a better solution.
The most popular version of income-driven repayment, known as the Pay As You Earn (PAYE) plan, limits your monthly student loan payment to 10% of your discretionary income. And if you don't have any discretionary income, your payment could be $0.
Even if your payment is zero or close to it under one of these plans, said payments still count toward Public Service Loan Forgiveness and other forgiveness programs. In fact, under any of the income-driven repayment plans, any remaining balance is forgiven after either 20 or 25 years of repayment -- even if your payments were as low as $0 per month for some or all of the time.
To be clear, I realize that even small student loan payments can be a major burden in some circumstances. But it's still a good idea to explore all of your options.