Navigating Student Loan Deferment: A Comprehensive Guide

Student loan payments can be a significant burden, especially for recent graduates or parents cosigning loans. The challenge of keeping up with monthly payments, along with staying informed about the latest borrower news, can feel overwhelming. If you're facing economic hardship, medical issues, or other challenges, student loan deferment may offer temporary relief by pausing your federal loan payments. This guide will walk you through the intricacies of student loan deferment, including eligibility requirements, the application process, and key considerations before making a decision.

What is Student Loan Deferment?

Student loan deferment is a temporary pause on your student loan payments for specific situations such as active duty military service and reenrollment in school. It's a form of temporary debt relief that allows a borrower who qualifies to stop making payments on a loan or drastically reduce the monthly payment. During this period, you don’t need to make payments on your federal student loan. Please note that private loans may also offer options to pause loan repayment. Be sure to speak to your private loan servicer for more information regarding available options.

Federal Student Loan Deferment

You can receive a federal loan deferment for a certain defined period. The Department of Education has published a list of reasons that qualify you for a deferment.

Interest Accrual During Deferment

If you have a subsidized loan, you don’t have to pay interest on the loan during deferment. However, if you have an unsubsidized loan, you’re still responsible for the interest during deferment. If you don’t pay the interest as it accumulates, it will be added to your loan balance, which will increase the overall amount you have to pay. This is called capitalization.

Forbearance as an Alternative

Forbearance may also be an option if you’re unable to pay your federal student loans. In forbearance, interest will continue to accrue on your loan balance.

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Private Student Loan Deferment

Private student loans may or may not have a deferment option, and the rules vary among lenders. Contact your loan servicer as early as possible if you want to explore this option. The terms and fees associated with postponing private student loan payments are based upon your contract and applicable laws.

Student Loan Deferment vs. Forbearance

Student loan deferment and forbearance both allow you to pause your loan payments, but they differ in several key aspects:

Eligibility

Deferment: You may qualify if you're enrolled in school at least half time, unemployed, undergoing cancer treatment, experiencing economic hardship, in an approved rehab program, or serving in the military or Peace Corps.

Forbearance: Available for a broader range of financial or personal reasons, including medical expenses, job loss, or high student loan debt relative to income.

Duration

Deferment: Can last up to three years or longer, depending on the reason.

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Forbearance: Typically granted for 12 months at a time.

Interest Accrual

Deferment: Interest does not accrue on subsidized federal loans or Perkins loans during the deferment period.

Forbearance: Regardless of the type of loans you have, interest will continue to accrue during your forbearance period.

Which is Right for You?

While deferment typically offers more favorable terms-especially if you have subsidized loans-it's not always available.

Choose Deferment if:

You have subsidized federal loans.
You're enrolled in school at least half time.
You're facing long-term unemployment or economic hardship.
You qualify based on other specific circumstances.

Choose Forbearance if:

You don't qualify for deferment.
You're dealing with short-term financial hardship.
You qualify based on other specific circumstances.
If you're not eligible for deferment, mandatory forbearance is available for medical and dental residents and interns working toward completing their training.
Your student loan debt is overwhelming.

How to Defer Student Loans: Eligibility Requirements

Several circumstances may make you eligible for a deferment. Here’s a look at some of the different deferment options available for federal student and parent loans:

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Cancer Treatment Deferment: If you’re undergoing cancer treatment, you may qualify for deferment during treatment and up to six months afterward.
Economic Hardship Deferment: Borrowers facing financial difficulties, like earning below 150% of the poverty guideline or receiving means-tested benefits, may qualify for deferment for up to three years.
Graduate Fellowship Deferment: Graduate students in approved fellowship programs may qualify for deferment while pursuing their studies.
In-School Deferment: If you’re enrolled at least half-time in an eligible school, your federal student loan servicer will grant an in-school deferment.
Military Service and Post-Active-Duty Student Deferment: Active-duty military members may qualify for deferment during their service, and those returning from duty may receive an additional 13-month deferment.
Parent PLUS Borrower Deferment: Parents who took out a Parent PLUS loan can request deferment while their child is enrolled at least half-time and up to six months afterward.
Rehabilitation Training Deferment: Borrowers in approved rehabilitation programs for drug, mental health, or alcohol issues may qualify.
Unemployment Deferment: Those receiving unemployment benefits or actively seeking full-time employment may be eligible for up to three years of deferment.

Contact your loan servicer to learn how to get student loans deferred under these circumstances.

How to Apply for Deferment on Federal Student Loans

Most federal student loan deferments aren’t automatic. Instead, you must submit a request to your loan servicer and provide supporting documentation to show that you meet the eligibility requirements. Here’s the general four-step process on how to apply for student loan deferment:

Identify Your Eligibility Criteria: Before applying, check if you meet the requirements for any of the deferment options discussed above.
Complete the Deferment Request Form: Be sure to carefully fill out all required information, as missing or incorrect details can delay the processing of your request or lead to rejection.
Submit the Deferment Request: Send your completed form along with any required documentation to your loan servicer. They may ask for additional information, so stay in touch.
Follow Up: Once you’ve submitted your deferment application, continue making payments as scheduled until you receive confirmation that your deferment has been approved. Failing to do so could cause your loan to become delinquent, harming your credit score.

Considerations Before Applying for Deferment

Before deciding to defer your student loans, consider the following:

Interest Accrual and Capitalization

If your deferment is approved, the terms will vary. In some cases, interest is covered by the government and will not accrue. However, interest will continue to accrue in other cases, meaning you’ll still be responsible for paying it even while your loan payments are on hold. Any interest that accrues during deferment will be added to your loan balance, which may increase the total amount you owe. This is called capitalization.

Impact on Credit Score

A deferment will not directly impact your credit score, as long as the account is still in good standing. It could, however, increase the age and the size of the total debt, which may impact your credit score.

Alternative Options

Income-Driven Repayment Plans: For longer-term relief on federal loans, you may apply for an income-driven repayment plan. In some cases, your monthly payment in an income-driven repayment plan can be as low as $0 per month. Under the one-time IDR account adjustment that will take place in 2023, you may receive credit for some previous time in forbearance and deferment.
Student Loan Refinancing: Refinancing federal student loans with a private lender may not be the right move if you want access to better relief programs in the future.
Budgeting: Depending on your situation, you may be able to better afford your student loan payments by scrutinizing your budget and making some adjustments.
Picking up a Side Gig: If you've tried everything and still can't quite find enough money to pay your student loans, consider taking up a side gig.

Short-Term Solution

Depending on why you're requesting deferment, you may only have a few months to get your financial situation in order.

No Guarantee of Approval

Depending on your reason for requesting deferment, you may not qualify.

Other Important Points

Regardless of how you choose to handle your student loans, it's crucial that you prioritize protecting your credit score from late payments and default.
If you are suffering a hardship, but might be able to make a partial payment, it might make more sense to discuss your situation directly with your lender to find out if you qualify for a modified repayment plan.
If you're having trouble repaying your student loans, you may be eligible for various forms of student loan deferment, which would allow you to postpone your payments for a specified period of time. But it's your responsibility to contact either your lender or the organization servicing your loan to check if you qualify for such payment relief.

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