Feeling overwhelmed by your student loans? You’re not alone. Federal student loan deferment can provide temporary relief by allowing you to pause your payments. But like any financial decision, it comes with its own set of rules and nuances. Let’s break down how it works, so you can see if it’s the right move for you.
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How federal student loan deferment works
If you’re considering deferring your student loans, you probably have a lot of questions. The process can seem complicated, but understanding the basics can make it easier to navigate. Deferment allows you to temporarily stop making payments on your federal student loans if you qualify. This pause can be a huge relief if you’re facing financial difficulties, but remember, it’s not a permanent solution.
Once your deferment is approved, you’ll be off the hook for payments for a specified period. If you need more time after your initial deferment period ends, you have to reapply. Keep in mind that deferment is not a get-out-of-jail-free card; it’s a temporary reprieve.
Does federal student loan deferment accrue interest?
Not having to make monthly payments can be a lifesaver, especially if you’re dealing with a financial crisis. It’s crucial to understand that interest typically continues to accrue on most federal student loans during deferment. For unsubsidized loans and PLUS loans, this means the interest will be added to your principal balance, making your loan more expensive in the long run.
While subsidized loans and Perkins loans do not accrue interest during deferment, this relief applies only to specific deferments. It’s essential to know which type of loan you have and how deferment will impact it financially.
Does federal student loan deferment affect credit?
Initially, federal student loan deferment does not impact your credit score directly. Your loans are essentially put on hold, so there’s no negative mark on your credit report. Since interest continues to accrue, your overall loan balance will increase, which can affect your debt-to-income ratio. This ratio is a crucial factor that lenders consider when you apply for new credit, such as a mortgage or car loan.
If you end up with a significantly higher balance when deferment ends, it could hurt your credit score indirectly. Failing to make payments while waiting for deferment approval can negatively impact your credit. It’s a mixed bag — deferment can both help and hurt your credit, depending on your situation and how you manage it.
How to qualify for student loan deferment
Different types of federal student loan deferments have various eligibility conditions. Here’s a rundown of the most common deferment types.
Cancer treatment deferment
If you’re undergoing cancer treatment, you can defer your federal loans during treatment and for six months afterward. You’ll need to fill out a specific form that includes your physician’s information. This deferment does not have a set time limit as treatment durations vary.
Economic hardship deferment
This deferment is for those who cannot afford their loan payments. You can defer your payments while still accruing interest, giving you time to stabilize your finances. To qualify, you must be receiving means-tested benefits like welfare, serve in the Peace Corps, or work full-time with earnings below 150% of the poverty line. The maximum cumulative deferment is 36 months per loan program.
Graduate fellowship deferment
If you’re enrolled in an approved graduate fellowship program, you may qualify for deferment. The program usually involves doctoral studies or, in some cases, Master’s programs. Your fellowship must meet specific criteria, including progress reports and clear fellowship objectives.
In-school deferment
In-school deferment is automatic if you’re enrolled at least part-time in an eligible college or career school. This deferment also applies for six months after you leave school or drop below part-time enrollment. No paperwork is typically needed but verify with your school if the deferment doesn’t start automatically.
Military service and post-active duty student deferment
Active duty military members involved in a war, military operation, or national emergency, and those who have completed such service, may qualify for this deferment. The post-active duty deferment lasts up to 13 months after service completion or until you return to school.
Parent PLUS borrower deferment
Parents who took out Direct PLUS loans for their child’s education can defer repayment while the student is enrolled at least part-time. You must complete a deferment request form or contact the school to initiate this process.
Rehabilitation training deferment
If you’re enrolled in an approved rehabilitation training program for vocational, drug abuse, mental health, or alcohol abuse rehabilitation, you might qualify for deferment. The program must be licensed and provide a written, individualized plan.
Unemployment deferment
You can defer your student loans for up to three years if you’re unemployed or unable to find full-time employment. You will likely need to show proof of receiving unemployment benefits or evidence of job searching.
How to request federal student loan deferment
Aside from in-school deferment, most deferments must be requested through your loan servicer. Start by contacting your servicer to determine the correct form based on your eligibility. Submit the completed form and continue making payments until you receive official approval. Your servicer will notify you if your deferment is approved or denied, so stay proactive.
If deferment isn’t the right fit for you, consider refinancing your student loans to potentially secure a lower interest rate or better repayment terms, which could make managing your debt more manageable.
How long can you defer student loans?
The length of time you can defer your student loans depends on the type of deferment and your eligibility. For example, economic hardship deferment can last up to 36 months, while in-school deferment lasts as long as you’re enrolled at least part-time. Military deferment can extend up to 13 months after active duty service. Check the specific terms for your deferment type to understand the duration and any conditions attached.
Federal student loan deferment vs. student loan forgiveness
Federal student loan deferment and student loan forgiveness are two different concepts. Deferment is a temporary pause on payments, whereas forgiveness eliminates your loan balance entirely. Deferment is typically for those facing short-term financial hardships, whereas forgiveness programs, like Public Service Loan Forgiveness (PSLF), require specific employment or repayment conditions over a more extended period. Understanding the differences can help you choose the best option for managing your student loans.
Understanding the differences can help you choose the best option for managing your student loans. It’s important to note that private student loans and personal loans have different deferment and forgiveness options, which may not be as flexible as federal loans.
Navigating Federal Student Loan Deferment
Federal student loan deferment can be complex, but it’s a valuable tool for managing financial difficulties. Understanding how deferment works, its impact on interest and credit, and the specific qualifications can help you make informed decisions. Whether you’re dealing with economic hardship, health issues, or other challenges, deferment can provide much-needed relief. Communicate with your loan servicer to ensure you’re taking the right steps and staying on top of your loan status.
FAQ
What happens when loans are in deferment?
Your payments are paused, but interest may continue to accrue depending on the loan type.
Is a deferment good or bad?
Deferment can be good for temporary relief but may increase your overall loan balance due to accrued interest.
How many times can you defer student loans?
The number of deferments depends on the type and your eligibility, with some having cumulative limits.
Should I pay student loans during deferment?
If you can, paying interest during deferment can prevent your balance from growing.
Can I pause my student loan payments?
Yes, deferment is one way to pause payments temporarily, subject to meeting eligibility requirements.
