Considering deferring your student loans? Though pausing your monthly payments sounds great, student loan deferment isn’t for everyone.
If you’re struggling to make your monthly student loan payment, you may be at risk of defaulting on your loan—that is, missing loan payments over an extended period of time. Given the negative consequences of defaulting, like damage to your credit score and ineligibility for future financial aid, it should be avoided at all costs.
Fortunately, there are many repayment options to make your debt more manageable. In certain scenarios, you can even hit the pause button on your student loans altogether through an action known as deferment.
In theory, deferment sounds great—but before you make moves to defer your loans, you should know that it isn’t always the best choice.
What is student loan deferment?
Deferment allows borrowers to postpone their student loan repayment to a later date. While in deferment, borrowers may not have to pay interest on their subsidized student loan debt. If you have subsidized federal loans, the government covers the interest charges while you’re in deferment. Loans eligible for deferment include:
- Direct Subsidized Loans
- Subsidized Federal Stafford Loans
- Federal Perkins Loans
- Subsidized portion of Direct Consolidation Loans
- Subsidized portion of Federal Family Education Loan (FFEL) Consolidation Loans
That perk doesn’t extend to unsubsidized loans, though. The government will not pay for the interest that accrues for:
- Direct Unsubsidized Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- FFEL PLUS Loans
- Unsubsidized portion of Direct Consolidation Loans
- Unsubsidized portion of FFEL Consolidation Loans
Even though you won’t have to worry about making a monthly payment, you’ll still be on the hook for the interest that accrues during unsubsidized loan deferment. In addition, any unpaid interest capitalizes once you enter repayment again, quickly ballooning your principal balance.
Student loan deferment vs. forbearance
It’s important not to confuse loan deferment with forbearance.
Forbearance is another hardship option that pauses payments. Like deferment, borrowers may not have to pay interest on their subsidized loans, though other loans will still accrue interest.
So what makes forbearance different from deferment? Its qualifications.
You can request general forbearance if you’re temporarily unable to make your scheduled monthly loan payments for the following reasons:
- Financial difficulties, like medical expenses
- Change in employment
- Other reasons acceptable to your loan servicer
It’s up to your loan servicer whether or not to accept your request for forbearance.
Who qualifies for deferment?
Federal student loan borrowers may qualify for deferment for a variety of reasons. One of the most common uses of deferment is for students who are enrolled in an eligible college or career school at least half-time. This is called in-school deferment and can be used at any time you decide to go back to school.
But you can also choose to defer your student loans under the following circumstances:
- You’re experiencing economic hardship (e.g., your earnings are below 150% of your state’s poverty guideline or you receive a means-tested benefit like welfare).
- You’re undergoing cancer treatment. Deferment will extend throughout your treatment, plus an additional six months after your treatment ends.
- You’re active-duty military or recently completed qualifying military service.
- You’re enrolled in an eligible graduate fellowship program. These programs generally require a written statement from you that explains your objectives and involves periodic reports, projects, or other evidence of your progress.
- You’re a Peace Corps volunteer.
- You’re in an approved rehabilitation training program (e.g., vocational, drug or alcohol abuse, or mental health treatment).
- You’re unemployed. You must receive unemployment benefits or be actively seeking full-time employment to qualify.
- You received federal loans before July 1, 1993. You may be eligible for additional deferment options, but you’ll need to contact your loan servicer for information.
In some cases, deferment can last up to three years. But it’s better to use deferment as a short-term fix rather than a long-term repayment solution because there may be more advantageous options for repayment, like an income-driven plan.
Income-driven repayment options adjust your payment based on 10%, 15%, or 20% of your discretionary income—meaning a lower monthly payment. Entering an income-driven plan can be beneficial for making progress on your balance and/or forgiveness timelines, preserving your forbearance and/or deferment availability, and allowing you to take advantage of interest subsidies or discounts.
Depending on your income and family size, you might even qualify for a student loan payment as low as $0.
Loan forgiveness with an income-driven repayment plan typically requires 20-25 years’ worth of qualifying payments. Each of those $0 or low monthly payments will count toward your overall forgiveness credit.
Unlike federal student loans, private student loan deferment varies by lender and isn’t a guarantee. Each lender has its own eligibility criteria, so you’ll need to contact your lender directly for available options.
How to Apply for Student Loan Deferment
Each type of deferment has its own eligibility requirements.
In-school deferment is usually automatic, but you may need to contact your school’s enrollment office or submit a deferment request in some cases. All other types of deferment require borrowers to apply directly with their loan servicer.
Generally speaking, the process involves the following steps:
- Start by contacting your loan servicer to determine which deferment option is best for your situation.
- Fill out the appropriate deferment request form, which may include personal and financial information. At this point, you may also be required to submit supporting documentation. For example, if you qualify for an economic hardship deferment because you receive federal or state public assistance payments, you’ll need to include documentation of such payment.
- Submit the completed deferment request and documentation directly to your loan servicer.
- Continue making your normal scheduled payments until your loan servicer notifies you that your deferment has been approved. Make sure you understand the exact terms of your deferment, so you know when to begin making payments again. You may also request a renewal or extension of your deferment, if necessary.
Is deferment right for you?
Although deferment can be the right choice in some cases, it isn’t always the best option.
If you’ve lost your income or are struggling to make payments, you may be better off signing up for an income-driven repayment plan. These plans can lower your monthly payment dramatically—and get you on track toward loan forgiveness.
However, if you aren’t pursuing loan forgiveness and want to eventually pay off your debt in full, refinancing may be your answer. It can lower your interest rate, which can speed up loan repayment and save you thousands in interest over the life of your loans.
Deferment might make sense for you if you only need to use it for a few months—or in special scenarios, where an income-driven repayment plan isn’t a desired long-term option.
With so many repayment strategies and financial relief measures, it’s important you thoroughly explore all options before moving forward with deferment.
About the Author
Travis Hornsby, CFA, is founder and CEO of Student Loan Planner. He lives with his wife in St. Louis, MO, where he loves thinking up new student loan repayment strategies and frequenting the best free zoo in America. As one of the nation’s leading student loan experts, he has personally consulted on $500 million of student debt.