As tuition fees rise and student loan balances inflate, it has become much harder for people to get rid of their loans. This is why you can defer student loans now.
Most people don’t have a choice when studying and need to take out student loans.
However, the problem occurs when they don’t know how to pay off student loans. Not knowing your options can severely limit your actions and can lead to financial hardship.
What is Student Loan Deferment?
Student loan deferment lets you reduce your monthly payments or lets you stop payments altogether for the deferment period.
If you subsidized loans and you defer, the interest does not accrue during deferment as the federal government takes care of the interest payments. However, if you defer an unsubsidized loan or opt for student loan forbearance, all the interest is accrued and capitalized and added to the total student loan debt.
Since this is a temporary measure, you should also consider other options like an income-driven repayment plan.
Steps to Defer Student Loans
If you feel like you won’t qualify for that federal student aid, have to take more loans, or are having trouble paying your loans back, you can defer student loans with the following steps.
1. Do I Want to Defer My Student Loan Payments?
Deciding whether you want deferment can be a tricky thing. However, you can ask yourself the following questions to make an informed decision.
Do I have a Perkins loan or a subsidized federal loan?
You may be best suited for deferment with a subsidized or Perkins loan since interest does not accrue on them during the deferment period. However, with private and unsubsidized loans, interest will continue to accrue at the current interest rate.
Can I start student loan repayment soon?
If you’re just going through a bad time and can start making payments later, you should consider deferment. However, if you don’t see your situation getting better any time soon, you might start considering things like student loan forgiveness programs.
Can I make reduced payments or interest payments?
Deferment is only if you can’t make any payments at all. If you can make reduced payments or interest payments, you should consider a different option.
2. Qualifying for Deferment
Student loan deferment is something you need to qualify for and usually involves you working in tandem with your loan servicer or lender. You need to make an application which will then be reviewed and processed. To avoid defaulting, you should continue making payments until your application gets approved.
Private Student Loan Deferment
Private student loans are tricky to defer—you have to contact your lender and first ask if they provide the option of deferment. Some lenders may provide deferment if you’re enrolled full-time or half-time in school, are unemployed, or are part of an active duty military operation.
You may also get economic hardship deferment. However, the interest keeps accruing during that period. It’s best to go for a consolidation loan first.
Federal Student Loan Deferment
You need to apply for federal loan deferments, however, if you’re enrolled at least half-time in a school, you can automatically get an in-school deferment.
The next section will list down your different deferment options and if you feel you qualify for any of them, go to the U.S. Department of Education’s Federal Student Aid Repayment Forms website and click on Deferment to fill out the application.
3. Student Loan Deferment Options
The following are different forms of deferment you can apply for. All of these apply to federal loans but private lenders will have their own requirements.
In-School Parent Deferment
As a parent who took out an FFEL PLUS or Direct PLUS loan, you can apply for deferment if the student is enrolled at least half-time. There is a 6-month grace period and there is no time limit.
In-School Student Deferment
In-school student deferment is an automatic deferment option but comes with the condition that the student must be enrolled at least half-time. If you’re a graduate student with a Direct PLUS or FFEL PLUS loan, or if you have an unsubsidized or subsidized Direct or federal Stafford loan, your federal student loan payments will remain on pause for 6-months after leaving school.
Every other student with PLUS loans will have to start repayment as soon as they leave school. If you haven’t received the automatic deferment, you can send your enrollment information to your loan servicer.
Economic Hardship Deferment
If you’re receiving federal or state assistance through SNAP (Supplemental Nutrition Assistance Program) or TANF (Temporary Assistance for Needy Families), you can get up to 3 years of economic hardship deferment. It also applies if your monthly income is less than 150% of the poverty guidelines.
If you can’t find full-time employment, you can get up to 3 years of deferment. You either have to be seeking full-time work through a registered employment agency or should be receiving unemployment benefits to be eligible.
If you’re on active duty military service during a national emergency, operation, or part of the national guard, you can qualify for deferment. It also includes a 13-month grace period after your service is concluded.
Peace Corps Deferment
If you’re serving in the United States Peace Corps for any period of time, you can get up to 3 years of deferment.
Domestic Volunteer Deferment
If you’re a full-time volunteer for an ACTION (AmeriCorps, VISTA, or Domestic Volunteer Service Act of 1973) program, you are eligible for deferment. However, this only applies to loans taken until 1993 and before.
Cancer Treatment Deferment
If you’re a cancer patient, you can request deferment during and after (up to 6-months) the conclusion of your treatment.
If you’re working in a residency program or as an intern, you apply for 2 years of deferment.
Public Health Services Deferment
If you’re working full-time in the Commissioned Corps, Public Health Service, or any similar public service, you can defer payments. However, service members will have to be active with their departments and can only get a deferment for up to 36 months.
Other Deferment Options
Here are some other deferment options you may be eligible for.
- Rehabilitation Deferment: If you’re enrolled in a rehabilitation training program for disabled people.
- Graduate Fellowship Deferment: If you enrolled in an approved graduate fellowship program.
- Perkins Loan Forgiveness Deferment: If you’re in the process of working for the cancellation of your Perkins loan.
Keep in mind that all deferment options are subject to minor changes due to things like your financial situation, family size, principal balance, federal student aid, credit score, or any other outside influencers like the current Covid-19 pandemic.
4. Student Loan Interest Calculation
It’s important to calculate the total interest on your student loans. Student loan interest accrues daily but is not compounded, your payments include the monthly interest payments and a portion of the principal amount.
The more payments you make, the lesser your balance, the lesser your daily interest amount. With deferment, your daily interest amount remains the same throughout the deferment period because the amount is not capitalized until the end of the period.
5. Calculating the Cost of Deferment
Deferment can be very expensive if you have private or unsubsidized loans because of the interest accrual. By the end of your deferment, your loan balance increases and your payments may also increase.
To find out the cost of your deferment, you can use this calculator. Insert the deferment period, your average interest rate, total student loan balance, and your repayment term and the calculator will calculate your student loan balance and monthly payments and show you before deferment, after deferment, and savings values.
You can change up the numbers and check what option is feasible for you. You can use other student loan calculators on the FutureFuel site that will help you evaluate your options.
While deferment may seem like the only option in some cases, it’s important to know the alternatives.
- Income-Based Repayment Plans: If you’re unsure whether you’ll be able to make payments in the future, you can go for an income-based repayment plan where your monthly payments are decided by analyzing your family size and your income.
- Forbearance: You may easily qualify for forbearance because, with forbearance, interest accrues during your deferment period unless you pay it as it accrues.
Depending on your situation, knowing all options will help you make an informed decision that’s good for your future.
Should You Defer Student Loans?
Whether you should defer student loans or not is a question of whether or not you need to.
Student loan deferment should only be done if you absolutely cannot make your monthly payments or don’t see yourself making them in the foreseeable future.
Whether it’s because of financial hardship, your work, or any other reason, if you’re unable to even make the interest payments, only then should you go for deferment. This is especially true if you have private loans or unsubsidized loans.