Navigating Student Loan Deferment: Requirements and Considerations

Student loan repayment can be a significant challenge for many, especially recent graduates or those facing financial difficulties. Fortunately, programs like student loan deferment offer temporary relief. This article provides a comprehensive guide to understanding student loan deferment, its requirements, and its implications.

Understanding Student Loan Deferment

Student loan deferment allows borrowers to temporarily stop making payments on their student loans. It's a pause button, providing much-needed breathing room during specific qualifying situations. However, it's crucial to understand that deferment is not a long-term solution and comes with its own set of considerations.

During the deferment period, you won’t be required to make payments on your loan. However, interest could still accrue, depending on the type of loan you have. This means that while you're not paying, your loan balance could be growing.

Deferment vs. Forbearance

It's important to distinguish deferment from forbearance. Both offer temporary pauses on loan payments, but they differ in how interest is handled.

Interest is waived for subsidized loans during deferment. However, with forbearance, you will be responsible for paying all the interest that accrues, regardless of your loan type. This distinction can significantly impact the overall cost of your loan.

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.

If you have a subsidized loan, you don’t have to pay interest on the loan during deferment. 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.

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.

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.

Eligibility Requirements for Federal Student Loan Deferment

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.

How to Apply for Federal Student Loan Deferment

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.
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.

What Happens After You Apply?

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.

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.

Deferment for Sallie Mae Loans

Deferring payments lets you reduce or postpone your payments. If your request is approved, your Sallie Mae loan(s) will return to the repayment option you initially chose (i.e., interest, fixed, or deferred). When you defer, interest will continue to accrue (grow) while you’re in school or in an internship, law clerkship, fellowship, or residency program, which will increase your Total Loan Cost, and you may end up paying more for your loan overall. If your school is listed at studentclearinghouse.org, they’ll automatically verify it electronically. To request a deferment, download an Internship, Law Clerkship, Fellowship, or Residency Deferment Form.

Automatic Deferment

Your loans should be automatically deferred while you're enrolled at least half time at an eligible college or vocational school, plus an additional six months after you graduate, leave school or drop below half-time status.

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Alternatives to Deferment

While federal loan deferment can be helpful, it's not always available. And in some cases, it may not be the best option for you. Here are some alternatives to consider:

Forbearance: If you're dealing with financial difficulties, medical bills, a change in unemployment or other challenges, your loan servicer may grant you forbearance.
Student loan forgiveness: When the application is available, be sure to apply for student loan forgiveness offered by the Biden administration.
Income-driven repayment: If you're struggling with monthly payments but don't necessarily need deferment or forbearance, you may consider applying for income-driven repayment. There are currently four options from which you can choose. Depending on which one you get, your monthly payments may be reduced to 10% to 20% of your discretionary income, and your repayment term will be extended to 20 or 25 years.
Refinancing: Refinancing isn't always the best choice with federal loans, but if you want a lower monthly payment and a lower interest rate and don't anticipate needing any other federal loan benefits, it could be worth a try.

The Importance of Avoiding Missed Payments

The important thing is that you take whatever steps necessary to avoid missing payments, as that can have a devastating impact on your credit score.

Reasons for Deferment

Here are some of the reasons for deferment under which the law permits you to postpone repayment of your student loans.

Economic hardship - borrowers may qualify for student loan deferment of up to three years if they are experiencing economic hardship.
Military service - active duty deferment is available for borrowers who are called to military service during a war, other military operation or national emergency.
Enrolled in or returning to school - if you enroll in school at least half-time, your federal loans qualify for deferment. If you have previous federal loans they may also qualify for deferment if you decide to return to school.

Private Loans and Deferment

Typically private loans may offer a deferment option; however, loans secured from private sources, such as banks, typically may not have military or economic hardship payment relief as part of their repayment terms. The terms of deferment do vary per lender and are included in the terms of the loan.

Interest Accrual During Deferment

You should note that for subsidized Stafford loans, no interest will accrue during the period of student loan deferment. But for most other federal loans, interest will continue to accrue on your unpaid balance. If you do not pay that interest during the deferral period, it will simply be capitalized, or folded into the outstanding principal due on the loan. For private loans some lenders require interest payments while in-school and others may offer deferred.

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