Navigating Student Loan Deferment: A Comprehensive Guide
Student loan payments can be a significant burden, especially for recent graduates or those facing financial hardships. If you're feeling overwhelmed, understanding your options is crucial. This guide provides a comprehensive overview of student loan deferment, focusing on eligibility, application processes, and important considerations.
What is Student Loan Deferment?
Student loan deferment is a temporary pause on your federal student loan repayments. During a deferment, you are not required to make payments, offering potential relief during times of financial strain. However, it's essential to understand that deferment is not a long-term solution and may have consequences.
Deferment helps anyone who hits a qualifying event put off making student loan payments temporarily. If you’re facing economic hardship, medical issues, or other challenges, student loan deferment may provide temporary relief by pausing your federal loan payments.
Deferment vs. Forbearance
It's important to distinguish between deferment and forbearance, as these terms are often used interchangeably. While both options allow you to temporarily postpone loan payments, they differ in several key aspects.
Deferment helps anyone who hits a qualifying event put off making student loan payments temporarily. Forbearance accrues interest more commonly than deferment. One of the main benefits of deferments over forbearance is that you don't accrue interest on your federal Direct Subsidized or Perkins Loans during deferment. Also, if you have federal subsidized student loans, the Department of Education will even pay your interest for you while in deferral.
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Student loan forbearance allows you to pause monthly payments on your federal student loans for no more than 12 months. If you are still experiencing financial hardship, you can reapply for forbearance after that time. There are two types of forbearance: general and mandatory. Under general forbearance, no specific qualifying event is needed; forbearance is granted at the discretion of your loan servicer. Mandatory forbearance for federal student loans is something that your federal loan servicer must approve.
Interest is waived for subsidized loans during deferment. With forbearance, you will be responsible for paying all the interest that accrues, regardless of your loan type. However, interest may still accrue during deferment, so try to make smaller or interest-only payments.
Eligibility Requirements for Federal Student Loan Deferment
Yes, it’s possible to defer federal student loans if you meet specific eligibility requirements. Several circumstances may make you eligible for a deferment. To determine eligibility, it's essential to identify which deferment options align with your situation. Here’s a look at some of the different deferment options available for federal student and parent loans:
In-School Deferment: If you are enrolled in a college, university or career school at least half time as an undergraduate, your federal student loan servicer will grant an in-school deferment. Almost all borrowers take advantage of automatic deferment while they’re in school, which typically lasts during enrollment and for six months after graduation.
Cancer Treatment Deferment: If you’re undergoing cancer treatment, you may qualify for deferment during treatment and up to six months afterward.
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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.
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.
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Unemployment Deferment: Those receiving unemployment benefits or actively seeking full-time employment may be eligible for up to three years of deferment.
If you meet one of these eligibility requirements, your loan servicer could grant you a deferment so long as you have deferment time available.
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 discussed above.
- Complete the Deferment Request Form: Each type of deferment has a deferment request form, which you must provide to your loan servicer. Contact your loan servicer to learn how to get student loans deferred under these circumstances. 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.
- Continue Making Payments Until Approved: 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.
Important Considerations During Deferment
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. During post-graduation deferment, however, you could incur thousands of dollars in interest, making your loan more expensive overall.
Even when payments are paused, it can be beneficial to make smaller or interest-only payments to mitigate the accumulation of interest.
Deferment for Private Student Loans
If you have a private student loan, deferment options depend on your lender - private lenders are not required to offer deferment. However, it's still possible to get a student loan deferment or forbearance, depending on your lender. Applying for deferment is different for federal and private student loans.
Sallie Mae, for instance, offers deferment if you go back to school or start an internship, fellowship, residency or clerkship. Earnest offers deferment and forbearance for students going back to school or entering the military, respectively.
If your lender doesn't have an option that's right for you, you might consider refinancing your loans which could result in a lower monthly payment or a lower interest rate. Citizens has flexible student loan refinancing options that you can explore, with repayment plans that might fit your situation better.
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.
Alternatives to Deferment
While student loan deferment can provide a necessary relief at times, it may not always be the best option for your finances. If you’re looking for a long-term solution, exploring alternative repayment options may be worthwhile.
- Federal Income-Driven Repayment: If you have federal student loans, forbearance may be the next-best option. However, applying for income-driven repayment can also be worthwhile if you’re looking for a long-term solution.
- Modified Repayment Plans: If you can’t make your monthly student loan payments, finding the right repayment plan should be a priority to avoid defaulting.
- Refinancing: Once you assess your debt, refinancing may be a better option.
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