Navigating Student Loan Deferment: Requirements, Options, and Considerations

Student loan repayment can be a significant financial burden for many individuals. When facing financial hardship or specific life circumstances, understanding options like deferment becomes crucial. Student loan deferment allows you to pause your monthly payments for a predetermined time. This article explores the requirements for student loan deferment, different types of deferment, and alternative options to consider.

Understanding Student Loan Deferment

Deferment is a temporary pause to your student loan payments for specific situations such as active duty military service and reenrollment in school. If you are struggling to make your student loan payments, you may be able to ask your loan servicer for a deferment. Depending on the type of loans you have, interest may also be paused while your loans are in 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.

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

Eligibility for Federal Loan Deferment

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. 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.
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.
Cancer Treatment: You can apply for this type of deferment if you're currently undergoing cancer treatment.

Interest Accrual During Federal Loan Deferment

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

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. 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. 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.

Alternatives to Deferment

Before you ask your loan servicer about deferment, you may want to consider an income-driven repayment (IDR) plan. Make sure you consider all of your options before you ask for a deferment.

Forbearance

If you're dealing with financial difficulties, medical bills, a change in unemployment or other challenges, your loan servicer may grant you forbearance. 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. Under the one-time IDR account adjustment that will take place in 2023, you may receive credit for some previous time in forbearance and deferment.

Income-Driven Repayment (IDR)

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. In some cases, your monthly payment in an income-driven repayment plan can be as low as $0 per month.

Student Loan Forgiveness

When the application is available, be sure to apply for student loan forgiveness offered by the Biden administration.

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.

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Important Considerations

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.

Sallie Mae Loan Deferment

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.

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