No, a student loan deferral by itself does not affect your credit score. However, in certain situations, your credit score would be better off if you would actually avoid taking it. Read on to see how it works.
- A student loan deferral doesn't directly impact your credit score since it occurs with the lender's approval.
- Student loan deferrals can increase the age and the size of unpaid debt, which can hurt a credit score.
- Not getting a deferral until an account is delinquent or in default can also hurt a credit score.
Student Loan Deferrals and Your Credit
A student loan deferral or deferment lets you postpone making payments on your debt—the principal, the interest, or both—for a period of time. Your lender may approve your deferral request under a number of circumstances.
Usually, these circumstances involve your inability to work: temporary total disability, rehabilitation training program, parental leave (e.g., pregnancy or caring for a newly adopted or newborn child), or unemployment. Or, they might reflect additional study: medical-school residency, full-time graduate fellowship, or at least half-time enrollment at an eligible school. Deferrals are also allowed for certain types of jobs: public service (e.g., joining the Peace Corps or the Armed Forces), or teaching in a designated area or school system that has a shortage of teachers.
Borrowers being treated for cancer can defer their loan payments during their regimens and for up to six months after the treatment is complete.
Your credit score reflects whether you are meeting your obligations to your creditors. Usually, non-payment is a prime example of not meeting obligations. But student loan deferments are a different case. You're not just opting out on your own: Your lender has approved the request to suspend your repayments. So, you are holding up your end of the agreement with your lender. Hence, the deferral will not directly hurt your credit score.
Drawbacks of Student Loan Deferrals
There are a couple of ways that deferral can indirectly hurt your credit score, however.
Waiting Too Long
Often, people wait until they've fallen behind on payments to request a deferral. Bad move. As soon as you're 30 days overdue, your lender can report your payment as "late" to the credit bureaus, which can lower your credit score. When your loan payment is 90 days overdue, it is officially "delinquent"; when your payment is 270 days late, it is officially “in default.” You can imagine the impact either status has on your score. Deferral won't sink the score further, but it won't help it recuperate much, either.
Not paying down your loan balance during the deferral period could cause your credit score to sink slightly lower over time. As you know, the total amount you owe compared with the amount you originally borrowed affects your credit score, and the less you owe, the better. In this case, your debt is not growing, but it is getting older, and sometimes its age weighs more heavily on the score.
Maximum number of years you can usually defer student loan payments
In addition, if you have a private loan or a federal unsubsidized loan, interest will continue to accrue during the deferral period, and this increase in your loan balance could ding your credit score. If you don’t pay the interest on your loan and allow it to be capitalized—that is, added to the principal—the total amount you repay over the life of your loan may be higher.
On the positive side, if your credit score is lower than it otherwise might be because you owe such a large balance on your student loans, it should start creeping up once you start repayments again.
The Bottom Line
A student loan deferral doesn't directly hurt your credit score. However, it doesn't do it any favors, either. Depending on your situation, a loan deferral might not be the optimal strategy for dealing with your student debt. Before you commit to this course, consider options such as refinancing or income-driven repayment plans.