A student loan deferment lets you stop making payments on your loan or reduce the amount you pay for up to three years, in most cases. Interest on subsidized deferred loans does not accrue during the deferment period because the government picks up the interest payments. Interest on unsubsidized deferred loans and all loans in forbearance, another way to pause payments, does accrue and is capitalized or added to the amount due at the end of the deferment period.
Both deferment and forbearance are considered temporary measures. If you foresee that you'll be unable to resume your student loan payments in three years or less, you should consider an income-based repayment (IBR) plan instead.
- Student loan deferment lets you stop making payments on your loan for up to three years, but does not forgive the loan.
- You must apply (and qualify) for deferment unless you are enrolled in school at least half-time.
- Interest on subsidized loans does not accrue during deferment.
- Interest on unsubsidized loans does accrue during deferment and is added to your loan at the end of the deferral period.
- Deferment on private student loans varies by lender and not all lenders offer it.
Deciding to Defer
When deciding whether to pursue student loan deferment, you should ask yourself the following questions:
- Are my loans subsidized federal or Perkins loans? Interest on subsidized loans and Perkins loans does not accrue during the deferment period. If your loans are unsubsidized or private loans, interest will likely accrue unless you pay it while in deferment.
- Can I afford to make a reduced loan payment? If you can’t pay anything, deferment may provide some breathing room until you can restart payments. If what you need is a long-term lower payment, an IBR plan may make more sense.
- Will I be able to restart payments on my student loans soon? If you can, deferment may be a good way to get over a temporary financial bump in the road. If you don’t see any way to make payments down the road, deferment is not a good option.
Qualifying for a Student Loan Deferment
You can’t simply stop making payments on your student loans and declare yourself in deferment. You must qualify, which involves working with your loan servicer or lender and, in most cases, making an application. Your loan servicer or lender will process your application, let you know if more information is needed, and tell you whether you qualify. It’s important that you continue to make timely payments on your loans while you await a decision. Failure to do so could ultimately result in a loan default.
Federal student loan deferment
Most federal student loan deferments require that you apply. One type, known as In School Deferment, is automatic if you are enrolled in school at least half-time. If you believe you qualify for deferment based on any of the other categories listed below, you will need to apply. To do that, go to the U.S. Department of Education Federal Student Aid Repayment Forms website, click on Deferment, and retrieve an application for the type of deferment for which you believe you qualify.
Private student loan deferment
To defer a private student loan, you must contact your lender. While traditional deferment is not available from most private lenders, many offer some form of deferment or relief if you are enrolled in school, serving in the military, or unemployed. Some also offer deferment for economic hardship. As with unsubsidized federal loans, in most cases any deferment of a private loan comes with accrued interest that will capitalize at the end of the deferment period. You can escape this by paying the interest as it accrues.
Student loan deferment is for temporary financial hardship only. For long-term problems consider an income-based repayment plan instead.
Types of Federal Student Loan Deferment
The following deferment types apply to federal student loans. As noted, some private lenders also offer payment relief, but the types, rules, and requirements vary by lender.
In-school student deferment
This is the only automatic deferment offered and it comes with the requirement that you are attending school at least half-time. If you have a subsidized or unsubsidized Direct or federal Stafford student loan, or if you are a graduate or professional student with a Direct PLUS or FFEL PLUS loan, your loan will remain on pause until six months after you graduate or leave school. All others with PLUS loans must begin repaying as soon as they leave school. If you don’t receive automatic deferment, ask your school’s admissions office to send your enrollment information to your loan servicer.
In school parent deferment
If you are a parent who took out a Direct PLUS or FFEL PLUS loan, and the student for whom you took out the loan is enrolled at least half-time, you are also eligible for deferment, but you must request it. Your deferment comes with the same six-month grace period afforded students, mentioned above. There is no time limit for either type of In School Deferment.
You may request deferment for up to three years if you become unemployed or unable to find a full-time job. To qualify you must be either receiving unemployment benefits or seeking full-time work by registering with an employment agency. You must also reapply for this deferment every six months.
Economic hardship deferment
Economic hardship deferment is available for up to three years if you are currently receiving state or federal assistance, including through the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF). The same applies if your monthly income is less than 150% of your state’s poverty guidelines. You must reapply for this deferment once every 12 months.
Peace Corps deferment
A deferment of up to three years is also available if you are serving in the Peace Corps. Although Peace Corps service is considered an economic hardship, it does not require you to reapply during the deferment period.
Active duty military service in connection with a war, military operation, or national emergency can qualify you for student loan deferment, as well. This can include a 13-month grace period following the end of your service or until you return to school on at least a half-time basis.
Cancer treatment deferment
If you have cancer and federal student loan debt, you can request deferment of your loan during treatment and for six months following the conclusion of treatment.
Other deferment options
If you don't qualify for one of the types of deferment just listed, you still may qualify for one of the following:
- Graduate fellowship deferment if you are enrolled in an approved program.
- Rehabilitation deferment if you are enrolled in an approved rehabilitation training program for people with disabilities.
- Perkins loan forgiveness deferment if you received a Perkins loan and are working toward the cancellation of that loan.
- Additional/enhanced deferment options if you have a pre-July 1, 1993, Direct or FFEL Program loan. Contact your loan servicer for details.
Calculation of Student Loan Interest
The way interest on student loans is calculated is slightly different from the way interest is calculated on most other loans. With student loans, interest accrues daily but is not compounded (added to the balance). Instead your monthly payment includes the interest for that month and a portion of the principal.
Here’s an example of how it works:
- Loan total: $20,000
- APR = 7%
- Daily interest rate (APR divided by 365) = .07/365 = 0.00019 or 0.019%
- Daily interest amount (balance times daily interest rate) = $20,000*0.019% = $3.80
As you make payments on your loan, the balance goes down, as does the daily interest amount. But when your loan is in deferment, the daily interest amount remains the same until you begin repaying the loan since the interest is not capitalized (added to the loan) until the end of the deferment period.
Cost of Deferment
If you have private or unsubsidized federal student loans, deferment can be costly. That’s because, unlike subsidized loans, interest on these loans accrues during the deferment period and is capitalized (added to the outstanding balance) at the end of deferment. That increases the amount you owe once you begin repayment as well as the total you will pay over the life of the loan.
Let's say, for example, you take out a $20,000 student loan and finance it for 10 years at an annual interest rate of 7%. The table below shows the amounts you would pay based on four different scenarios: (1) paid as agreed; (2) subsidized with 36 months of interest-free deferment; (3) unsubsidized with a 36-month deferment but paying interest during deferment; (4) unsubsidized with a 36-month deferment and paying no interest during deferment.
|Payments on a 10-Year $20,000 Student Loan*|
|Monthly Payment||Yr. 1-3||Yr. 4-10||Yr. 11-13||Interest||Total|
|(1) Paid as agreed||$232||$232||$0||$7,840||$27,840|
No interest paid
*Amounts rounded to nearest dollar for clarity.
As the table above illustrates, taking a three-year deferment on an unsubsidized loan and paying no interest during the deferment period (scenario 4) results in a larger loan to pay off ($24,161 vs. $20,000) when repayment begins. The nearly $50 increase in monthly payments plus the extra interest adds nearly $6,000 to the total you pay over the life of the loan.
Alternatives to Deferment
Depending on your circumstances, two alternatives to student loan deferment might be worth considering:
If you don’t qualify for deferment, forbearance may be an option, provided you qualify. The main difference between deferment and forbearance is that interest always accrues with forbearance and is added to your loan at the end of the deferment period unless you pay it as it accrues. (Scenarios 3 and 4 above illustrate what happens to any loan in forbearance.)
Income-based repayment (IBR)
If you expect your financial problems to last more than three years, an income-based repayment (IBR) plan may be best for you. IBR plans calculate your monthly payments based on your income and family size.
IBR plans can be as low as $0 per month and even provide loan forgiveness if your loan isn’t paid off after 20 to 25 years. Many income-based plans waive interest for up to three years if your payments don’t cover accrued interest. IBRs do extend the time you will be paying on your loan, so your interest payments over time will likely be more than with deferment.
One big caveat: IBRs are only available to pay off federal student loans. This is an important reason you should avoid mixing federal and private loans into a single consolidated loan. Doing so will remove IBR eligibility from the federal-loan portion of your combined debt.
The Bottom Line
Student loan deferment makes the most sense if you have subsidized federal or Perkins loans since interest does not accrue on them. Forbearance should only be considered if you don’t qualify for deferment. Remember that deferment and forbearance are for short-term financial difficulty. Income-Based Repayment (IBR) is a better option if your financial problems will last more than three years and you are repaying federal student loan debt. In all cases, make sure you contact your loan servicer immediately if you have trouble making your student loan payments.