Can You Defer Private Student Loans?

Private student loan deferment allows borrowers to temporarily pause their loan payments under specific circumstances. Unlike federal student loans, which have standardized deferment options outlined by government regulations, private student loan deferment programs are determined individually by each lender. This means the availability and terms of deferment can vary significantly from one private lender to another, often being more limited than federal programs.

Understanding Private Student Loan Deferment

Private student loan deferment involves a temporary suspension of loan payments, including both principal and interest, for a specified period. This temporary pause can provide much-needed relief during challenging times. This differs from forbearance, where interest typically continues to accrue. With private loans, interest almost always accrues during both deferment and forbearance periods.

Common situations that may qualify a borrower for private student loan deferment include continued enrollment in school, periods of unemployment, or experiencing significant economic hardship. Many lenders offer in-school deferment if a borrower is enrolled at least half-time in an eligible program.

Unemployment deferment is another potential option for borrowers who have lost their jobs or are unable to find full-time employment. Economic hardship deferment may also be available for those facing severe financial difficulties, with criteria often linked to income levels or specific financial indicators. These options are entirely at the discretion of the private lender.

Preparing Your Deferment Request

Before formally requesting a private student loan deferment, gather the necessary information and documentation. Lenders require specific proof to verify eligibility for their deferment programs. Contact your loan servicer early to understand their particular requirements, forms, and guidelines.

For an in-school deferment, lenders typically require official verification of enrollment from your educational institution. This may include an enrollment verification form completed by the school or proof of your half-time enrollment status.

If seeking unemployment deferment, lenders generally require documentation proving your unemployment status, such as statements showing eligibility for unemployment benefits or a layoff notice. For economic hardship deferment, borrowers often need to provide financial documents, such as recent pay stubs or income statements, to demonstrate their financial situation.

Submitting Your Deferment Request and What to Expect

Once all necessary information and documentation are prepared, submit the deferment request to your private loan servicer. This process typically begins by contacting the lender directly, often through their website, phone, or mail. Many lenders provide specific forms for deferment requests that must be completed.

Submission methods can include uploading documents through an online portal, mailing physical forms, or fax. Continue making your regular loan payments until you receive official confirmation that your deferment request has been approved. Failing to do so could result in late fees or negative impacts on your credit.

After submission, the lender will process your request and communicate their decision. If approved, the lender will provide details on the deferment period’s duration and any associated terms. If denied, they may offer reasons for the denial or suggest alternative repayment options.

Financial Implications of Deferment

Deferring private student loans has important financial consequences. A primary implication is the continued accrual of interest during the deferment period. Interest on private student loans almost always continues to accumulate, even when payments are paused.

This accrued interest is often capitalized, meaning it is added to the principal balance of the loan once the deferment period ends. When the interest capitalizes, the total amount owed increases, and future interest will be calculated on this larger principal balance. This capitalization leads to a higher overall loan cost and can extend the total repayment term.

For example, a loan with a $30,000 balance and a 6% interest rate could accrue $1,800 in interest over a one-year deferment period. If this interest is capitalized, the new principal balance becomes $31,800, increasing future monthly payments and the total amount paid over the life of the loan. Borrowers may have the option to pay the accruing interest during deferment to prevent it from being added to the principal.