Can You Defer Private Student Loans While in School?
Explore options for managing private student loan payments while studying, including deferment eligibility, financial impacts, and alternative strategies.
Private student loans often provide essential financial support for higher education, covering costs not met by federal aid. Many borrowers wonder if they can pause payments on these loans while still enrolled in school. Deferring private student loan payments offers temporary relief, allowing students to focus on their studies without immediate repayment burdens.
Eligibility and Application for Deferment
Securing a deferment for private student loans requires understanding the specific terms and conditions outlined by your loan servicer. Eligibility for in-school deferment generally hinges on your enrollment status at an accredited educational institution. Most lenders require students to be enrolled at least half-time to qualify for a payment pause.
To initiate a deferment request, borrowers typically need to contact their loan servicer directly. The servicer will provide an in-school deferment request form, which often requires certification from your academic institution to verify enrollment details. This documentation confirms your student status. Some lenders may automatically receive enrollment information, but it is prudent to confirm this and submit the necessary forms yourself.
Once the form is completed and certified by your school, you must submit it to your loan servicer through their specified channels. It is important to continue making payments until you receive official confirmation that your deferment request has been approved. Deferment periods are usually granted for a set duration, such as 12 months, and borrowers may need to reapply periodically to extend the deferment if their enrollment continues.
Financial Implications of Deferment
While deferment provides a temporary reprieve from monthly payments, it carries significant financial implications for private student loans. Unlike some federal loans, interest typically continues to accrue on private student loans during a deferment period. This means the total amount owed continues to grow.
A key consequence of interest accrual during deferment is capitalization. At the end of the deferment period, any unpaid accrued interest is added to your loan’s principal balance. This increases the overall amount you owe, meaning future interest will be calculated on a larger principal. As a result, both your monthly payments after deferment and the total cost of the loan over its lifetime will likely be higher.
For instance, if you defer payments on a $10,000 loan with a 6.8% interest rate for six months without paying interest, approximately $340 in interest could accrue and then capitalize, increasing your principal to $10,340. This can lead to higher daily interest charges and a larger total repayment amount. When properly applied for and approved, deferment generally does not negatively impact your credit score, unlike missed payments.
Other Student Loan Management Options
Beyond deferment, several other strategies exist for managing private student loans while attending school. One beneficial option is making interest-only payments during your enrollment. By consistently paying the interest as it accrues, you can prevent it from capitalizing onto your principal balance, thereby reducing the total cost of the loan over time.
Forbearance offers another temporary payment pause, distinct from deferment. Forbearance is often granted for general financial hardship and typically results in interest accruing on all loan types during the pause. The terms for forbearance vary by lender, and it is usually granted at the servicer’s discretion.
Refinancing private student loans can also be a viable option to potentially lower interest rates or monthly payments. While refinancing while still in school can be challenging, as many lenders prefer borrowers who have graduated and have a stable income, it is not impossible. Obtaining a cosigner with good credit can significantly improve your chances of qualifying for refinancing. Even making small, partial payments during school, if feasible, can help reduce the overall debt burden and the amount of interest that accrues.