Can You Defer Student Loans If You Go Back to School?

Many individuals with student loans consider returning to school to further their education or change careers. Student loan deferment offers a temporary suspension of payments, providing financial relief while a borrower focuses on their studies. This option is specifically designed to accommodate students who re-enroll in an eligible educational program.

Eligibility for In-School Deferment

To qualify for an in-school deferment, a borrower must typically be enrolled at least half-time at an eligible college or career school. While the specific definition of “half-time enrollment” can vary by institution, it generally means taking at least half of the course load that a full-time student would undertake, which could be six units or more for undergraduates. The educational institution must be eligible to participate in federal student aid programs, even if it does not currently award such aid.

Automatic deferment often occurs if the school reports the borrower’s enrollment information to the loan servicer through systems like the National Student Clearinghouse. However, if an automatic deferment does not take effect, the borrower may need to contact their school to ensure their enrollment status is reported. For graduate or professional students with Direct PLUS Loans, an additional six months of deferment may be available after they cease to be enrolled at least half-time.

Types of Loans and Deferment

The impact of in-school deferment varies significantly depending on the type of student loan. Federal student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, and Perkins Loans, have specific deferment rules. For Direct Subsidized Loans and Federal Perkins Loans, the government pays the interest that accrues during an approved deferment period, meaning the loan balance does not increase.

Direct Unsubsidized Loans and Direct PLUS Loans, however, continue to accrue interest during deferment. If not paid, this interest will be added to the principal balance when the deferment period ends, a process known as interest capitalization. This increases the total amount owed and the future interest calculations. Private student loans have different deferment policies set by individual lenders. While some private lenders offer in-school deferment, the terms regarding eligibility, duration, and interest accrual can vary widely, and some may require interest-only or fixed payments during the deferment period.

Applying for Deferment

In many cases, if a borrower is enrolled at least half-time at an eligible institution, the deferment may be automatically applied as the school reports enrollment data to loan servicers. If an automatic deferment does not occur, borrowers should contact their loan servicer directly.

The loan servicer can provide the necessary in-school deferment form, which often requires certification from the educational institution. This form must be submitted to the servicer. It is important to continue making payments on loans until official notification of deferment approval is received, to avoid delinquency or default. Processing times for deferment requests can vary, but many online applications may be processed within a few business days.

Understanding Interest and Repayment After Deferment

For unsubsidized federal loans and private loans where interest accrues during deferment, unpaid interest will capitalize, meaning it is added to the loan’s principal balance. This increases the total amount on which future interest is calculated, leading to a higher overall cost of the loan and potentially higher monthly payments once repayment resumes. For example, a $10,000 loan with 6.8% interest deferred for six months could see $340 in accrued interest capitalize, increasing the principal to $10,340.

Once the in-school deferment ends, typically after the borrower graduates or drops below half-time enrollment, a grace period may apply before repayment begins. Federal Direct Subsidized and Unsubsidized Loans usually have a six-month grace period. During this grace period, interest continues to accrue on unsubsidized loans. After the grace period concludes, or immediately if no grace period applies, the borrower’s repayment obligations resume, and payments are due according to their chosen repayment plan.