Does Going Back to School Defer Student Loans?
Understand the specifics of pausing student loan payments by returning to school. Navigate eligibility, process, and financial outcomes.
Student loan deferment offers a temporary pause in loan payments under specific circumstances. This option allows borrowers to alleviate financial burdens during periods when making regular payments might be challenging. Returning to school is one common condition that can qualify a borrower for this relief.
Understanding Eligibility for In-School Deferment
Eligibility for an in-school deferment depends on a borrower’s enrollment status and the type of student loan. For federal student loans, borrowers qualify if they are enrolled at least half-time at an eligible college or career school. Half-time enrollment typically means taking a course load that is at least half of what the institution considers full-time. Schools report enrollment status to loan servicers, which can trigger an automatic deferment for federal loans.
Federal student loans, such as Direct Subsidized, Direct Unsubsidized, and Federal Family Education Loan (FFEL) Program loans, have provisions for in-school deferment. Direct PLUS Loans for graduate or professional students also qualify for an automatic six-month deferment after enrollment drops below half-time. In contrast, deferment options for private student loans vary significantly by lender. Borrowers with private loans should contact their lender to understand available deferment or hardship policies.
Existing grace periods on federal student loans can also interact with returning to school. If a borrower reenrolls at least half-time before their initial grace period ends, the grace period can be postponed or reset once they cease half-time enrollment again. This allows a borrower to retain the full grace period benefit after completing studies. However, for loans where the grace period has already been used, returning to school at least half-time will place the loan directly into an in-school deferment status.
The Deferment Application Process
Once a borrower understands their eligibility, the next step is to contact the loan servicer. Servicers can provide the forms and guidance for the application.
Deferment application forms are required, such as the “In-School Deferment Request” form. These forms are available on the loan servicer’s website or the Federal Student Aid website. The educational institution certifies the borrower’s enrollment status, confirming that they are attending at least half-time. This certification is a key component of the application.
Borrowers can submit the completed application and any required supporting documentation through online portals or mail. Continue making regular loan payments until the deferment request is approved by the loan servicer. After submission, borrowers should follow up with their servicer to confirm the status of their application.
What Happens During and After Deferment
During an in-school deferment, the financial implications vary depending on the loan type. For federal subsidized loans, the government pays the interest that would normally accrue, meaning the loan balance does not increase during the deferment period. However, for federal unsubsidized loans and most private student loans, interest continues to accrue during the deferment period.
The accrued interest on unsubsidized federal loans and private loans may be capitalized at the end of the deferment period. Capitalization means that the unpaid, accumulated interest is added to the principal balance of the loan. This increases the total amount owed, and future interest will then be calculated on this larger principal balance, which can lead to a higher overall cost of the loan.
When the deferment period concludes, repayment obligations will resume. For federal student loans, this typically occurs after any applicable post-enrollment deferment period or grace period has ended. Loan servicers are expected to send notifications to borrowers regarding the upcoming end of their deferment and when payments are scheduled to restart. It is advisable for borrowers to monitor these communications and plan for their repayment to avoid any lapses or potential negative impacts.