How to Defer Loan Payments and What to Expect

Loan deferment offers a temporary suspension of loan payments, providing financial relief during periods of hardship. It serves as a temporary measure to navigate challenges such as unemployment, medical emergencies, or returning to school. Understanding its implications for the loan balance and future payments is important.

Distinguishing Deferment and Forbearance

Loan deferment and loan forbearance both allow a temporary pause in loan payments, yet they differ significantly. Deferment is typically granted for specific circumstances, often without interest accruing on certain types of loans, especially subsidized federal student loans. Common reasons for deferment include enrollment in school, unemployment, or economic hardship.

Forbearance, conversely, is a broader option where lenders may grant a temporary cessation or reduction of payments, but interest typically continues to accrue on all loan types. This increases the total loan amount, potentially leading to higher future payments or a longer repayment period. Forbearance is used when a borrower experiences a temporary financial difficulty that does not meet deferment criteria, such as a short-term illness or an unexpected expense. The key distinction lies in whether interest continues to accumulate during the pause, which can significantly affect the overall cost of the loan.

Information and Documentation Needed to Request Deferment

Before initiating a deferment request, gathering all necessary information and documentation. Borrowers should first identify their loan account numbers and the name of their loan servicer. Personal identification details, such as a Social Security number and date of birth, are also required to verify identity.

Proof of the qualifying hardship or circumstance is essential for a deferment application. For unemployment deferment, this might include official letters from a state unemployment agency or income statements showing a significant reduction in earnings. Students seeking an in-school deferment will typically need enrollment verification from their educational institution, confirming at least half-time attendance. Medical deferments may require documentation from a healthcare provider detailing the illness or disability. These documents provide the loan servicer with the evidence needed to assess eligibility.

The Loan Deferment Request Process

After gathering all required information and documentation, submit the deferment request to the loan servicer. Borrowers should locate the appropriate deferment application form, which is typically available on their loan servicer’s website. These forms often require detailed personal, loan, and hardship information.

Once the form is completed, it can usually be submitted through various channels, including secure online portals, mail, or fax. Retain copies of all submitted documents for personal records. Following submission, borrowers should expect to receive a confirmation of receipt, typically within a few business days, and processing times can range from one to four weeks.

Understanding Loan-Specific Deferment Terms

Loan deferment terms vary significantly across loan types, impacting interest accrual and overall cost. Federal student loans offer several deferment options, such as In-School, Unemployment, Economic Hardship, and Military Service Deferment. For subsidized federal student loans, such as Direct Subsidized Loans and some FFEL Program loans, the U.S. Department of Education pays the interest that accrues during the deferment period, preventing the loan balance from increasing. Unsubsidized federal student loans, however, will accrue interest during deferment, and this interest will capitalize if not paid before the deferment ends.

Private student loans generally offer fewer deferment options, and their terms are determined solely by the individual lender. While some private lenders may offer deferment or forbearance, interest almost always accrues during these periods, increasing the total amount owed. For mortgage loans, deferment is less common than forbearance, especially after recent widespread forbearance programs. During mortgage forbearance, payments are paused or reduced, but interest continues to accrue, and lenders typically offer various repayment options at the end of the forbearance period, such as a lump sum payment, a repayment plan over several months, or a loan modification that adjusts the loan terms.

Auto loans and personal loans also typically have limited formal deferment options, with lenders more often offering temporary payment extensions or modifications rather than full deferment. In nearly all cases for these types of loans, interest continues to accrue during any period of paused payments, potentially extending the repayment term or increasing the total interest paid over the life of the loan. Borrowers should always review their specific loan agreements and communicate directly with their loan servicer to understand the exact terms and financial implications of any payment pause.