How to Defer Student Loans, Mortgages, and More

Loan deferment provides a temporary pause in loan payments, offering borrowers relief during periods of financial difficulty. This option helps manage various types of debt, from student loans to mortgages, when unforeseen circumstances arise. Understanding the conditions for deferment and its implications is important for financial planning.

Understanding Loan Deferment

Loan deferment allows a borrower to temporarily stop making payments on a loan for a specified period. This temporary suspension helps individuals facing financial hardships, such as unemployment, illness, or a return to school. The duration of a deferment period can vary, ranging from a few months to several years, depending on the loan type and the borrower’s circumstances.

It is important to distinguish deferment from forbearance, as these terms carry different implications, especially regarding interest accrual. Both options allow for a temporary halt in payments. However, interest typically continues to accrue on all loan types during forbearance. In contrast, for certain federal student loans, interest may not accrue during a deferment period, which can result in a lower overall cost. For mortgages, deferment often means moving missed payments to the end of the loan term, while forbearance involves a temporary payment pause with a repayment plan required after the period ends.

Forbearance is generally granted when a borrower experiences a temporary financial setback, and the lender has discretion in approving the request. Deferment, particularly for federal student loans, is often based on specific eligibility criteria. If those criteria are met, the deferment must be granted.

Eligibility for Deferment

Eligibility for loan deferment varies significantly across different loan types. Federal student loans offer the most structured and common deferment options. Borrowers must meet specific criteria and provide documentation to demonstrate their eligibility.

Federal Student Loans

Federal student loans offer several types of deferments, each with distinct requirements.
In-school deferment is typically automatic for borrowers enrolled at least half-time at an eligible educational institution, continuing for an additional six months after enrollment ceases. Parent PLUS loan borrowers can also qualify if the student is enrolled at least half-time.
Unemployment deferment is available for up to three years for borrowers who are unemployed or actively seeking full-time employment. To qualify, individuals must be receiving unemployment benefits or diligently seeking full-time work. Proof of unemployment benefits or documentation of job search efforts are typically required.
Economic hardship deferment provides a temporary payment pause for up to three years, generally in one-year increments. Eligibility is determined by factors such as receiving means-tested government benefits (e.g., TANF, SNAP, SSI), serving in the Peace Corps, or working full-time with income below 150% of the federal poverty guideline for their family size. Borrowers typically need to provide documentation of their income, public assistance, or Peace Corps service.
Military service deferment is available for borrowers on active duty in connection with a war, military operation, or national emergency. It is also available for a period of 13 months following the completion of qualifying active duty service. Required documentation often includes official military orders or a written statement from a commanding officer.

Private Student Loans

Deferment options for private student loans are less standardized and depend on the individual lender’s policies. While some private lenders may offer deferment for situations like in-school enrollment or military service, these options are not as broadly available or generous as those for federal loans. Borrowers should contact their loan servicer to inquire about available deferment programs and their eligibility criteria. The terms and conditions for private loan deferment, including interest accrual, are outlined in the loan agreement.

Mortgages

Mortgage deferment is a relief option, typically in cases of financial hardship, job loss, or natural disasters. This allows past-due payments to be moved to the end of the loan term. Lenders may offer deferment as part of a broader loan modification or after a period of forbearance to help borrowers catch up. Eligibility typically requires demonstrating financial distress, and specifics vary by lender and loan type.

Other Loans (Personal, Auto)

Deferment for other loan types, such as personal and auto loans, is less common and highly dependent on the lender and loan agreement. Some lenders may offer temporary payment pauses, often called “skip-a-payment” programs, typically at their discretion. Borrowers need to contact their lender directly to inquire about options and provide proof of financial hardship. Interest typically continues to accrue on these loans during deferment, potentially increasing the total cost.

Applying for Loan Deferment

Applying for loan deferment involves a structured process that begins once a borrower determines eligibility and gathers supporting documentation. The first step is contacting the loan servicer or lender for specific instructions tailored to their loan type and situation.

Borrowers should request the appropriate deferment application forms, often available on the servicer’s website or by mail or phone. It is important to identify the specific type of deferment sought, as different forms and requirements apply to each category.

Once obtained, complete the application form accurately and thoroughly. Gather all supporting documents that verify eligibility, such as proof of enrollment, unemployment benefits statements, income documentation, or military orders. Submitting all required information together can help expedite the review process.

Completed forms and supporting documentation can typically be submitted through online portals, mail, or fax, as specified by the loan servicer. Keep copies of all submitted materials for personal records. After submission, follow up with the loan servicer to confirm receipt and track its status. Continue making regular payments until the deferment is officially approved to avoid negative impacts on the loan status.

Impact of Deferment on Your Loan

Understanding the financial implications of loan deferment is important, as it affects the total cost and repayment schedule of the debt. While deferment offers immediate relief by pausing payments, it can lead to changes in the loan structure. These changes primarily involve interest accrual, the overall loan balance, and the subsequent repayment period.

Interest accrual during deferment varies significantly by loan type. For federal student loans, interest does not accrue on Direct Subsidized Loans and Perkins Loans during deferment. However, interest typically continues to accrue on Direct Unsubsidized Loans, PLUS Loans, and all private student loans during a deferment period. For mortgages and other consumer loans, interest generally continues to accrue, increasing the total amount owed.

When interest accrues during deferment, it can be capitalized. This means the unpaid interest is added to the loan’s principal balance at the end of the deferment period. This capitalization leads to a higher principal balance, meaning future interest will be calculated on a larger amount, increasing the total repayment cost over the loan’s life. Borrowers may have the option to pay the accruing interest during deferment to avoid capitalization.

After the deferment period concludes, regular loan payments resume. The loan term will be extended by the length of the deferment, pushing back the final repayment date. If interest was capitalized, the new monthly payment amount might be higher due to the increased principal balance. Borrowers should be aware of their new payment schedule and amounts to avoid missed payments.

An approved loan deferment generally does not negatively impact a borrower’s credit score. The loan status is typically reported as “deferred” to credit bureaus, indicating payments are temporarily paused with the lender’s consent. This differs from missing payments, which negatively affect credit. However, the overall debt burden, even if deferred, can still be a factor in future lending decisions.