What Is a Deferred Student Loan & How Does It Work?

Student loan deferment offers a temporary pause in required loan payments. This option is available to borrowers who encounter specific situations that make it challenging to meet their financial obligations. Deferment provides financial relief, allowing borrowers to address their circumstances without the immediate burden of student loan payments. It serves as a valuable tool for managing student debt.

Understanding Deferment Eligibility

Eligibility for student loan deferment depends on the type of loan and the specific circumstances a borrower faces. Federal student loans offer more standardized deferment options compared to private student loans. Common reasons for federal loan deferment include enrollment in school, unemployment, economic hardship, and military service.

To determine eligibility, borrowers must contact their student loan servicer. The servicer can provide detailed information on qualifying conditions and the necessary documentation for each deferment type. Private loan deferment options vary by lender and are outlined in the loan’s original terms.

Different Deferment Categories

Several deferment categories exist for federal student loans, each with distinct requirements. In-school deferment is common for those enrolled at least half-time in an eligible college or career school, often applied automatically. Unemployment deferment may be granted for up to three years if a borrower is actively seeking full-time employment or receiving certain government benefits.

Economic hardship deferment can last up to three years for borrowers experiencing financial difficulties, such as low income or high debt. Military service deferment is available for those on active duty during a war, military operation, or national emergency, extending for a period after active service. Other deferment types include graduate fellowship programs or enrollment in approved rehabilitation training programs.

Financial Implications of Deferment

Understanding the financial consequences of deferment is important for borrowers. During a deferment period, payments are not required, but interest may still accrue on the loan balance. For subsidized federal loans and Perkins Loans, the government pays the interest during deferment, meaning the loan balance does not increase.

However, for unsubsidized federal loans and all private loans, interest continues to accrue during deferment. If this accrued interest is not paid during the deferment period, it will be added to the principal balance of the loan, a process known as capitalization, when repayment resumes. Capitalization increases the total amount owed, leading to higher monthly payments and a greater overall cost over the life of the loan. While deferment offers a temporary payment pause, it does not negatively impact a borrower’s credit score if properly obtained and managed.

The Deferment Application Process

Initiating a deferment request begins by contacting your student loan servicer. The servicer provides the specific application forms required for the desired deferment type. Most deferments are not automatic, so borrowers must proactively apply.

Along with the application, supporting documentation is required to verify eligibility. This might include enrollment verification from a school, proof of unemployment benefits, or military service orders. Borrowers should continue making payments until they receive official notification that their deferment request has been approved to avoid delinquency. Processing times can vary, so it is advisable to submit applications in advance and confirm the deferment’s approval and the new repayment start date.