What Is a Loan Deferment and How Does It Work?

A loan deferment offers a temporary reprieve from scheduled loan payments, allowing borrowers to pause their financial obligations under specific circumstances. This mechanism provides short-term financial relief without immediately triggering a loan default.

Understanding Loan Deferment

Loan deferment provides a temporary suspension of loan payments, meaning the borrower is not required to make principal and interest payments for a set period. This differs from loan forbearance, though both offer a pause in payments. During a deferment, interest may or may not accrue, depending on the loan type and its specific terms. In contrast, interest typically accrues on all loan types during forbearance, which can increase the total amount owed.

The primary distinction between deferment and forbearance lies in how interest is treated and the conditions for approval. Deferment is usually tied to specific qualifying events; for certain federal loans, the government may pay the interest that accrues. Forbearance generally results in the borrower being responsible for all accrued interest, which can increase the loan balance through capitalization. Both options extend the overall repayment period, as paused payments are added to the end of the loan term.

Qualifying for Deferment

Eligibility for loan deferment is typically tied to specific life events or financial situations. Common reasons for federal student loan deferment include enrollment in school at least half-time, unemployment, economic hardship, active military service, or participation in a graduate fellowship program. For instance, an in-school deferment allows students enrolled at least half-time to pause payments, often automatically. Economic hardship deferments are available for those experiencing significant financial difficulty, which might be evidenced by receiving public assistance or having very low income relative to expenses.

The types of loans that offer deferment vary, with federal student loans generally having more structured and comprehensive deferment options. Private student loans may offer deferment, but options depend on the individual lender and are typically more limited, sometimes only for situations like returning to school or military service. For mortgages, while the term “forbearance” is more commonly used for payment pauses, some lenders offer deferment options where missed payments are added to the end of the loan term, often without additional interest on those postponed amounts. Personal loans may also offer deferment for documented financial hardship, such as job loss or a medical emergency, but approval is not guaranteed and interest usually continues to accrue.

To qualify, borrowers must generally provide documentation proving their eligibility. This could include enrollment verification, unemployment statements, military orders, or financial records. Borrowers should contact their loan servicer to understand the specific criteria and required documentation.

Applying for and Managing Deferment

Initiating a deferment request involves directly contacting the loan servicer or lender and submitting specific application forms. It is important to continue making regular payments until the deferment request is officially approved to avoid negative impacts on credit.

The way interest is handled during a deferment period varies significantly by loan type. For federal subsidized student loans, the government pays the interest that accrues, so the loan balance does not increase. For federal unsubsidized student loans and Direct PLUS Loans, interest continues to accrue. If this accrued interest is not paid, it will capitalize, meaning it is added to the principal balance when deferment ends, increasing the total amount owed. For private loans, interest almost always accrues during deferment and is typically capitalized if not paid.

Borrowers should monitor the status of their deferment request and understand the approved deferment period, which can range from a few months to several years depending on the reason and loan type. For federal student loans, deferment periods for unemployment or economic hardship can last up to three years, requiring reapplication to confirm continued eligibility. Prior to the deferment period ending, the loan servicer will usually communicate about resuming payments. Preparing to resume payments ensures a smooth transition back into the repayment schedule.