What Is a Student Loan Deferment and How Does It Work?
Need a break from student loan payments? Learn about deferment, how it works, who qualifies, and its financial implications.
Student loan deferment offers a temporary reprieve from making payments. It allows borrowers to postpone repayment obligations for a specific period due to eligible circumstances. Deferment provides financial relief during hardship or when a borrower is engaged in activities like continuing education or military service. This option helps borrowers avoid delinquency or default on their loans.
Eligibility for Deferment
Eligibility for student loan deferment depends on the loan type and the borrower’s current status. Most deferment options are available for federal student loans, including Direct Loans, Federal Family Education Loan (FFEL) Program loans, and Federal Perkins Loans. Private student loans may or may not offer deferment, and their terms vary significantly by lender. A fundamental requirement for federal loan deferment is that the loan must not be in default.
Eligibility is tied to specific qualifying events recognized by federal regulations. These events cover situations where a borrower’s ability to pay is impaired or they are engaged in government-recognized activities. Deferments are granted based on enrollment status in an educational program, employment status, or economic conditions.
Common Deferment Categories
Several common deferment categories exist for federal student loans, each with distinct requirements.
In-School Deferment: Available if a borrower is enrolled at least half-time at an eligible college or career school. This deferment typically applies automatically for federal loans and extends for six months after enrollment ceases.
Unemployment Deferment: Granted to borrowers who are actively seeking full-time employment or are receiving unemployment benefits. This type of deferment is generally limited to three years.
Economic Hardship Deferment: An option for those facing financial challenges, such as receiving means-tested government benefits or having a low income relative to the federal poverty guideline. This deferment can also last up to three years.
Military Service Deferment: Available to borrowers on active duty in the U.S. armed forces during a war, military operation, or national emergency. This deferment lasts for the duration of active duty service and for an additional 13 months after service ends.
Graduate Fellowship Deferment: Applies to borrowers enrolled in an approved graduate fellowship program. Other options include those for cancer treatment, rehabilitation training programs, and for parents who borrowed a PLUS loan while their child is enrolled in school.
Applying for Deferment
To apply for student loan deferment, first identify your loan servicer. Their contact information can typically be found on loan statements or through the Federal Student Aid website.
Obtain the correct application form for the specific deferment category you are seeking. These forms are usually available on the servicer’s website or the Federal Student Aid website. The application will require specific documentation to support the deferment request, such as proof of enrollment, unemployment benefit statements, or income statements.
Complete all informational fields accurately and attach all required supporting documents. Incomplete applications can delay the approval process. Borrowers must continue making regular loan payments until they receive official notification that their deferment request has been granted. Failure to do so could result in the loan becoming delinquent.
Implications of Deferment
While deferment provides temporary payment relief, it has distinct implications for the overall cost and term of a student loan. A key factor is whether the loan is subsidized or unsubsidized. For subsidized federal loans, the U.S. Department of Education pays the interest that accrues during the deferment period. This means the loan balance will not increase due to interest during deferment.
For unsubsidized federal loans, interest continues to accrue during the deferment period. If this accrued interest is not paid by the borrower, it will be capitalized, meaning it is added to the principal balance of the loan when the deferment ends. This capitalization increases the total amount owed, leading to higher future monthly payments and a greater total cost over the life of the loan.
Deferment also extends the overall repayment period of the loan, as payments are paused for a duration. When the deferment period concludes, borrowers must be prepared for payments to resume, typically with a new, potentially higher, monthly payment amount if interest was capitalized. It is advisable for borrowers to contact their loan servicer before the deferment ends to understand their new payment schedule and avoid delinquency.