Why Are My Student Loans in Deferment?

Student loan deferment offers a temporary pause in the obligation to make payments on federal student loans. This status allows borrowers to suspend principal and interest payments for a specified period, providing financial flexibility during times of need.

Understanding Loan Deferment

Student loan deferment is a period during which the repayment of federal student loan principal and interest is temporarily postponed. This temporary suspension of payments can provide significant relief to borrowers experiencing financial challenges or pursuing further education. While payments are paused, the treatment of interest accrual varies depending on the type of loan.

A key distinction exists between deferment and forbearance, primarily concerning interest accrual. For Direct Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans, interest typically does not accrue during a period of deferment. In contrast, interest continues to accrue on all loan types during forbearance, which can lead to a larger total amount owed when repayment resumes.

For unsubsidized federal student loans, including Direct Unsubsidized Loans, Direct PLUS Loans, and unsubsidized portions of Direct Consolidation Loans, interest will continue to accrue during deferment. If this accrued interest is not paid by the borrower during the deferment period, it will be added to the principal balance of the loan, a process known as capitalization, when the deferment ends. Capitalization increases the overall loan balance, leading to more interest accumulating over the life of the loan and potentially higher monthly monthly payments upon re-entry into repayment. Deferment ultimately extends the overall repayment period of the loan, as the time spent in deferment does not count towards the standard repayment term.

Common Reasons for Deferment

Student loans may enter deferment due to several common circumstances, which either automatically trigger this status or require a borrower to demonstrate eligibility.

In-School Deferment

One frequent reason is in-school deferment, which typically applies when a borrower is enrolled at least half-time at an eligible college or career school. In many cases, this deferment is applied automatically as schools report enrollment status to loan servicers.

Economic Hardship Deferment

Economic hardship deferment is available to borrowers who are experiencing significant financial difficulties. Eligibility can stem from receiving certain means-tested public assistance benefits, such as Temporary Assistance for Needy Families (TANF) or Supplemental Security Income (SSI). It may also apply to borrowers working full-time but earning below 150 percent of the poverty guideline for their family size and state, or those serving as Peace Corps volunteers. This deferment can last for up to three years, and generally requires the borrower to submit documentation to their loan servicer to prove their financial situation.

Unemployment Deferment

Unemployment deferment is another option for borrowers who are actively seeking but unable to find full-time employment, or who are receiving unemployment benefits. This deferment can be granted for up to three years, and borrowers must typically certify their unemployment status or job search efforts.

Graduate Fellowship Deferment

Graduate fellowship deferment is available for those enrolled in an approved graduate fellowship program. Borrowers must submit a request and provide documentation of their enrollment in an eligible program.

Military Service Deferment

Military service deferment is provided for borrowers serving on active duty during a war, military operation, or national emergency. This deferment applies for a post-active duty period. Borrowers need to provide proof of their active duty status, such as military orders or a statement from a commanding officer.

Cancer Treatment Deferment

A cancer treatment deferment is available to borrowers undergoing cancer treatment and for a six-month period after treatment concludes. To qualify, borrowers must submit a request certified by their physician.

Navigating Your Deferment Status

Borrowers can confirm their deferment status by logging into the online portal of the loan servicer, where loan details and current status are typically displayed. Borrowers can also review statements received from their servicer or contact the servicer directly for confirmation.

Loan servicers typically communicate the start and end dates of the approved deferment period. Borrowers should note these dates to anticipate when repayment obligations will resume. This information helps in preparing for the transition back into active repayment.

Borrowers have the option to pay accrued interest during the deferment period to prevent it from capitalizing, or being added to the principal balance, when the deferment ends. Paying interest as it accrues can help manage the overall cost of the loan and prevent the loan balance from increasing.

Borrowers generally have the flexibility to end their deferment early if their circumstances change or if they wish to resume payments sooner. This typically involves contacting the loan servicer to request an early termination of the deferment. Ending deferment early can be beneficial if a borrower’s financial situation improves and they want to minimize interest accrual or shorten their overall repayment timeline.

As the deferment period approaches its end, loan servicers usually provide notifications to borrowers, detailing the upcoming re-entry into repayment. Borrowers should use this time to assess their financial situation, determine their projected monthly payment amount, and explore available repayment plans, such as income-driven repayment options, if needed. Preparing for repayment ensures a smooth transition and helps avoid potential delinquency or default.