Why Is My Student Loan in Deferment?

Student loan deferment offers a temporary pause in loan payments, providing relief during specific life events. This option can be helpful for borrowers facing financial challenges or pursuing further education.

Understanding Student Loan Deferment

Student loan deferment temporarily suspends the requirement to make payments on the principal and interest of educational loans. It offers a temporary reprieve during financial strain or significant life changes, allowing individuals to address immediate needs without the burden of loan payments.

Deferment differs from forbearance, another option for payment relief. During a deferment, interest typically does not accrue on certain types of federal student loans, such as Direct Subsidized Loans and Perkins Loans. In contrast, interest continues to accrue on all loan types during forbearance, which can lead to a larger loan balance over time.

Common Deferment Eligibility

Several circumstances can qualify a borrower for student loan deferment, each with specific requirements. One common reason is In-School Deferment, available when enrolled at least half-time at an eligible college or career school. This deferment is often applied automatically if the school reports enrollment status to the loan servicer. Parent PLUS loan borrowers may also qualify if the student for whom the loan was taken is enrolled at least half-time.

Another category is Unemployment Deferment, typically available for up to three years. Eligibility requires either receiving unemployment benefits or diligently seeking full-time employment, defined as 30 or more hours per week. Documentation, such as proof of unemployment benefits or records of job search attempts, must be provided to the loan servicer.

Economic Hardship Deferment can provide relief for up to three years to borrowers experiencing financial difficulties. Qualifying conditions include receiving public assistance (like Temporary Assistance for Needy Families or Supplemental Security Income), serving in the Peace Corps, or having a full-time income below 150% of the poverty guideline for one’s family size and state. Proof of income or public assistance is generally required.

For those pursuing advanced studies, a Graduate Fellowship Deferment is an option if enrolled in an approved graduate fellowship program on a full-time basis with sufficient financial support. Similarly, Rehabilitation Training Deferment is available for enrollment in an approved program for vocational, drug abuse, mental health, or alcohol abuse rehabilitation treatment.

Military Service Deferment is for individuals on active duty in connection with a war, military operation, or national emergency. This extends to a post-active duty period. Required documentation often includes military orders or a statement from a commanding officer. Lastly, Cancer Treatment Deferment is available for federal loan borrowers undergoing cancer treatment and for six months following treatment completion. A physician’s certification is necessary to confirm eligibility.

Financial Implications of Deferment

The financial impact of deferment varies significantly depending on the type of student loan. For federal subsidized loans, such as Direct Subsidized Loans and Perkins Loans, the government pays the interest that would normally accrue during the deferment period. This means the loan balance will not increase due to interest during the deferment.

However, for unsubsidized federal loans, including Direct Unsubsidized Loans and PLUS Loans, interest continues to accrue throughout the deferment period. The borrower is responsible for this accrued interest. If this interest is not paid during deferment, it will typically be added to the principal balance of the loan when the deferment ends, a process known as interest capitalization.

Interest capitalization increases the total loan amount, meaning future interest will be calculated on a larger principal. This can lead to a higher overall cost and potentially increased monthly payments once repayment resumes. While deferment pauses payments, it also extends the overall loan term, as the repayment clock stops during the deferment period. Periods of deferment generally do not count towards required payments for programs like income-driven repayment (IDR) forgiveness or Public Service Loan Forgiveness (PSLF).

Managing Your Deferment Period

To initiate deferment, contact your student loan servicer for the application form and submit supporting documentation. Some deferments, like in-school deferment, may be automatically granted based on enrollment reported by your educational institution.

Monitor your loan status and servicer communications to ensure the deferment remains active and you are aware of its end date. Being proactive can prevent unexpected billing or issues.

As deferment concludes, prepare for repayment. Contact your servicer to understand your new payment amount, especially if interest capitalized, and explore repayment options. Update your contact information to receive necessary notifications regarding your loan’s status.