How Can You Defer Student Loans?
If you’re facing an unexpected financial crunch, you can apply for a student loan deferment. Depending on certain criteria, you will be able to get a few installments delayed.
However, in most cases of deferment, the borrower has to pay the additional interest accrued.
What is a Student Loan Deferment?
Deferment is an arrangement whereby a lender allows you to postpone the payments temporarily. It gives students the option to either pay a portion of the required monthly fee or pay nothing at all (for a certain period, of course). It doesn’t damage a borrower’s credit score, but, in some cases, borrowers will have to pay the interest accrued during the deferment period.
The interest rate during this period varies by the type of student loan. For instance, there is no interest accrued on subsidized loans, but it gets added on an unsubsidized loan. The student loan deferment option isn’t provided by every lender, and even if they do provide this option, the qualifying criteria are quite strict.
Federal student loans are clear with the requirements. Perkins Loans, PLUS Loans, FFEL fall under this category. In some cases, there is no interest charged for the deferment period.
Deferment on federal student loans can also happen automatically in limited cases, such as when the student enrolls at least half-time in a qualifying institution.
Importantly, not all private lenders agree to deferment. If they do, the interest is most often added to the loan amount. There aren’t many student loan deferment options available for private loans. If you have a private loan, make sure to consult the lender to better understand the rates and fees included in any deferment option.
How to Defer Student Loans?
While deferring a student loan is a great option for some borrowers, not everyone is eligible to avail this strategy. A borrower has to meet strict eligibility parameters before receiving approval.
Federal loans allow borrowers to defer payment for six months, which is further extendable up to 36 months.
The primary criteria to be eligible for a federal student loan deferment is to not have defaulted on any existing loan. Additional parameters vary by the type of the loan, but here are the most common requirements:
- Enrolled in a recognized institution at-least half time
- Pursuing a rehabilitation training or a graduate fellowship program
- Active servicemen in the US Military, AmeriCorps, or Peace Corps
- Unemployed, or earning less than the State’s poverty guidelines
- Temporarily having difficulty paying (but can start paying within a short time).
For federal student loan deferment, you have to apply in most cases (other than the In-School Deferment). To apply, search and apply on the US Department of Education’s federal student aid website. For a student loan deferment on a private loan, you will need to contact the lender.
Some private lenders offer deferment to military servicemen and unemployed individuals. Unlike federal student loan deferment, this might be accompanied by interest accrued during the deferment period, meaning that interest will still accumulate.
How to Calculate the Student Loan Interest in Deferment?
Federal loans use a simple interest formula to add charges, while private loans use the compounded interest formula. For instance, if you defer a $25,000 loan at an interest rate of 5.00% for 12 months, you’ll pay interest of $102.72 on the principal due every month.
Get an estimated interest by using the steps listed below:
- Break down the annual interest rate to a daily level
- Multiply the daily interest rate with the principal due
- Convert the daily interest rate to monthly, then yearly
There are seven types of student loan deferments including:
In-School Deferment Loans
This is an automatic deferment that students can benefit from if they enroll half-time in an approved career school or college. Borrowers can contact the designated registrar’s office for verification (if not already auto-enrolled).
Once done, submit a verified copy to the lender.
There is no fixed duration for in-school deferment loans, and it is available as long as the borrower is enrolled half-time. Even Parent PLUS borrowers are eligible for this loan if the student benefiting meets the enrollment criteria.
Unemployment Deferment Application
If you are unable to find a full-time job, you might be eligible to apply. However, you either need to be receiving unemployment benefits or registered with an employment agency (within 50 miles). Eligible borrowers can apply unemployment deferment loans for a term as long as 36 months, reapplying every six months.
Economic Hardship Deferment Application
Anyone who is facing economic hardship can apply for this. If you are receiving federal or state help and earn less than a state’s poverty guidelines, you are eligible to apply. You can get the student loan deferred for 36 months, with the need to reapply every 12 months if you aren’t in the Peace Corps, similar to the Sallie Mae deferment.
Military Service Deferment Application
If you are an active-duty US Army serviceman or woman and have a Perkins, Direct, or FEEL loan, you are eligible to apply for a military service student deferment. The service must be in connection with a war, national emergency, or military operation. In addition, you can use this loan for 13 months following the completion of service, or until you join the college at least half-time.
Cancer Treatment Deferment Application
Students undergoing cancer treatment are eligible to request deferment during their treatment and six months afterward. With limited exceptions, qualifying students will also receive a subsidy on the interest rates. However, in the case of Federal Direct, and FFEL student loans, no interest is accrued during the treatment period.
Domestic Volunteer Deferment Application
Any student who serves as a full-time volunteer for any of the programs that fall under the Domestic Volunteer Service Act, 1973 or AmeriCorps is eligible. The approval depends on having at least one year of service enrollment and can only be applied by borrowers with SLS, Stafford, or PLUS student loans. Eligible students can defer their loans for up to 36 months.
Other Deferment Options
There are multiple students loan deferment options such as the Teacher loan deferment, Post-Active duty deferment, NOAA deferment, Post-enrollment deferment, Rehabilitation training deferment, and more. Each of these is fit for one or more loan types, and offer deferment for 36 months and more.
What Things to Consider When Thinking of Deferment?
Before applying for a deferment, you should consider the following points. Not only will they help you make an informed decision, but they might also help you receive quicker approval.
- Firstly, find out if your loan is eligible for deferment
- If yes, consider the type of deferment you want to apply for
- Download the relevant form
- Contact your college/school’s financial aid office for copies of verification
- Consult with the lender to understand the fees and interest rates
Other Options When You Can’t Defer Your Payments?
If you aren’t approved for a deferment, you can also apply for forbearance. In this case, you will either be able to stop paying or pay small amounts for a certain time.
Most deferred student loan payments don’t add accrued interest, but in forbearance, all types of federal loans accrue interest.
Additional options that you might explore include:
- Changing the Repayment Plans (Department of Education offers this option for students with Federal loans)
- Applying for a Direct Consolidation Loan (combine all federal student loans into one loan for a fixed monthly payment)
The Bottom Line
When you are dealing with a difficult yet temporary financial situation, applying for a deferment on your student loan is likely the best course of action. In certain deferments, you might end up paying accrued interest, but it still is better than defaulting on payments and hurting your credit score.
By understanding the different options and obtaining estimates of fees and interest, and consulting with your lender, you can correctly determine the most suitable option for handling your student loan.