How should you manage private student loans during school deferment?

Private student loan deferment gives you temporary relief from required monthly payments while you meet eligibility conditions (for example, being enrolled at least half‑time). Unlike federal loans, private lenders set their own rules. That variation makes a lender-specific plan essential: read the contract, talk to your servicer, and take steps now to limit interest and avoid future payment shocks. (Consumer Financial Protection Bureau: https://www.consumerfinance.gov/.)

Why private loan deferment matters

Deferment can feel like a financial break, but for most private loans interest continues to accrue unless your promissory note explicitly says otherwise. If you do nothing, accrued interest may capitalize (be added to your principal) when deferment ends, increasing future monthly payments and the total cost of the loan. A basic example: a $20,000 private loan at 7% interest will accrue about $1,400 per year. Four years of deferred interest grows roughly $5,600 — and if capitalized that becomes part of the principal on which future interest accrues.

That example illustrates why active management during deferment is important: small monthly payments or interest‑only options can make a big difference to long‑term cost.

Sources and further reading: CFPB on private student loans and lender rules (https://www.consumerfinance.gov/), U.S. Department of Education for federal comparison (https://www.ed.gov/), and IRS Publication 970 on education-related tax treatment (https://www.irs.gov/publications/p970).

Quick checklist to manage loans during deferment

  • Inventory every loan and servicer: interest rate, capitalization rules, co‑signer obligations, and whether interest accrues during deferment.
  • Pull the promissory note or deferment policy from your lender’s portal; save screenshots and confirmation emails.
  • Ask your servicer about interest‑only or reduced‑payment options, and whether autopay discounts apply.
  • Make small voluntary payments if you can — even $25–$50 monthly reduces accrued interest.
  • Watch billing cycles and recertification dates required to maintain deferment eligibility.
  • Monitor credit reports for errors or collection flags (Consumer Financial Protection Bureau recommends annual checks).

Step-by-step plan

1) Take inventory

List each private loan, interest rate (fixed or variable), current balance, servicer contact, co‑signer(s), and whether the loan is in-school deferred, administrative deferment, or another status. This is a simple spreadsheet task but it prevents surprises.

2) Read the fine print

Locate the promissory note and lender documentation. Key items to confirm:

  • Does interest accrue during deferment? If yes, is interest capitalized at the end of deferment?
  • Are there required actions to keep the deferment (enrollment verification, periodic recertification)?
  • Are there penalty fees or missed‑payment consequences tied to not confirming enrollment?

3) Contact the servicer proactively

Call and document the conversation: agent name, date/time, what they said, and any case or confirmation number. Ask specifically:

  • What documentation is required to maintain deferment?
  • What payment options exist during deferment (interest‑only, partial payments, autopay discounts)?
  • Will interest capitalize at the end of deferment and when?

Use a short script: “I’m currently in school and want to confirm my deferment status and documentation requirements. I also want to know whether interest accrues and capitalization timing. Can you email me the policy?” Record the response.

4) Choose a payment strategy

  • Interest‑only payments: If available, these prevent the balance from growing. Consider this if you can cover the accrued interest.
  • Small payments: If interest‑only is not available, small monthly payments reduce future cost. Even $50–$200 per month can cut years off repayment for most borrowers.
  • Autopay: If your lender offers a small rate reduction for autopay, enroll—just ensure you have enough cash flow to avoid overdrafts.
  • Temporary forbearance vs deferment: Know the difference. Forbearance also pauses payments but often allows continued interest accrual and may have different eligibility and documentation rules.

5) Protect co‑signers

If your loan has a co‑signer, keep them informed. A deferred account can still affect their credit and they may be contacted about missed paperwork or verification issues. Some lenders require co‑signer notification for major changes.

6) Keep proof and recertify on time

Save all confirmation emails, enrollment verifications, and certificates. Many problems occur because a school or borrower misses a re‑verification date and the account reverts to active billing or delinquency.

When to consider refinancing instead of deferment

Refinancing private student loans can lower rates or create a single payment, but it replaces any in‑school protections a lender may offer and often requires a creditworthy borrower or co‑signer. Refinance when:

  • You have steady post‑graduation income and good credit, and
  • You can get a materially lower rate or better borrower protections.

For more on pros and cons of refinancing relative to deferment, see our guide: Refinancing Student Loans vs Deferment: Cost and Credit Effects (https://finhelp.io/glossary/refinancing-student-loans-vs-deferment-cost-and-credit-effects/).

Interest capitalization: why it matters

Capitalization is when unpaid interest is added to the loan’s principal. This increases the balance used to calculate future interest, raising both the monthly payment and the overall cost. Timing and rules vary by lender. Learn the mechanics in detail: How Interest Capitalization Works on Deferred Student Loans (https://finhelp.io/glossary/how-interest-capitalization-works-on-deferred-student-loans/).

Hypothetical: $20,000 at 7% — interest accrues $1,400/year. If you defer for four years and do not pay interest, your balance may grow to roughly $25,600 once interest capitalizes. That larger principal then accrues interest going forward.

Credit reporting and deferment

Most legitimate deferments are reported as current or as in‑school deferment, which generally does not harm your credit score. The bigger risk is administrative errors: missed recertifications, misapplied documents, or servicer mistakes that put an account into delinquency. Check your credit reports regularly and dispute errors quickly via annualcreditreport.com or the CFPB complaint process.

Tax considerations

Student loan interest may be tax‑deductible if the loan qualifies as a “qualified student loan” and you meet income requirements (see IRS Publication 970). Both federal and private student loans can qualify for the deduction when used for eligible education expenses, but yearly limits and income phaseouts apply. Check the current IRS guidance before claiming a deduction.

Source: IRS Publication 970 (https://www.irs.gov/publications/p970).

Common mistakes to avoid

  • Assuming all private deferments match federal rules. They don’t. Always verify with your lender.
  • Letting documents lapse. Failure to recertify can trigger delinquency.
  • Ignoring small payments. Voluntary payments reduce capitalized interest.
  • Refinancing without comparing protections. Refinance can remove valuable lender flexibility.

Real-world examples (anonymized)

  • Sarah, a graduate student, enrolled in an interest‑only plan with her private lender during her two years of study. Paying the interest prevented balance growth; she entered full repayment with a lower balance and smaller payments than peers who deferred fully.

  • Jason had an unexpected hospitalization. By calling his servicer and submitting medical documentation, he secured an approved deferment. He scheduled two small monthly payments to limit accrued interest and avoided a significant balance jump after deferment.

In my practice I’ve seen borrowers reduce lifetime interest costs by hundreds to thousands of dollars with small payments during deferment. Proactivity matters.

Scripts and sample questions to ask your servicer

  • “Please confirm whether interest accrues during my deferment and whether unpaid interest will be capitalized.”
  • “What documentation do you require and how often must I recertify my enrollment?”
  • “Do you offer interest‑only or reduced payments for borrowers in school? If so, how do I enroll?”
  • “Is there an autopay discount and what is the amount or percentage?”

Record answers and ask the agent to send confirmation by email.

After deferment: preparing for repayment

Before classes end, estimate your future payment by asking for a repayment schedule and getting a payoff quote. Consider budgeting for the new monthly payment, and if necessary, explore consolidation or refinancing options. If you have multiple servicers, prioritize streamlining payments and review our guide: Strategies for Managing Multiple Student Loans with Different Servicers (https://finhelp.io/glossary/strategies-for-managing-multiple-student-loans-with-different-servicers/).

Final professional tips

  • Start early: address deferment issues the moment you consider leaving school or changing enrollment status.
  • Document everything: screen captures, emails, and save any confirmation numbers.
  • Make voluntary payments if possible — it’s the single most effective step to control long‑term costs when interest accrues.
  • Protect co‑signers by keeping them informed and checking that their credit reports remain accurate.

Disclaimer

This article is educational and not individualized financial or tax advice. Rules, tax deductions, and lender policies change; consult your loan servicer, a tax professional, or a certified financial planner for guidance tailored to your situation.

Authoritative resources

Internal resources

If you want, I can convert the checklist into a printable worksheet or sample email you can send to your servicer.