Student loan deferment provides a temporary, official pause on your federal student loan payments. It’s designed to help you manage your finances during specific life events without the risk of a loan default.
However, understanding how interest is treated during this pause is crucial, as it varies based on your loan type.
How Interest Works During Deferment
The most important factor in deferment is its effect on your loan’s interest. This is where the type of federal loan you hold becomes critical.
- Subsidized Loans: For Direct Subsidized Loans and federal Perkins Loans, the U.S. Department of Education pays your interest during the deferment period. This is the ideal scenario, as your loan balance will not increase.
- Unsubsidized Loans: For Direct Unsubsidized Loans, PLUS loans, and other federal loans, interest continues to accumulate daily. At the end of the deferment, this accrued interest is typically capitalized—added to your principal balance. This means you’ll pay interest on a larger amount, which can increase your monthly payment and the total cost of your loan.
Who Qualifies for Student Loan Deferment?
You must meet specific criteria to be eligible for deferment. According to the U.S. Department of Education, common qualifying situations include:
- In-School Deferment: Available if you are enrolled at least half-time at an eligible school. This is often processed automatically by your loan servicer.
- Economic Hardship Deferment: Granted for up to three years if you receive means-tested government benefits, serve in the Peace Corps, or have earnings below 150% of the federal poverty guideline.
- Unemployment Deferment: Available for up to three years if you are receiving unemployment benefits or are diligently seeking but unable to find full-time work.
- Active Military Service Deferment: For borrowers on active duty during a war, military operation, or national emergency.
- Cancer Treatment Deferment: Available while you are undergoing cancer treatment and for six months following its conclusion.
Deferment vs. Forbearance: Key Differences
Deferment and forbearance both pause payments, but they are not interchangeable. Forbearance is often easier to obtain but is typically more expensive.
Feature | Student Loan Deferment | Student Loan Forbearance |
---|---|---|
Eligibility | Strict, documented criteria (e.g., unemployment, in-school). | General financial difficulties, often at the servicer’s discretion. |
Interest on Subsidized Loans | The government pays the interest for you. | Interest always accrues, and you are responsible for it. |
Interest on Unsubsidized Loans | Interest accrues and is capitalized if unpaid. | Interest accrues and is capitalized if unpaid. |
Best For | Borrowers who meet the specific qualifications, especially those with subsidized loans. | Borrowers with short-term financial issues who do not qualify for deferment. |
Always apply for deferment first if you believe you qualify. It can save you a significant amount of money on interest.
How to Apply for Student Loan Deferment
Never simply stop making payments. To apply correctly, follow these steps:
- Contact Your Loan Servicer: Your servicer is the company that manages your loan. You can find their contact information on StudentAid.gov.
- Submit a Deferment Request Form: Your servicer will provide the specific form for your situation (e.g., “Unemployment Deferment Request”).
- Provide Supporting Documentation: Attach any required proof, such as records of unemployment benefits or proof of school enrollment.
- Continue Payments: Do not stop paying your bill until you receive written confirmation that your deferment has been approved.
Is Deferment Always the Best Option?
While deferment is a valuable tool, it’s not the only one. An Income-Driven Repayment (IDR) plan might be a better long-term strategy. IDR plans calculate your monthly payment based on your income and family size, which can result in a payment as low as $0. These low or zero-dollar payments often still count toward loan forgiveness programs, whereas months in deferment (except for the economic hardship deferment in some cases) typically do not.
External Authoritative Source:
For a complete list of deferment options and to download forms, visit the official Federal Student Aid Deferment and Forbearance page.