Quick overview

Student loan deferment lets an eligible borrower pause required monthly payments for a limited time. For some federal loans—most notably subsidized Direct Loans—interest may be paid by the government during approved deferments; for unsubsidized federal loans and most private loans, interest generally continues to accrue and is added to your principal if unpaid. Use deferment to avoid missed payments during real hardship, but understand the interest consequences so you don’t unintentionally increase what you owe. (Federal Student Aid: https://studentaid.gov/manage-loans/repayment/deferment-forbearance)

Background: why deferment exists

Deferment programs were created to prevent small, temporary shocks—like returning to school, short-term unemployment, or active military service—from pushing borrowers permanently into delinquency or default. Over decades the forms and eligibility rules have changed, but the core idea remains: provide a legal pause so borrowers can stabilize without penalties or collection actions on certain loans. Federal policy generally offers more structured deferment options than private lenders, which set their own hardship rules. (U.S. Department of Education)

How student loan deferment works

  • Who decides: For federal loans your loan servicer evaluates and approves deferment requests under Department of Education rules. For private loans, the lender (or its servicer) sets the terms. (studentaid.gov)
  • Common qualifying reasons: enrollment at least half-time, graduate fellowship, unemployment, economic hardship, military service, rehabilitation programs. Each reason has documentation requirements: enrollment verification, benefit letters, or signed employer notices.
  • Interest behavior:
  • Subsidized federal loans: typically do not accrue interest during authorized deferment periods; the U.S. Department of Education covers the interest.
  • Unsubsidized federal loans and federal PLUS loans: interest generally continues to accrue; unpaid interest may capitalize (be added to principal) when deferment ends.
  • Private loans: many private lenders continue to charge interest and rarely waive it; policies vary widely.

When deferment helps (best-use cases)

  • You return to school at least half-time and want to focus on studies without monthly payments—school deferment is often a good match.
  • You face short-term unemployment or a predictable, brief financial gap and have limited emergency savings. Deferment can avoid delinquency while you look for work.
  • You’re on active military duty and qualify for military deferment or other protections that may limit interest or provide different relief.
  • Your alternative is default or serious delinquency—deferment can protect credit and preserve future eligibility for federal programs.

In my experience advising clients, deferment is most useful when the pause is short (months rather than years) and you can cover accrued interest either during the deferment or soon after repayment resumes.

When deferment can hurt your balance

  • Interest accrual increases total cost: if interest continues to accrue and is not paid, it can capitalize at the end of deferment. Capitalized interest increases the balance that then accrues interest, producing a compounding effect.
  • Long or repeated deferments can substantially extend the time it takes to repay and raise total interest paid.
  • Using deferment instead of an income-driven repayment (IDR) plan when IDR would give a lower monthly payment and count toward forgiveness or Public Service Loan Forgiveness can be a missed opportunity.

Example math (simple):

  • Loan: $25,000 unsubsidized at 5% APR. Monthly interest = 0.05/12 * $25,000 ≈ $104.
  • One year of deferment with unpaid interest adds ≈ $1,248 to the balance. If capitalized, new principal ≈ $26,248 and future interest grows on that higher amount.

That extra $1,248 can add hundreds more in interest over the remaining repayment term. Small deferments may be affordable; long deferments are costly.

Alternatives to deferment to consider first

How to decide: quick checklist

  • Confirm loan type(s): subsidized vs unsubsidized; federal vs private.
  • Ask your servicer whether interest will accrue and whether it will be capitalized after deferment.
  • Estimate the dollar cost of accrued interest for the planned deferment length.
  • Compare monthly cash-flow savings under deferment with savings from IDR or other plans.
  • Consider credit and long-term goals (e.g., PSLF eligibility, refinancing plans).

Step-by-step: applying for federal deferment

  1. Contact your federal loan servicer listed on studentaid.gov to discuss options and request the correct deferment form or online process. (studentaid.gov)
  2. Provide required documentation (enrollment certificates, unemployment documentation, military orders, etc.).
  3. Keep copies and a record of submission; confirm approval and the deferment start/end dates in writing.
  4. Decide whether to pay interest while deferred to avoid capitalization; even small monthly interest payments reduce long-term cost.

For private loans, contact the lender to ask about hardship programs, formal deferment options, or temporary reduced-payment plans. Policies vary widely—get the agreement in writing.

Common mistakes and misconceptions

  • Mistake: Assuming deferment stops interest for all loans. Reality: only certain federal subsidized loans have this benefit; unsubsidized and most private loans continue to accrue interest.
  • Mistake: Forgetting to submit required documentation and thereby missing coverage or accidentally entering delinquency.
  • Mistake: Using repeated deferments without a repayment plan afterward—this can prolong repayment and escalate costs.

Frequently asked questions

  • Will deferment hurt my credit score? No—an approved deferment prevents delinquency and does not directly lower your score. However, increased balances from accrued interest could indirectly affect credit profiles if you later struggle to pay. (Consumer Financial Protection Bureau)
  • Can I make payments while in deferment? Yes. You aren’t required to make payments during approved deferment, but paying accrued interest (or any amount) reduces future costs and prevents capitalization.
  • Is deferment the same as forbearance? No. They are different administrative programs with different eligibility rules and often different interest treatments. See our comparison: “Deferment vs Forbearance for Student Loans: Pros, Cons and Tax Effects.” (https://finhelp.io/glossary/deferment-vs-forbearance-for-student-loans-pros-cons-and-tax-effects/)

Practical recommendations (my professional view)

  • Short-term, clearly bounded pauses for schooling or brief unemployment are reasonable uses of deferment—especially if you can make small interest payments while deferred.
  • If you need long-term, sustained payment reduction, explore income-driven plans or targeted forgiveness programs first, because they can lower monthly payments without always increasing principal.
  • For private loans, negotiate: some lenders offer hardship programs; others will require refinancing. Put any agreed change in writing.

Final checklist before choosing deferment

  • Confirm your loan type and whether interest will accrue.
  • Ask how interest capitalization works and when it will occur.
  • Compare the total projected cost of deferment vs alternatives (IDR, forbearance, refinancing).
  • Keep documentation and written confirmation from your servicer or lender.

Sources & further reading

Professional disclaimer: This article is educational and not legal or personalized financial advice. Rules and program specifics change; confirm current terms with your servicer or a licensed adviser before acting.

(Edited and reviewed by a financial advisor and content editor at FinHelp.io.)