Student Loan Deferment: What It Is and How to Defer Student Loans

Q: What are the alternatives to student loan deferment?

Instead of pausing payments on your student loans through deferment, you could consider applying for an income-driven repayment plan. An income-driven plan could potentially make your monthly payments more affordable. You could also explore refinancing your student loans, but be careful about refinancing federal student loans, as doing so means you forfeit access to federal plans and programs.

Q: How is student loan interest calculated?

Interest accrues on most student loans on a daily basis. Federal student loans use a simple interest formula to calculate your charges, whereas some private lenders use a compound interest formula that causes interest to add up even faster. Your interest charges may be added to your student loan balance at certain periods, such as the end of a deferment. This is known as capitalization and can increase the long-term costs of your loan. With the exception of Direct subsidized loans, interest charges start accruing on student loans right away.

Q: Does putting student loans on deferment hurt your credit?

Putting your student loans in deferment should not hurt your credit, since it allows you to postpone payments without penalty. However, it might not do your credit any favors, since the amount of debt you owe influences your score. Since you won’t be paying off your debt during deferment, you won’t reduce your “amounts owed” and consequently, won’t improve this factor in your credit score. You also need to be careful not to miss any payments after your deferment ends, as missing payments hurts your credit.

Q: How long can you keep deferring student loans?

The amount of time you can defer student loans depends on the type of student loan deferment for which you qualify. If you qualify for in-school deferment, for example, you can defer your loans the entire time you’re enrolled at least half-time in school and for six months after you qualify. If, on the other hand, you qualify for economic hardship deferment, you can defer your loans for up to three years, and you usually need to reapply on an annual basis.

Rebecca SafierUpdated August 6, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Student loan deferment allows you to postpone student loan payments temporarily. You can often defer student loans while you’re enrolled in school, but you might also qualify due to financial hardship or other reasons after graduation. While student loan deferment can offer financial relief, it’s not without its downsides. Your student loans might accrue interest during this period, making your loan more expensive overall. During the three-year-long Covid-19 pause, payments on federal loans were suspended. Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October 2023.Let’s take a closer look at student loan deferment, including your options for both federal and private student loans.

What Is Student Loan Deferment?

Paying off student loans fast is clearly the best option. But sometimes it’s difficult. Deferment allows you to pause payments on your student loans without penalty. Unless you’re still enrolled in school, most federal student loan deferments are not automatic. You’ll often need to request a deferment and get it approved by your loan servicer before you can stop making payments. Deferring federal student loans is usually a temporary measure until you graduate or can resume repayment for another reason. Most federal student loans are eligible for deferment if you have a qualifying circumstance. Some private lenders will also let you defer payments on your student loans temporarily, though this varies by lender. Although deferring student loans can be the right choice in certain circumstances, it can have negative consequences. Most loans, such as direct unsubsidized loans and private student loans, accrue interest during deferment. As a result, you could face a bigger balance at the end of your deferment than you started with. To avoid these problems, students often pursue scholarships. But they are not always obtainable.

Considerations Before Student Loan Deferment

Now that you know the answer to “What is student loan deferment?” it’s time to delve into the details. Before requesting a student loan deferment, consider the following questions to make sure it’s the right move for you.

Are Your Loans Subsidized Federal Loans or Perkins Loan?

While direct unsubsidized loans accrue interest during deferment, direct subsidized loans and Perkins loans do not. If you have either of these loan types, the federal government will cover any interest charges that accrue during a deferment. As a result, your balance won’t grow while your payments are on pause. As mentioned, however, interest charges will add up on other loan types, such as unsubsidized loans, parent PLUS loans, or grad PLUS loans.

Can You Afford a Reduced Loan Payment?

Instead of pausing payments completely, you might consider reducing your loan payments with a new repayment plan. Federal student loans are eligible for income-driven repayment plans, such as Pay As You Earn (PAYE) and Income-Based Repayment (IBR). Income-driven plans cap your monthly payments as a percentage of your discretionary income while extending your loan terms to 20 or 25 years. If you can afford this lower monthly payment, it might be a preferable option to pausing payments completely with deferment. Not only will you be making some progress on debt repayment, but you could also qualify for loan forgiveness if you still have a balance at the end of your term. President Joe Biden's SAVE Program, like other income-driven repayment (IDR) plans, calculates your monthly payment amount based on your income and family size. The SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.

Can You Restart Payment Soon After Deferment?

If you’ll be able to resume payments on your loans soon, student loan deferral could be a helpful strategy. But it’s not meant to be a long-term solution to your student loans. A deferment will end eventually, so it’s important to come up with a plan for dealing with your student loans. An income-driven plan, for example, might be a better approach in the long run.

Qualifying for a Student Loan Deferment

Unless you qualify for in-school deferment, you’ll need to get approved to get your student loans deferred. The steps you need to take will depend on whether you have federal or private student loans.

Federal Student Loan Deferment

With the exception of in-school deferment, you’ll need to apply to postpone payments on your federal loans. To get started, head to the Federal Student Aid Repayment Forms website. Once there, you can click on “Deferment” and fill out an application. Since there are different circumstances that qualify for deferment, you’ll choose the application that matches yours. Along with filling out this form, it could also be worth contacting your loan servicer for guidance.

Private Student Loan Deferment

There are many issues to consider in federal vs. private student loans. Some private lenders also offer student loan deferment, though it’s not guaranteed. You’ll need to contact your loan servicer to discuss your options. You might also be able to find information on deferment options on your lender’s website. Some common reasons for private student loan deferment are being enrolled in school, serving in the military, or experiencing unemployment or financial hardship. Note that some lenders might use the term forbearance rather than deferment. Private student loans typically accrue interest during deferment. If you can swing interest-only payments during this time, you can prevent your balance from ballooning.

Types of Federal Student Loan Deferment

There are a variety of reasons you could qualify to defer your federal student loans.

In-School Student Deferment

Direct subsidized loans, direct unsubsidized loans, grad PLUS loans, and most private student loans are automatically placed in deferment while you’re enrolled at least half-time in school and for six months afterward. This period is known as your grace period. While you’re not required to make payments, you could consider voluntarily making payments during this time.You might also qualify for deferment if you’re enrolled in an approved graduate fellowship program, but you’ll need to request it.

In-School Parent Deferment

Unlike other federal student loans, parent PLUS loans are not automatically placed in deferment. Parent PLUS borrowers must make payments right away unless they request deferment while their child is in school and for six months after they graduate or drop below half-time enrollment.

Unemployment Deferment

Borrowers who are receiving unemployment or unable to find a full-time job might qualify for student loan deferment for up to three years. If you took out loans prior to July 1, 1993, it could also be worth reaching out to your loan servicer to see if you’re eligible for additional deferment options.

Economic Hardship Deferment

You can defer your federal student loans for up to three years if you qualify for economic hardship. You might be eligible if you’re receiving certain benefits such as welfare or work full-time but earn less than 150% of the poverty guideline for your family size and state of residence.You’ll need to reapply for economic hardship deferment on an annual basis.

Peace Corps Deferment

If you’re serving in the Peace Corps, you might also qualify for economic hardship deferment for up to three years. In this situation, however, you wouldn’t need to reapply for the deferment every year.

Military Deferment

Student loan borrowers on active duty could also qualify for student loan deferral. If you’re on active duty military service in connection with a war, military operation, or national emergency, you could defer your student loans during this time and for 13 months after you complete your service.

Cancer Treatment Deferment

Borrowers who are undergoing cancer treatment can make a Cancer Treatment Deferment Request to pause their student loans deferred while they’re undergoing treatment and for six months afterward.

Rehabilitation Training Deferment

The Department of Education also offers deferment options to borrowers who are enrolled in an approved rehabilitation training program for the purpose of providing treatment for vocational, drug abuse, mental health, or alcohol abuse.Recommended: Can I Volunteer to Pay Off Student Loans?

The Cost of Student Loan Deferment

Although it can provide some immediate financial relief, student loan deferral can cost you overall. Unless you have direct subsidized loans, interest will keep adding up on your student loans. Often, that interest is capitalized, or added on to, your balance at the end of your deferment. Essentially, you end up paying interest on top of interest, resulting in a costlier loan. Let’s say, for example, that you owe $30,000 in student loans with a 5% interest rate on a 10-year repayment term. If you defer payments for three years, your loan will accrue $4,500 in interest charges. When the deferment ends, you’ll face a $34,500 balance, and your monthly payment will increase by almost $50. Before requesting student loan deferment, calculating the interest rate with a student loan calculator to see if pausing your payments is worth the extra interest costs.

Explore Student Loan Refinancing Options With Lantern

Pausing payments through deferment isn’t the only strategy for managing student loans. Depending on your credit rating and income, you could qualify for a lower interest rate if you refinance your student loans. Along with lowering your rate, you’ll get the chance to restructure your debt with new repayment terms. There are benefits to refinancing student loans. Refinancing isn’t the right choice for everyone, however. If you refinance federal student loans, you lose access to federal benefits, including federal deferment, income-driven plans, and forgiveness programs for that amount. Make sure you’re comfortable sacrificing federal perks before making changes to your federal student loans. If you decide refinancing could be beneficial for your situation, Lantern can help you compare student loan refinance options.

Frequently Asked Questions

What are the alternatives to student loan deferment?

How is student loan interest calculated?

Does putting student loans on deferment hurt your credit?

How long can you keep deferring student loans?

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About the Author

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).

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