Repayment Options

How to Defer Student Loans

Borrowing money for higher education is an investment. During school, you are focused on exams, internships, and graduating. You figure you’ll easily earn enough to pay back your loans once you’ve got your degree. But life after college graduation doesn’t always go according to plan.

Landing the right job can take longer than expected. Projected earnings are sometimes a bust, and entry-level positions might offer lower salaries than you anticipated. Then there’s life’s curveballs: accidents, illnesses, unemployment, and other unexpected events that can all cause financial hardship.

When you have to choose between paying the electricity and paying on your student loan, you know you’re in a jam. Luckily, there is some relief available! For those who qualify, student loan deferment can help.

What is Student Loan Deferment?

If you lend money to a friend, you expect them to pay it back. But you wouldn’t force the issue if they were laid off, or undergoing treatment for a medical condition. You know your friend is good for the money, they are just going through a hard time. You would graciously wait until they are in a more financially stable position before you require them to repay their debt to you.

Student loan deferment is similar to that scenario. Under certain circumstances, a student loan deferment allows you to stop making your student loan payments for a limited time or to temporarily lower the amount of your payment. It’s like hitting the pause button. The amount you owe does not decrease or go away, you simply take a brief break from making payments.

Qualification for student loan deferment is on a case by case basis. Eligibility is determined by loan type, available income, and type of economic hardship, among other factors.

Deferment vs. Forbearance

At a glance, deferment and forbearance seem very similar, like synonyms in fact.

  • Forbearance: a refraining from the enforcement of something (as a debt, right, or obligation) that is due
  • Deferment: the act of delaying or postponing

But the difference could save you tons of money! The key difference is that with a deferment, you may not be responsible for paying the interest that accrues on certain types of loans during the deferment period. During forbearance, you are responsible for the accruing interest.

In a nutshell, both deferment and forbearance pause your student loan payments, but only deferment will pause the interest. Take a closer at details from the U.S. Department of Education:

During deferment, you are generally NOT responsible for paying the interest that accrues on the following loan types:

  • Direct Subsidized Loans
  • Subsidized Federal Stafford Loans
  • Federal Perkins Loans
  • The subsidized portion of Direct Consolidation Loans
  • The subsidized portion of FFEL Consolidation Loans

During deferment, you ARE responsible for paying all interest that accrues on the following loan types:

  • Direct Unsubsidized Loans
  • Unsubsidized Federal Stafford Loans
  • Direct PLUS Loans
  • Federal Family Education Loan (FFEL) PLUS Loans
  • The unsubsidized portion of Direct Consolidation Loans
  • The unsubsidized portion of FFEL Consolidation Loans

Remember, in forbearance you are responsible for interest on all types of student loans. If you do not pay the interest you are responsible for, it will become capitalized, and added to your loan principal. This means you’ll owe even more over the life of your loan.

How to Defer Federal Student Loans

Deferring your federal student loan begins with completing an application. To do this, you will work directly with your loan servicer. The application can usually be completed with a few simple steps.

Start by logging into your loan servicer’s website. Check your eligibility. If you are uncertain about your eligibility, contact customer service. Next, follow the prompts provided in your loan servicer’s member portal instructions. Finally, fill out the appropriate deferral request form online. Completing the online form results in faster processing, but you can download and print a hard copy, filling in the blanks with a dark-ink pen if you prefer.

There are several different types of deferment. Scan this list to see which best matches the economic situation you are experiencing. Then complete in the corresponding request form.

Types of Federal Loan Deferment

Navient is an excellent online platform with every type of federal student loan deferment form available. Here’s a snapshot of each type:

  • In-School: this deferment option is best suited for students enrolled full time, or in some cases at least half-time on certain types of loans. This application is also ideal for Federal PLUS Loans borrowers.
  • Parent PLUS Borrower: generally speaking this deferment is for a parent borrower of a Direct or Federal PLUS Loan, whose student is enrolled full time or at least halftime.
  • Graduate Fellowship: if you are a focused grad student that is enrolled in a full-time program, this deferment could be right for you. It even works for certain graduate programs at foreign universities!
  • Rehabilitation Training: this deferment is specifically for participating in a program that is licensed, approved, certified, or recognized as providing rehabilitation training to disabled individuals by the Department of Veterans Affairs or a state agency responsible for vocational rehabilitation, drug abuse treatment, mental health treatment, or alcohol abuse treatment. Deferment will be approved only if you are committing time and effort that would normally prevent you from being employed 30 or more hours per week in a position.
  • Unemployment: this is a common deferment request. This option is for people who are out of work, registered with the public or private employment agency and are actively seeking full-time employment.
  • Economic Hardship: sometimes working full-time doesn’t make ends meet. The guidelines for this type of deferment are similar to those for public assistance programs. Economic hardship deferment is for people who are employed full-time but are falling below the poverty line.
  • Military Service and Post-Active Duty Student: service members may request that the loan holder defer repayment of my eligible loan(s) beginning on the date they began performing the military service and ending 180 days following completion of the qualifying military service. This deferment can be applied in multiple ways to help current and former servicemen and women, including members of the national guard.

Most loans in deferment are due to active in-school enrollment. Be aware that certain types of deferment such as unemployment and economic hardship, are sometimes more difficult to get approved. They often require supporting documentation, such as proof of unemployment, and applications may have longer processing times.

You’ve got to keep making payments until your request for deferment has been officially approved. This is very important! If you don’t, your loan could become delinquent and your request would be denied.

How to Defer Private Student Loans

According to a 2017 report from Measure One, there is a collective $108.2 billion unpaid balance in private student loans in the U.S. The steps for deferring a private student loan are almost the same as the process for federal loans, but unfortunately, your choices for payment relief are much more limited. Some private lenders offer in-school deferment or interest-only payments, but outside of that, there aren’t any other options.

Unlike federal loans that have common forms and guidelines for deferment, ever private loan lender sets its own policies and makes the call to decide if it will offer students any assistance at all. The sad fact is, most private loan servicers provide almost no help with adjusting payments. Forbearance may be the only option for relief. Although it will pause your payment, you will still be responsible for the interest.

Here’s a short list from Student Loan Hero of private lenders that are known to offer deferment:

  • SoFi: SoFi offers loan deferment for borrowers who return to graduate school at least half-time, who is undergoing rehabilitation for a disability, or who are serving on active duty in the military. Interest continues to accrue during deferment.
  • CommonBond: CommonBond allows academic deferment for borrowers who return to school. Interest continues to accrue during deferment.
  • Earnest: Earnest offers up to 36 months of student loan deferment if you’re attending graduate school, serving in the Peace Corps, or serving on active duty in the military. Interest continues to accrue.

Just like with federal loans, the application for deferment will require some form of documentation, to prove economic hardship. Begin collecting proof before you apply. Items such as information about your expenses, current enrollment information, documentation of health issues, or proof of unemployment benefits are all relevant.

Start by contacting your lender directly if you can’t make your payments. Find out what (if any) options there are for deferred payments. The lender will provide you with any necessary forms and will explain the process to pause payments. Be aware that if deferment is an option, the time period will likely be shorter than that of federal loans.

Who is eligible to defer student loans?

Do I qualify for student loan deferment? Basically, your loan servicer is trying to figure out if you actually have enough income to repay your loan. For example, if you can make your student loan payment, it will just mean giving up a few meals out at restaurants, you probably won’t qualify for a deferment. You might be inconvenienced, but you aren’t experiencing economic hardship. It’s all about your income versus your expenses.

What is ‘economic hardship’? Economic hardship is defined as your full-time work and the total amount of your monthly payments on all of your federal education loans in repayment is equal to or larger than 20% of your monthly income. Also, after deducting the total amount of your monthly payment on your federal education loans in repayment from your monthly income, the amount remaining is less than 220% of the Federal Minimum Wage Rate or the Poverty Line income for a family of two for your state (regardless of your family size).

If you have to choose between making your student loan payment or putting food on the table for your family or missing a mortgage payment, then your situation is serious. Who is eligible to defer student loans? The answer is not necessarily spelled out in black and white. Applications are reviewed on a case by case basis, but the Federal Department of Education has outlined some broad categories of people who regularly qualify.

Keep in mind that private loan servicers do not guarantee these groups of people will qualify for a deferment. If you fall into one of these categories, definitely apply! Even if you don’t fit into one of these descriptions, every circumstance is unique. It doesn’t hurt to apply anyway.

Current students are highly likely to qualify for a deferment. Chances are, if you are in school, you are not clocking 40 hours a week. If you’re enrolled at least half-time at an eligible college or career school, then you may be eligible to defer your loans. Graduate students and fellows may qualify as well.

People who have no income (i.e. are unemployed, often are approved for student loan deferment. Similarly, people who work on a volunteer basis, netting zero, can also be approved. An example would be people serving in the Peace Corps.

People in active military service and the national guard also have student loan deferment options available to them. Some teachers, public servants, working moms, new parents, and people who are temporarily disabled also have options.

Finally, people whose student loan payments cut more than 20% out of their full-time working income may also apply. This is where that ‘economic hardship’ formula comes in!

If you try but don’t succeed with an application for student loan deferment, don’t give up. There are other options. They won’t completely pause your repayment, but income-driven repayment and pay as you earn repayment plans are your next best bet on federal student loans. If you qualify, your repayment amount will decrease (which is not as great as no monthly payment, but may be better than the high payment you have to make now). Find out more at Federal Student Aid.

Pros and Cons of Deferring Student Loans

Pro #1:

Deferment will get you the relief you desperately need! Imagine, what could you do with hundreds of dollars freed up each month? When your income is tight or insufficient, every little bit counts. Deferring your student loan can help you allocate your money to bills and expenses that are absolutely non-negotiable.

Student loan lenders will take into account your financial hardship, but other lenders won’t. You likely won’t be able to pause car or mortgage payments. Missing these types of payments can have catastrophic consequences for you and your family. Deferring student loans can help you keep up with your other major expenses until your financial situation becomes more stable.

Pro #2:

Student loan delinquency and default can be avoided by taking advantage of the opportunity to defer your student loans. Delinquency and default will negatively affect your credit report and can cause to lose the option to request a deferment in the future.

Pro #3:

Further your education and go back to school. Many jobs now require a Master’s degree or specialized certifications. If you’ve hit a ceiling in your career you should head back to school without being plagued by your monthly student loan payments. Hopefully, higher education will likely lead to higher earnings in the long run!

Pro #4:

Engage in service without worrying about monthly student loan payments. Participating in programs like the Peace Corps are once-in-a-lifetime experiences. Service work is an important and noble pursuit, but it can cause your income to literally drop to zero. Luckily, a deferment allows you to take six months or a year to go out and serve others without having to repay on your student loan.

Student loan lenders, both federal and private acknowledge that going back to school and completing service work interfere with your ability to pay on your loans. The eligibility criteria for deferment generally reflect this. When you want to follow your dreams- whether it’s furthering your education, or joining a service corp- deferring your student loans can help make those dreams a reality!

Con:

Hands down, the biggest downside of student loan deferment is that in many cases, such as with unsubsidized loans, your loans will accrue interest during deferment. This is a little tricky to understand, but should not be overlooked. Basically, your payments, not your interest, are on hold. It feels like you’re off the hook, but behind the scenes, your debt is incrementally growing. This con does not apply to subsidized and Perkins loans, however.

You can deal with this problem in several ways, but the ideal and financially savvy thing to do is to pay the interest as it accrues or before the end of your deferment. So it’s not really a non-payment anymore, but interest-only payments are normally very low. To do this, you’ll have to contact your lender or loan servicer to find out how much you owe in interest and how you should pay it since you won’t be making monthly payments during deferment.

If you absolutely cannot afford to pay the interest while your monthly loan payments are deferred, the interest will be added to your loan principal at the end of the of the deferment period. All in all, this means deferment could cause you to pay more in total over the life of your loan.

Alternatives to Student Loan Deferment

If you aren’t sure if deferment is right for you, or if you don’t think you’ll qualify, you do have other options. You can reduce your student loan payments a few other ways, without having to apply for a deferment.

Try to go directly to your lender first. You may be able to work out a repayment plan that you can afford. Since non-payment will hurt the lender, they would rather have a partial payment coming in than none. For this reason, they could be able to temporarily decrease your monthly payments. Some lenders may offer an income-based repayment plan option.

If you strike out with your loan servicer, the next person you should try talking to is your HR rep at work. In rare instances, employers sometimes have a program to help you with or even entirely pay off your loans! Ask your HR rep or supervisor to find out if your workplace participates in such a program.

Lastly, just like you can refinance your car or your mortgage, you can refinance your student loans. This option has helped reduce the total interest you’ll pay over the life of your loan. It could also reduce the amount due on your monthly payments.

Beware of Delinquency and Default

When times get tough, sometimes it feels easier to ignore bills than to face them. The financial stress that builds as bills pile high can feel absolutely overwhelming! Have you tossed a few student loan bills in the trash and thought to yourself, I’ll get around to it next month. What’s the worst that can happen? Stop. Right. Now. Learn about the very real consequences of missing your monthly student loan payments.

Delinquency

Delinquent essentially means missing. Your student loan is considered delinquent the first day after you miss a payment. The first day? Yes! Just one missed monthly payment will flag your loan as delinquent and it will remain that way as you start making payments again until you fully repay the past due amount.

What are the consequences? According to Federal Student Aid, if you are more than 90 days delinquent on your student loan payment, your loan servicer will report the delinquency to the three major national credit bureaus. This will lower your credit score and negatively affect your finances. It’s tough to get approved for a credit card, utilities, even a phone plan with a poor credit report. If a student loan continues to be delinquent it will go into default.

Default

Default is the most serious level of unpaid student loans. The point when a loan is considered to be in default varies depending on the type of loan you received. But generally, loans go into default after 270 days of missed payments. The consequences for loans in default can be severe. Here is a list of potential outcomes from the U.S. Department of Education:

  • The entire unpaid balance of your loan and any interest you owe becomes immediately due (this is called “acceleration”).
  • You can no longer receive deferment or forbearance, and you lose eligibility for other benefits, such as the ability to choose a repayment plan.
  • You will lose eligibility for additional federal student aid.
  • The default will be reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card.
  • Your tax refunds and federal benefit payments may be withheld and applied toward repayment of your defaulted loan (this is called “Treasury offset”).
  • Your wages will be garnished. This means your employer may be required to withhold a portion of your pay and send it to your loan holder to repay your defaulted loan.
  • Your loan holder can take you to court.
  • You may not be able to purchase or sell assets such as real estate.
  • You may be charged court costs, collection fees, attorney’s fees, and other costs associated with the collection process.
  • It may take years to reestablish a good credit record.
  • Your school may withhold your academic transcript until your defaulted student loan is satisfied. The academic transcript is the property of the school, and it is the school’s decision—not the U.S. Department of Education’s or your loan holder’s—whether to release the transcript to you.

Have you received a letter from MAXIMUS Federal Services, Inc.? That is the loan servicer for defaulted federal student loans. Your school is authorized to provide information about student and parent borrowers to MAXIMUS Federal Services, Inc. if loans go unpaid.

The bottom line is that student loan delinquency and default should be avoided at all costs. They will only make a tough financial situation worse. Explore all your options for relief — student loan deferment, student loan forgiveness, forbearance, income-based repayment, pay as you earn, and any other plan your lender may be able to offer. Sticking your head in the sand and ignoring your student loan payments is never the right answer.

Is deferment right for me?

Every situation is different. If you have been suffering from stress dreams about your student loan payment coming due then you probably really do need some relief. To make an informed decision, you need to understand your role and responsibilities as the loan borrower. Contact your lender to get the basics — how much you owe, your expected monthly payment, and the monthly interest amount.

From there you have to evaluate your own finances — wants vs. needs. Deferment is not for people who don’t want to make student loan payments. It’s for those who cannot make payments. Deferment is typically for adults going back to school, who will no longer have a full time income. Does this describe you? There are other situations that will qualify an individual for a deferment. However, most involve proving extremely low income and economic hardship.

Finally, weigh the pros and cons. Maybe you qualify for deferment, but you also qualify for a repayment plan that simply lowers the monthly payments. If you can afford it, the more responsible thing to do would be the latter. It would you save you from paying interest that could accrue during a period of deferment.

When it comes to repaying student loans, don’t try to do the bare minimum. To the best of your ability, do what you can to meet your monthly payments. You will keep your credit score strong and will eliminate your burden more quickly.

If your income has dropped to essentially to zero — for further education, service work, or unemployment — and you expect the situation to be temporary, deferment could be right for you.

Frequently Asked Questions & Answers

Q; How long can you defer student loans?

A: The amount of time a loan can be deferred depends on the type of deferment that you qualify for. Loans on economic hardship deferment can be deferred up to 12 months, and the deferment can be renewed for a maximum of three years. Unemployment deferment is available for up to six months and can be renewed for no more than three years. In-school deferment is basically unlimited, as long as you maintain a minimum of half-time enrollment. Finally, discretionary forbearance lasts for up to 12 months in total.

Q: What happens if I never make my student loan payments?

You won’t go to jail if that was what you were worried about. But long-term consequences may end up being even worse. First, your loan will be referred to a collection agency. Not making payments will do serious damage to your credit score.

Eventually, the federal government will get involved. They have the power to seize your tax return and apply it to your outstanding debt. The government can also garnish your wages, meaning they will deduct a portion of your wages straight out of your paycheck.

Q: Can student loans be canceled?

A: Under extremely limited circumstances, you might be able to cancel your student loan. Yes, you may be free from your obligation to pay it. Doing this is not easy; you’ll have to meet specific conditions depending on the type of loan you have.

Often, when you cancel your loan, the government will also reimburse you for payments already made, and help clean up your credit record. If it sounds too good to be true, it’s because it’s extremely rare. Sometimes you won’t be able to cancel the entire loan, but you might be able to get rid of a portion of it.

Loan discharge is the official name of canceling student loans. It is available only in certain, specific situations, including:

  • you attended a school that closed
  • you didn’t get a refund where appropriate
  • your school falsely certified that you would benefit from the education and you don’t have a GED or high school diploma
  • you attended a Corinthian College
  • you work in certain occupations after graduation (like teaching or some public service jobs)
  • you are disabled or die.

Check with your lender and keep track of your expenses. Though student loan debt may seem insurmountable, with preparation and knowledge, you can manage your loans.

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