What Is Student Loan Deferment?

A student loan deferment lets qualified applicants stop making payments on their loans or reduce their payments for up to three years.

No interest accrues on federally subsidized loans during the deferment period because the government picks up the interest payments. If the loans are unsubsidized, interest does accrue and is added to the amount due at the end of the deferment period.

Should You Defer Your Student Loan Payments?

When deciding whether to pursue student loan deferment, you should ask yourself the following questions:

• Do I have subsidized federal loans or Perkins Loans? Interest on federally subsidized loans and Perkins Loans does not accrue during the deferment period. If your loans are unsubsidized federal loans or private loans, interest will likely still accrue unless you pay it during the deferment period.
• Can I afford to make a reduced loan payment? If you can’t pay anything, deferment may provide some breathing room until you restart payments. Deferment is considered a temporary measure. If you need a long-term lower payment, then an income-driven repayment (IDR) plan may make more sense.
• Will I be able to restart payments on my student loans soon? If you can, deferment may be a good way to get over a temporary financial bump in the road. If you don’t see any way to make payments down the road, then deferment may not be a good option.

Qualifying for a Student Loan Deferment

You can’t simply stop making payments on your student loans and declare yourself in deferment. You must qualify, which involves working with your loan servicer or lender and filing an application.

Your loan servicer or lender will process your application, let you know if more information is needed, and tell you whether or not you qualify. It’s important to continue making timely payments on your loans while you await a decision. Failure to do so could ultimately result in loan default and a serious blow to your credit score.

Federal Student Loan Deferment

Most federal student loan deferments require that you apply. Only one type, known as in-school deferment, is automatic if you are enrolled at least half-time. If you believe you qualify for a deferment based on other categories, you will need to apply.

To do that, go to the U.S. Department of Education’s website, click on Loan Deferment and Forbearance, and retrieve an application for the type of deferment for which you believe you qualify.

Private Student Loan Deferment

To defer a private student loan, you’ll need to contact your lender directly. Many offer some form of deferment or relief if you are enrolled in school, serving in the military, or unemployed. Some also provide deferment for economic hardship.

As with unsubsidized federal loans, in most cases, any deferment of a private loan comes with accrued interest that is added to the end of the deferment period. You can avoid this by paying the interest as it accrues.

Types of Federal Student Loan Deferment

The following deferment types apply to federal student loans. As noted, some private lenders also offer payment relief, but the types, rules, and requirements vary by lender.

In-School Student Deferment

This is the only automatic deferment offered by the federal government. It comes with the requirement that you attend school at least half-time.

If you have a subsidized or unsubsidized direct or federal Stafford student loan, or if you are a graduate or professional student with a direct PLUS or Federal Family Education Loan (FFEL) PLUS loan, your loan payments will remain paused until six months after you graduate or leave school. All others with Parent Loan for Undergraduate Students (PLUS) loans must begin repaying as soon as they leave school.

If you don’t receive an automatic deferment, ask your school’s admissions office to send your enrollment information to your loan servicer.

In-School Parent Deferment

If you are a parent who took out a direct PLUS or FFEL PLUS loan, and the student for whom you took out the loan is enrolled at least half-time, then you are eligible for deferment—but you must request it.

Your deferment comes with the same six-month grace period afforded to students. There is no time limit for either type of in-school deferment.

Unemployment Deferment

You may request deferment for up to three years if you become unemployed or are unable to find a full-time job.

To qualify, you must be either receiving unemployment benefits or seeking full-time work by registering with an employment agency. You must reapply for this deferment every six months.

Economic Hardship Deferment

Economic hardship deferment is available for up to three years if you receive state or federal assistance, including through the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF). The same applies if your monthly income is less than 150% of your state’s poverty guidelines.

You must reapply for this deferment every 12 months.

Peace Corps Deferment

A deferment of up to three years is also available if you are serving in the Peace Corps. Although Peace Corps service qualifies for economic hardship deferment, it does not require you to reapply during the deferment period.

Military Deferment

Active-duty military service in a war, military operation, or national emergency can qualify you for student loan deferment. This can include a 13-month grace period following the end of your service or until you return to school on at least a half-time basis.

Cancer Treatment Deferment

If you have cancer, you can request deferment of your student loan debt during treatment and for six months following the conclusion of treatment.

Other Deferment Options

If you don’t qualify for one of the types of deferment listed above, then you may qualify for one of the following:

• Graduate fellowship deferment, if you are enrolled in an approved program
• Rehabilitation training deferment, if you are enrolled in an approved rehabilitation training program
• Perkins Loan forgiveness deferment, if you received a Perkins Loan and are working toward the cancellation of that loan
• Additional/enhanced deferment options, if you have a pre-July 1, 1993, direct loan or FFEL. Contact your loan servicer for details.

How Student Loan Interest Is Calculated

The way that interest on student loans is calculated is slightly different from how it’s calculated on most other loans. With student loans, interest accrues daily but is not compounded (added to the balance). Instead, your monthly payment includes the interest for that month and a portion of the principal.

Here’s an example of how it works:

• Loan total = $20,000
• Annual percentage rate (APR) = 7%
• Daily interest rate (APR divided by 365) = 0.07 ÷ 365 = 0.00019 or 0.019%
• Daily interest amount (balance times the daily interest rate) = $20,000 × 0.019% = $3.80

As you make payments on your loan, the balance goes down, as does the daily interest amount. But when your loan is in deferment, the daily interest amount remains the same until you begin repaying the loan because the interest is not capitalized (added to the loan) until the end of the deferment period.

The Cost of Deferment

If you have private or unsubsidized federal student loans, deferment can be costly. That’s because, unlike subsidized loans, interest on these loans accrues during the deferment period and is capitalized (added to the outstanding balance) at the end of deferment. That increases the amount you owe when you begin repayment, in addition to the total you will pay over the life of the loan.

Let’s say you take out a $20,000 student loan and finance it for 10 years at an annual interest rate of 7%. The table below shows the amounts you would pay based on four different scenarios:

• Paid as agreed
• Subsidized with 36 months of interest-free deferment
• Unsubsidized with a 36-month deferment but paying interest during deferment
• Unsubsidized with a 36-month deferment and paying no interest during deferment

Payments on a 10-Year $20,000 Student Loan*
Monthly Payment	Years 1–3	Years 4–10	Years 11–13	Interest	Total
(1) Paid as agreed	$232	$232	$0	$7,840	$27,840
(2) Subsidized	$0	$232	$232	$7,840	$27,840
(3) Unsubsidized/interest paid	$116	$232	$232	$12,016	$32,016
(4) Unsubsidized/no interest paid	$0	$281	$281	$9,559	$33,720

As the table above illustrates, taking a three-year deferment on an unsubsidized loan and paying no interest during the deferment period (scenario 4) results in a larger loan to pay off ($24,161 vs. $20,000) when repayment begins. The nearly $50 increase in monthly payments plus the extra interest adds nearly $6,000 to the total you pay over the life of the loan.

Alternatives to Deferment

Depending on your circumstances, two alternatives to student loan deferment might be worth considering:

Forbearance

If you don’t qualify for deferment, forbearance may be an option if you qualify. The main difference between deferment and forbearance is that interest always accrues with forbearance and is added to your loan at the end of the deferment period unless you pay it as it accrues. (Scenarios 3 and 4 above illustrate what happens to any loan in forbearance.)

Income-Driven Repayment (IDR)

If you expect your financial problems to last for more than three years, an income-driven repayment (IDR) plan may be best for you. These plans determine your monthly payments based on your income and family size.

IDR plans offer payments as low as $0 per month and even provide loan forgiveness if your loan isn’t paid off after 20 to 25 years. Many income-driven plans waive interest for up to three years if your payments don’t cover accrued interest. IDRs do extend the time you will be paying on your loan, so your total interest payments over time will likely be more than with deferment.

One big caveat: IDRs are only available to pay off federal student loans. This is an important reason why you should avoid mixing federal and private loans into a single consolidated loan. Doing so will remove IDR eligibility from the federal-loan portion of your combined debt.

The Bottom Line

Student loan deferment makes the most sense if you have subsidized federal loans or Perkins Loans because interest does not accrue on them. Forbearance should only be considered if you don’t qualify for deferment. Remember that deferment and forbearance are for short-term financial difficulty.

Income-driven repayment (IDR) is a better option if your financial problems will last for more than three years and you are repaying federal student loan debt. In all cases, make sure you contact your loan servicer immediately if you have trouble making your student loan payments.