Can’t pay your student loans? When times get tough, sometimes you just need a little bit of relief from the death grip of bills and expectations. In which case, student loan deferment might be the right option for you (or if you don’t qualify forbearance or repayment options for private or federal loans are also options). After all, it’s better than moving to Mexico and becoming a fugitive from your debt!
What is Student Loan Deferment?
A deferment suspends your monthly payments before you get too far behind. Currently, around 11% of federal student loans are in deferment. There are a few situations in which you can qualify for deferment including if you’re going to school, if you’re unemployed, if you’re facing economic hardship, or if you’re serving in the military. Perkins Loans also have other special deferments for people like full-time law enforcement officers, and Peace Corps volunteers.
When your subsidized federal student loan is in deferment, you don’t have to pay monthly payments and interest doesn’t accrue. When an unsubsidized federal student loan is in deferment you don’t pay anything on a monthly basis but your interest continues to add up. That means you’ll owe more after your deferment than before. Some types of private loans can also be deferred, but only if deferment was part of the conditions of the loan when it was issued. Also, private loans always accrue interest during times of deferment.
How to Get a Student Loan Deferment:
If you want to get your payments deferred, you need to be proactive. You’re only eligible for a deferment if you haven’t already defaulted on your student loans. Also, you should note that if you have outstanding payments these parts of your loan are not eligible for deferment but might be eligible for forbearance. Most deferments are not automatic and you need to request them from the organization that handles your loan account
If you’re a student, and your college is part of the National Student Clearinghouse’s deferment program, you can just call your lender and they will be able to confirm your enrollment. Otherwise, there is an application to fill out. For federal loans, you can find forms online from the U.S. Department of Education for FFEL and Direct Loans. You will have to prove that you qualify for one of the deferment criteria. For a Perkin Loan deferment, you must contact the loan holder directly. If the Department of Education is the holder, then use the request letter found on their website.
How Long Do Student Loan Deferments Last?
While deferments are a great relief, they come to an end. How long they last depend on the reason for your deferment and who is deferring your loan. Private lenders will have different terms, but for federal loans, the terms are generally standard. For example, if you’re a student, the deferment last until you graduate as long as you remain enrolled half-time. If you’re in active military service it will last for three years or until your service ends. If you’re unemployed, the initial deferment will last six months but it can be renewed for three years. Economic hardship deferments last one year with a three-year maximum as well. Student loans refinancing and consolidation might help once you’ve used up your deferment time.
Interest on Private and Unsubsidized Loans:
Since the interest on private and unsubsidized loans continues to accrue during deferment, many people opt to pay only this interest during deferment so that it doesn’t get capitalized after the deferment is over. If you can manage to find that extra money, it’s a good idea to try to pay just this. Also, some private loans charge you a fee to set up deferments, so be sure to ask before you go forward with it.
Your Credit Score:
Since you’ve done your due diligence and gotten a deferment, your credit score should not be affected! In contrast, if you had allowed your student loans to default it would wreck havoc on your credit score, lead to potential wage garnishing, and affect your tax refund. Not fun! Also, many options for dealing with your student loans are not available once you’ve gone into default territory. So stay out of default if you can!