The intricacies of student loans usually require an understanding of the term “student loan deferment”. This is an important tool that helps students handle repayment issues. Student loan deferment also enables borrowers to postpone making payments under specific circumstances temporarily and provides financial relief when returning to school or during economic hardship.
In this comprehensive article, we will be learning everything there is to know about student loan deferment, how it works, the pros and cons, reasons, and how to apply. When you understand this term, you can make the right decisions when it comes to your financial future and loan repayment means.
What is Student Loan Deferment?
For those who do not know, student loan suspension is a specific period when loan borrowers can postpone their payments on student loans temporarily. Meanwhile, this option is usually available for certain situations where the borrowers might be experiencing economic hardship, financial hardship, military service, unemployment, or returning to school.
Additionally, the deferment process gives temporary relief to borrowers who are not able to keep making payments for their student loan repayment. However, when you succeed in halting payment making, the interest rate might still be accruing and will eventually be added to the total loan amount.
How Does It Work?
The concept behind student loan deferment is easy to understand. This is a period offered by student loan lenders to borrowers to halt making payments on their loans temporarily due to certain qualifying situations like military service, returning to school, unemployment, or financial hardship. During this period the interest might or might not continue to increase depending on the loan type.
Types of Student Loan Deferment
Below is a list of the various types of federal student loan suspension and you can be eligible under various circumstances. They include:
- Economic hardship deferment.
- Military service and post-active duty student deferment.
- In-school deferment.
- Rehabilitation training deferment.
- Graduate fellowship deferment.
- Cancer treatment deferment.
- Unemployment deferment.
- Parent PLUS borrower deferment.
As for private student loan deferment, private lenders do not provide such services. Nevertheless, payment relief or some form of deferment might be offered by some.
Reasons for Student Loan Suspension
Multiple reasons are behind the permitting of student loan payment postponement. Meanwhile, keep in mind that this is only applicable to federal student loans.
- Financial hardship.
- Parental leave.
- Post-active duty.
- Returning to school.
- Military service.
Typically, these reasons make borrowers eligible for temporary suspension of their loan payments without any associated penalties.
Pros and Cons of Student Loan Deferment
These are the benefits and drawbacks of deferring on a student loan:
Pros
- Continued education.
- Temporary relief.
- Credit perseveration.
- Breathing room.
- Flexible repayment.
- Interest subsidization.
- Ability to pay attention to new opportunities.
- Default protection.
Cons
- Increased repayment period.
- Accrual of interest.
- Limited period.
- Possible impact on credit score.
- Increased loan balance.
- Unsure eligibility.
While considering the pros and cons of student loan deferment, it is important to understand that this process is not suitable for everyone.
How to Apply for Deferment
Some federal student loan deferment periods take automatically. But if you have asked for a deferment yourself, here are the steps to follow:
Applying for deferment on your student loans typically involves several steps:
- Reach out to your loan servicer.
- Ask for deferment forms.
- Confirm eligibility.
- Fill out the provided deferment forms as well as supporting documents.
- Submit it.
- Wait for approval.
- Get confirmation.
Meanwhile, it is important to stay in touch with your loan provider for updates or requests on your deferment status.
Alternative to Student Loan Suspension
If you are not able to qualify for student loan suspension, that is not the only debt relief option you can try out. Here are some alternatives you can consider:
- Employment repayment programs.
- Forbearance.
- Refinancing.
- Income-driven repayment plans.
- Student loan forgiveness.
Whatever choice you choose, make sure that you research and make decisions carefully to consider the best option for your needs.
Frequently Asked Questions (FAQs)
Who qualifies for student loan deferment?
The qualification for student loan suspension is based on certain situations, like serving in the military, being enrolled in a qualified career school or college, facing economic hardship, being unemployed, or even undergoing rehabilitation training. Generally, federal student loans grant deferment but as for private lenders, different criteria need to be met.
Does interest accrue during deferment?
The type of loan you applied for determines whether or not interest rates accrue during the student loan suspension period. Nevertheless, subsidized federal loans do not have accrued interest rates during deferment because the federal government covers the interest. On the other hand, private student loans and unsubsidized federal loans accrue interest even during the suspension period which will be added to your loan amount.
How long does student loan deferment last?
The duration of student loan suspension periods can differ based on the type of loan and the reason for deferment. For federal student loans, their deferment periods can last for up to three years. As for private lenders, various policies or terms are associated with the length of deferment.