From losing a job, to experiencing a medical emergency, to deciding to go back to school, there are many situations in which you might find yourself short on the money you need to pay your student loan bill.
Because of this, both private and public student loan providers offer qualified loan holders with the option to defer student loans for a period of time. In other words, you could have the option to pause payments until you’re back on your feet.
Still, student loan deferment is not exactly a simple solution. Knowing if it’s the right time to defer loans, based on your particular situation, can help you make the best decision for your finances.
What is student loan deferment?
As the U.S. Department of Education explains, a deferment to your student loans is “a period during which repayment of the principal and interest of your loan is temporarily delayed.”
During a period of deferment, you do not need to pay anything on your loan. There is typically an agreement on the length of time allowed to defer depending on the program.
For certain situations, the government will pay the interest on your Federal Perkins Loan, Direct Subsidized Loans, and/or Subsidized Federal Loans. If you have an unsubsidized student loan such as a PLUS loan, you will be responsible for your interest. If you do not make any payment towards that amount, the interest will be capitalized, or added to the total principal of the loan.
In most cases, you will need to fill out a form for and/or submit paperwork to your loan servicer in order to defer student loans.
In the case of a re-enrollment in school, you should also speak with a financial aid representative who can help make sure deferment for both your public and private loans goes through.
If your loan came through the federal government, log in to My Federal Student Aid to find the name of your servicer. If your loan is private, your job is even easier: call up the company through which your loan was financed.
Don’t know who your student loan servicer is? Here’s how to track them down.
Pros and cons of student loan deferment
Having your student loan deferred may seem like a blessing, especially if you are living paycheck to paycheck.
Deferring your student loans in extreme cases of hardship can help you pay other immediate bills, such as rent and electricity. And for those volunteering their time or serving in the military, not having a student loan payment can help them give back to their community without an additional burden on their mind.
However, there are also drawbacks to student loan deferment, particularly if your student loans are not subsidized by the federal government. The interest will continue to accumulate on these loans at the regular rate and be added to the total of the loan.
For example, say the principal balance on your 10-year PLUS loan is $20,000 with a 4.8% interest rate. Applying for a 6-month deferment will save you a significant amount in payments in the short-term.
But if you look closely at the math, you will see that you will have incurred $473.42 worth of interest and the new amount owed on your loan is $20,473.42!
That extra $473.10 means extending the amount of time it will take you to pay the principal. And if your ultimate goal is to conquer those student loans, adding additional time and money to your payoff plan is definitely not going to help.
Also consider that student loans in deferment can make you temporarily ineligible for certain student loan forgiveness programs, such as the Public Service Loan Forgiveness.
With this program, for instance, you must make 120 consistent payments to qualify. If you defer the loan for say, three months, those three non-payments would not count towards the 120, even if you are still working for a qualified non-profit.
When to defer your student loan
Unfortunately, there is no right or wrong reason for when to defer your student loans. For some situations, such as if you are returning to school, joining the Peace Corps, or taking care of a child between enrollment in school, your deferment may be an absolute lifesaver and totally necessary to get by.
On the other hand, if you are applying for a deferment because of a hardship, but you are still able to pay something, you may benefit from paying at least the interest on your loan each month to stop the interest from being added to the total of the loan.
Alternatives to student loan deferment
There are several ways you can reduce your student loan burden without having to apply for a deferment.
The first is to go straight to your lender and try to work out a repayment plan. Lenders would rather see some of the money come back to them than none of it, so they may be willing to reduce your payments or enroll you in an income-based repayment plan.
Similarly, the federal government offers many income-based repayment plans that reduce your payments according to how much you earn.
Your employer may also have a program to help you out or even pay off your loans. Check with your supervisor and/or HR department to find out what programs might be offered.
Finally, refinancing your student loans may be a way to help reduce your payments and, potentially, the total interest you pay.
Making the deferment decision
Student loan deferments give borrowers in a financial crisis a temporary break from the pressures of loan payments. In some cases, it makes sense to apply for a deferral – but there are also alternatives that may better fit your particular situation.
The best thing to do is talk to your servicer or provider and go over your options to keep yourself in the best financial situation possible.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|