How to Defer Student Loans When Going Back to School

 May 28, 2021
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If you’re pursuing a master’s or other advanced degree, you may not have the means to pay back student loans while you’re busy with your studies. In this case, you’ll need to know how to defer student loans when going back to school.

Fortunately, you can postpone payments on your federal student loans while you’re in school through deferment. And although this isn’t always an option with private student loans, you can also consider refinancing for potentially better rates and adjusted monthly payments.

Let’s consider both options so you know what to do with your student loans before you head to graduate school. Let’s look at…

How to defer student loans when going back to school

If you go back to school, do your student loan payments stop? If you have federal student loans, the answer is usually yes.

You can typically postpone payments on your federal student loans through deferment, as long as you’re enrolled at least half-time in an eligible program.

This deferment can last the entire time you meet this enrollment requirement. So even if you’re in an eight-year Ph.D. program, you can defer your student loan payments all eight years.

In most cases, your loan servicer will automatically place your loans into deferment when you go to school. If it doesn’t, contact your school so it can confirm your enrollment with your loan servicer.

Pros of deferring student loans

Figuring out how to defer student loans when going back to school can remove the stress of having to make student loan payments while you’re working toward your degree. With deferment, you can pause payments completely. Plus, as mentioned above, most loan servicers will automatically defer your loans, so you won’t need to be concerned about a complicated application process.

Another benefit of deferment has to do with subsidized interest. If you have any subsidized federal loans or a Perkins loan, you won’t have to worry about interest accruing during deferment — note, however, that interest will continue to accrue on your unsubsidized student loans.

Cons of deferring student loans

Even if interest isn’t accruing on your student loans, you won’t be making any progress toward repayment. Nor will this period of deferment count toward a forgiveness program, such as Public Service Loan Forgiveness.

In addition, a significant amount of interest could accrue on your unsubsidized loans, and this interest will be capitalized — added on to your principal balance — when your deferment ends.

Suppose, for example, your student loan balance is $25,000 at 5.25% interest over a 10-year repayment period and you defer payments for 12 months. When the deferment period ends, your new balance will be $1,312 higher.

You can run the numbers on your own loans with our deferment calculator here:

Student Loan Deferment Calculator

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One way around this problem is to make interest-only payments on your loan while you’re in school. If you can afford to make them, these small payments could save you a significant amount of money in the long term.

How to refinance student loans while in school

Now you know how to defer federal student loans when going back to school, but you might be wondering what to do with your private student loans. Unfortunately, private student loans are not eligible for federal deferment. Some private lenders will let you pause payments, but this varies by lender.

Another option to consider is refinancing your private student loans. When you refinance, you might be able to get a lower interest rate. Plus, you can choose new repayment terms, so if you need to lower payments while in school, you could opt for a long term of 15 or 20 years.

Note that choosing a longer term will result in higher interest costs over the years — that said, you can always make extra payments to pay off your loan faster after you graduate and start making more money.

You can shop around for student loan refinancing offers to find the best option for you. With some lenders, you can find out what interest rates and terms you’re likely to get without having to undergo a hard credit check — meaning that your credit score won’t be affected until you formally apply for the loan on offer.

As you compare refinancing offers, note whether the rates quoted are variable or fixed. Fixed loans keep the same interest rate for the whole term; however, with a variable loan, you could see your interest rates climb based on the financial market.

Think twice before sacrificing federal student loan benefits

It’s also possible to refinance federal student loans, but doing so involves one very big disadvantage: You’ll lose access to federal benefits.

When federal student loans are refinanced, they become private and lose eligibility for federal repayment benefits such as deferment, income-driven repayment plans and federal forgiveness programs.

Consider, for example, whether you might ever need income-driven repayment — which caps your monthly payment at 10% to 20% of your discretionary income. If you don’t expect your graduate or professional degree to result in a comfortable salary, or have some other reason to worry about being able to make you student loan payments, refinancing your federal loans could be risky.

Final thoughts on going back to school with student loans

As you can see, your approach to student loan planning will likely be different depending on whether you have federal or private student loans. Plus, there are both pros and cons to both student loan deferment and refinancing.

Deferment is a common move for graduate students, since it pauses student loan payments completely. But be careful not to let your balance balloon too much, or you could be facing an unaffordable amount of debt following graduation.

If you have strong credit (or a creditworthy cosigner), it could be worth exploring refinancing options, at least for your private student loans. But before you sign for a new loan, make sure you fully understand the possible consequences.

Think about your timeline for paying off your debt. Will lower interest rates help you pay off your debt more quickly? Or are you seeking to lower your monthly payments, even if you stay in debt longer?

At the end of the day, refinancing can save you money, though it’s not right for everyone. If you’re still unsure, here are some questions to ask yourself as you decide on whether to refinance student loans when going back to school.

Shannon Insler and Steve Santiago contributed to this report.