Student Loan Deferment: 7 Things to Keep Straight
Let's run through it so you have some specifics.
1. What does student loan deferment mean?
Deferment starts with the name. You can defer, or postpone until later, some payments on these loans. This can help in some important circumstances.
In a true deferment, your interest will also stop. More on this below.
2. What loans allow deferment?
Great question with a great answer. Stafford loans, Perkins loans, PLUS loans, and some private student loans.
But here's a key to know about your loan. Subsidized Stafford loans and Perkins loans typically defer completely.
Unsubsidized Stafford loans, private student loans from a bank not part of your government approved financial aid, and PLUS loans don't defer completely.
In the case of the PLUS loans and unsubsidized Stafford loans, you can defer the loan but you will still have to pay interest – only the principal will be deferred. If you don't pay the interest, it is capitalized.
In other words, added to the loan. After that, you will pay interest on the original balance and on the added interest.
For a private student loan, you'll have to check with your lender, but many offer some form of deferment similar to the PLUS loan.
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3. When can you defer a loan?
In my case, I used student loan deferment to go back to graduate school. This worked great. As long as I was registered and going to school at least half time, I didn't have to pay my loans.
I have also used it once when I couldn't find work. That really helped.
You can also use it during Peace Corps service, and graduate fellowship programs or rehab programs for the disabled. Also, you can use deferment during military service.
4. How do you start a deferment?
It's not hard. Call your lender and ask for the form. Usually, you can print the form online and maybe even sign it there.
If you have a legitimate reason, your lender will let you know that your loans have been deferred.
5. How long does deferment last?
In my case, I used student loan deferment for my whole graduate degree, or about 3 years. That really helped, since I was unemployed much of the first year.
If you use it while you look for a new job, you can defer payments for 3 years in the federal program. Your lender may have different rules for your private loan, so be sure to ask.
6. What's the difference between deferment and forbearance?
Deferment and forbearance essentially accomplish the same task: turning off your loan payments for while.
Deferment usually doesn't increase the value of your loan. Forbearance means that your lender doesn't collect your payments, but still charges you interest in most cases.
A deferment may cost nothing or just interest payments.
A forbearance will typically cost at least the interest tacked onto the end of the loan. Also, forbearance applies when you don't qualify for deferment.
In general, I'd say don't use forbearance if you can avoid it. It will increase the value of your loan. In some case, you may end up with a HUGE balance, thousands higher than when yo started forbearance. Not good.
7. Can I use student loan deferment after consolidation?
Yes! If you have consolidated through the federal consolidation program, you still have benefits.
Private student loans may not have the same benefits, so check into it with your lender.
Keep It Straight
There you have it. 7 things to keep straight about deferment. Remember, federal student loans can be great, but they do lack one thing. You can't escape through bankruptcy.
Be careful to only borrow what you need and can pay back. Whether you borrow through the federal financial aid program or a private lender, keep your lending low and you'll be able to pay it off faster, and don't borrow when you don't need it.