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Put a Pause on Payments with Deferment

Are you or your students ready to take control of their student loan finances? We’re breaking down what deferment entails, who qualifies for it, and how it can help borrowers manage their loans. Discovering the power of deferment isn’t just about easing the pressure of student loan repayment—it’s about reclaiming financial freedom. 

What is Deferment? 

Deferment is a temporary pause in student loan payments, meaning the borrower (most often the student) is not required to make a payment during the deferment’s timeframe. Several reasons could lead to loans being placed into deferment, with the most common including enrollment in school at least half-time, unemployment, economic hardship, or active military duty. Interest continues to accrue on loans, but for certain loan types, the borrower is not responsible for paying it. These include Subsidized Loans, Subsidized Federal Stafford Loans, and Federal Perkins Loans. The borrower, however, will be responsible for the interest that accrues on Direct PLUS Loans, Unsubsidized Federal Stafford Loans, and Federal Family Education Loan (FFEL) PLUS Loans. Many people confuse deferment and forbearance. They are similar in that they both can pause the required loan payment; however, they differ specifically on how interest accrual is covered during that pause.  

Venn Diagram of Deferment Vs. Forbearance

Reasons for Deferment 

Students are placed into deferment automatically upon enrollment in an eligible college or career school at least half-time. However, if deferment doesn’t kick in automatically, students should reach out to their school for assistance.   

Financial and/or economic hardship is another common reason for deferment, providing temporary relief during challenging times such as unemployment, inability to secure full-time employment, or significantly low income. If a borrower has a very low income and a large family size, they can apply for an economic hardship deferment. Similarly, unemployment deferments can be used when unemployed or underemployed for temporary relief. However, the borrower should consider all their options before applying for a deferment.  

Many deferment options are capped, meaning they can only be used for three years over the lifetime of the loan until they cannot be used again. For unemployment or economic hardship, an income-driven repayment plan may actually be a better solution. Income-driven plans count as making payments on your credit report, even if your payment is zero. Deferment, on the other hand, doesn’t count against your credit, but it also doesn’t help your credit—it simply reflects a pause. 

For those reenrolling in school or entering a graduate program, deferment offers the opportunity to focus on education rather than managing payments. Similarly, individuals serving in the military often choose deferment to fulfill their duties without the burden of loan repayments.  

Additional reasons for deferment can be found at StudentAid.gov. 

Military student holding a job application

Pros and Cons 

Deferment offers significant benefits for student loan borrowers. It provides relief from the obligation to make loan payments when the borrower is unable to do so, allowing time to focus on achieving financial stability. There is no need to worry about interest on subsidized loans since its taken care of.  

Through deferment, a borrower’s credit score will be protected from missed or late payments, maintaining its stability. There are also some drawbacks, though. Interest will continue to accrue on unsubsidized loans, leading to a higher loan balance. Additionally, deferment may extend the time for loans to be repaid, resulting in an increase in the total amount repaid over time. 

How to Apply 

The application process is straightforward. The borrower should determine the type of deferment they are requesting and fill out the corresponding form found here. Collect any required documents or proof and submit them to their federal student loan servicer. 

Navigating Deferment and Beyond 

Borrowers should explore their options and understand how deferment may affect their financial situation. While deferment may offer short-term relief, it’s essential to consider the long-term impact. We encourage borrowers to speak to their school’s financial aid office and their loan servicers for more guidance in navigating their repayment options. Ultimately, borrowers can take control of their student loans by staying proactive and working towards their financial goals. Stay tuned for our next blog on forbearance, where we’ll explain what it is and why it’s different from deferment.  

Still have questions? 

Contact our compliance team 

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