Are Private Student Loans Deferred

Last Updated on December 15, 2022

Private student loans are a type of non-governmental education loan that can be used by students to help pay for college, graduate school and even vocational schooling. While they have many similarities to federal student loans, there are some differences in terms. Information on the best deferred payment private student loans is available here as well as resources that can help you decide if you should choose them as an option for paying for your education costs.

What Is Student Loan Deferment?

A student loan deferment lets you stop making payments on your loan or reduce the amount you pay for up to three years, in some cases. No interest accrues on federally subsidized loans during the deferment period because the government picks up the interest payments. But interest on unsubsidized loans does accrue and is added to the amount due at the end of the deferment period.1

Deferment is considered a temporary measure. If you foresee that you’ll be unable to resume your student loan payments in three years or less, you should consider an income-driven repayment (IDR) plan instead. The information in this article is based on the usual principles of student loan deferment, not the special regulations around the COVID-19 pandemic.

KEY TAKEAWAYS

  • Student loan deferment lets you stop making payments on your loan for up to three years, in some cases, but it does not forgive the loan.
  • You must apply (and qualify) for deferment unless you are enrolled in school at least half-time.
  • Interest on federally subsidized loans does not accrue during the deferment.
  • Interest on unsubsidized loans does accrue during deferment and is added to your loan at the end of the deferral period.
  • Deferment on private student loans varies by lender, and not all lenders offer it.

Should You Defer Your Student Loan Payments?

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When deciding whether to pursue student loan deferment, you should ask yourself the following questions:

  • Do I have subsidized federal loans or Perkins loans? Interest on federally subsidized loans and Perkins loans does not accrue during the deferment period. If your loans are unsubsidized federal loans or private loans, interest will likely accrue unless you pay it while in deferment.1
  • Can I afford to make a reduced loan payment? If you can’t pay anything, deferment may provide some breathing room until you restart payments. If you need a long-term lower payment, an IDR plan may make more sense.
  • Will I be able to restart payments on my student loans soon? If you can, deferment may be a good way to get over a temporary financial bump in the road. If you don’t see any way to make payments down the road, deferment is not a good option.

Qualifying for a Student Loan Deferment

You can’t simply stop making payments on your student loans and declare yourself in deferment. You must qualify, which involves working with your loan servicer or lender and, in most cases, filing an application.

Your loan servicer or lender will process your application, let you know if more information is needed, and tell you whether you qualify. It’s important to continue making timely payments on your loans while you await a decision. Failure to do so could ultimately result in loan default and a serious blow to your credit score.3

Federal Student Loan Deferment

Most federal student loan deferments require that you apply. One type, known as in-school deferment, is automatic if you are enrolled at least half-time. If you believe you qualify for a deferment based on the other categories listed below, you will need to apply.1

To do that, go to the U.S. Department of Education’s Federal Student Aid Repayment forms website, click on Deferment, and retrieve an application for the type of deferment for which you believe you qualify.4

Private Student Loan Deferment

To defer a private student loan, you’ll need to contact your lender directly. Many offer some form of deferment or relief if you are enrolled in school, serving in the military, or unemployed. Some also provide deferment for economic hardship.1

As with unsubsidized federal loans, in most cases, any deferment of a private loan comes with accrued interest that capitalizes at the end of the deferment period. You can avoid this by paying the interest as it accrues.

Types of Federal Student Loan Deferment

The following deferment types apply to federal student loans. As noted, some private lenders also offer payment relief, but the types, rules, and requirements vary by lender.

In-School Student Deferment

This is the only automatic deferment offered by the federal government. It comes with the requirement that you attend school at least half-time.

If you have a subsidized or unsubsidized Direct or federal Stafford student loan, or if you are a graduate or professional student with a Direct PLUS or FFEL PLUS loan, your loan will remain on pause until six months after you graduate or leave school. All others with PLUS loans must begin repaying as soon as they leave school.

If you don’t receive an automatic deferment, ask your school’s admissions office to send your enrollment information to your loan servicer.1

In-School Parent Deferment

If you are a parent who took out a Direct PLUS or FFEL PLUS loan, and the student for whom you took out the loan is enrolled at least half-time, you are also eligible for deferment, but you must request it.

Your deferment comes with the same six-month grace period afforded to students mentioned above. There is no time limit for either type of in-school deferment.1

Unemployment Deferment

You may request deferment for up to three years if you become unemployed or are unable to find a full-time job. To qualify, you must be either receiving unemployment benefits or seeking full-time work by registering with an employment agency.1 You must also reapply for this deferment every six months.6

Economic Hardship Deferment

Economic hardship deferment is available for up to three years if you receive state or federal assistance, including through the Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF). The same applies if your monthly income is less than 150% of your state’s poverty guidelines.1 You must reapply for this deferment every 12 months.7

Peace Corps Deferment

A deferment of up to three years is also available if you are serving in the Peace Corps. Although Peace Corps service is considered an economic hardship, it does not require you to reapply during the deferment period.17

Military Deferment

Active duty military service in connection with a war, military operation, or national emergency can qualify you for student loan deferment as well. This can include a 13-month grace period following the end of your service or until you return to school on at least a half-time basis.1

Cancer Treatment Deferment

If you have cancer, you can request deferment of your student loan debt during treatment and for six months following the conclusion of treatment.1

Other Deferment Options

If you don’t qualify for one of the types of deferment just listed, you still may qualify for one of the following:

  • Graduate fellowship deferment if you are enrolled in an approved program
  • Rehabilitation training deferment if you are enrolled in an approved rehabilitation training program
  • Perkins loan forgiveness deferment if you received a Perkins loan and are working toward the cancellation of that loan
  • Additional/enhanced deferment options if you have a pre-July 1, 1993, Direct or FFEL Program loan. Contact your loan servicer for details.1

How Student Loan Interest Is Calculated

The way interest on student loans is calculated is slightly different from how it’s calculated on most other loans. With student loans, interest accrues daily but is not compounded (added to the balance). Instead, your monthly payment includes the interest for that month and a portion of the principal.

Here’s an example of how it works:

  • Loan total = $20,000
  • APR = 7%
  • Daily interest rate (APR divided by 365) = 0.07 ÷ 365 = 0.00019 or 0.019%
  • Daily interest amount (balance times the daily interest rate) = $20,000 × 0.019% = $3.80

As you make payments on your loan, the balance goes down, as does the daily interest amount. But when your loan is in deferment, the daily interest amount remains the same until you begin repaying the loan because the interest is not capitalized (added to the loan) until the end of the deferment period.9

The Cost of Deferment

If you have private or unsubsidized federal student loans, deferment can be costly. That’s because, unlike subsidized loans, interest on these loans accrues during the deferment period and is capitalized (added to the outstanding balance) at the end of deferment.10 That increases the amount you owe when you begin repayment, as well as the total you will pay over the life of the loan.

Let’s say you take out a $20,000 student loan and finance it for 10 years at an annual interest rate of 7%. The table below shows the amounts you would pay based on four different scenarios: (1) paid as agreed; (2) subsidized with 36 months of interest-free deferment; (3) unsubsidized with a 36-month deferment but paying interest during deferment; (4) unsubsidized with a 36-month deferment and paying no interest during deferment.

Payments on a 10-Year $20,000 Student Loan*
Monthly PaymentYears 1-3Years 4-10Years 11-13InterestTotal
(1) Paid as agreed$232$232$0$7,840$27,840
(2) Subsidized$0$232$232$7,840$27,840
(3) Unsubsidized/interest paid$116$232$232$12,016$32,016
(4) Unsubsidized/no interest paid$0$281$281$9,559$33,720

*Amounts rounded to the nearest dollar for clarity.

As the table above illustrates, taking a three-year deferment on an unsubsidized loan and paying no interest during the deferment period (scenario 4) results in a larger loan to pay off ($24,161 versus $20,000) when repayment begins. The nearly $50 increase in monthly payments plus the extra interest adds nearly $6,000 to the total you pay over the life of the loan.

Alternatives to Deferment

Depending on your circumstances, two alternatives to student loan deferment might be worth considering:

Forbearance

If you don’t qualify for deferment, forbearance may be an option as long as you qualify. The main difference between deferment and forbearance is that interest always accrues with forbearance and is added to your loan at the end of the deferment period unless you pay it as it accrues. (Scenarios 3 and 4 above illustrate what happens to any loan in forbearance.)5

Income-Driven Repayment (IDR)

If you expect your financial problems to last for more than three years, an IDR plan may be best for you. These plans determine your monthly payments based on your income and family size.

IDR plans can offer payments as low as $0 per month and even provide loan forgiveness if your loan isn’t paid off after 20 to 25 years.11 Many income-driven plans waive interest for up to three years if your payments don’t cover accrued interest. IDRs do extend the time you will be paying on your loan, so your total interest payments over time will likely be more than with deferment.112

One big caveat: IDRs are only available to pay off federal student loans. This is an important reason you should avoid mixing federal and private loans into a single consolidated loan. Doing so will remove IDR eligibility from the federal loan portion of your combined debt.11

The Bottom Line

Student loan deferment makes the most sense if you have subsidized federal or Perkins loans because interest does not accrue on them.1 Forbearance should only be considered if you don’t qualify for deferment. Remember that deferment and forbearance are for short-term financial difficulty. Income-driven repayment is a better option if your financial problems will last for more than three years and you are repaying federal student loan debt. In all cases, make sure you contact your loan servicer immediately if you have trouble making your student loan payments.

How to Defer Student Loans When You’re Going Back to School


Going back to school can be a fantastic career booster. In some roles, having a masters degree increases your earning potential by tens of thousands. And certain careers—like being a lawyer or a doctor—simply aren’t possible without additional higher education. 

But managing a student debt load while you’re in a graduate program can feel a little like running a marathon with a boulder strapped to your ankle. The good news is that deferring your loans is an option for most students, but it won’t be the best choice for everyone. 

What are your options if you’re going back to school? 

Going back to school while you still have student loans doesn’t necessarily mean you’re going to be making massive payments each month and living off ramen noodles. There are ways to reduce your monthly payments while you’re earning less.

1. Deferment

Deferment is a grace period during which your lender allows you to stop paying on your loans for a period of time. If you have federal student loans, your lender will generally place those loans into deferment automatically once you enroll at least half-time in an eligible college or career school. 

And that deferment will continue for as long as you’re enrolled at least half-time. Spending seven years doing a PhD? You have the option to defer for seven years. 

2. Refinancing

Refinancing is when you take out a new loan with a new lender for a lower interest rate than the one you currently have. The new lender purchases your old loans and then issues you a new loan at an interest rate that reflects your financial fitness. 

3. Changing your payment plan

If you’re on a standard 10-year repayment plan for federal student loans, you may be able to switch to an extended repayment plan or an income-driven repayment plan. You’ll end up paying more interest over the life of the loan, but you’ll reduce your monthly payments in the short-term.

4. Forbearance

You may have also heard of a forbearance and wondered whether you should try for that instead of a deferment . While you may meet the financial hardship qualification required for a forbearance while you’re in school, borrowers with subsidized loans will benefit from the automatic deferment because of the interest payments included.

During a forbearance, borrowers accrue interest, and it remains unpaid. 

Pros and cons of deferment

Since deferment often happens automatically, it’s the road that many students take to lessen the burden of their loans while they’re back in school. As with every choice you make about your student loans, there are upsides and downsides to taking advantage of deferring your student loans.

Pros

1. You get a break from paying your loans. Of course, you would love not to have those loan payments hanging over you, especially when you’re making little to no money and spending long hours with your textbooks. Deferring your loans will give you that break so you can focus on getting your degree. 

2. The Federal Government may pay the accrued interest. If you have a subsidized federal loan or a Perkins loan, the U.S. Department of Education will pay any interest you accrue during the period your deferment. So when you finish your degree, you won’t have increased the balance on your old loans. 

3. You’ll retain federal benefits. If you’re relying on the possibility of an income-driven repayment plan or federal loan forgiveness through a program like Public Service Loan Forgiveness, deferring your student loans keeps all those federal benefits as options. 

Cons

1. You may rack up interest. If you have unsubsidized federal loans, you won’t be so lucky. Unsubsidized loans accrue interest while you’re not paying, and it will be capitalized once you finish the grace period. That means you’ll graduate with an increase in your student loan debt even if you didn’t take out loans for this particular degree. 

2. You won’t be making headway on paying down your loans. Yes, you won’t have to pay on your loans while you’re in school, but if, for instance, you are in a two-year program, you’ll be adding two more years down the road when you’ll have to keep making those loan payments. 

So is it bad to defer your loans? 

Not necessarily. For some borrowers, deferment is the only way that going back to school is possible, and going back to school is critical for their career success. But understanding that you may have to do a little financial correction at the end of a grace period is important before making a decision.

Choosing to defer? Here’s how

If you have subsidized loans, and you simply can’t afford to make payments while you’re in school, then deferment may be a good option. 

Here’s how you do it: 

Your lender may put your loans on automatic deferment once you enroll at least half-time in a program. But to be on the safe side—or if you haven’t received a notice that your loans are in deferment, contact your educational institution and let them know that you want your loans to be deferred while you’re in school.

They will send proof of your enrollment to your lender so that your loans will be deferred. 

If deferring your student loans isn’t right for you, that’s okay. It doesn’t mean you’ll be buried under student loan payments you can’t make. Refinancing your student loans is a simple option to lower your monthly payment and the amount you’ll pay over the life of the loan without racking up unpaid interest.

About the author

The Editorial Team at Infolearners.com is dedicated to providing the best information on learning. From attaining a certificate in marketing to earning an MBA, we have all you need. If you feel lost, reach out to an admission officer.
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