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Student Loan Deferment

Student Loan Refinance

Student loan deferment is when a loan is placed on hold and no payments are required to be made. In all cases, except unsubsidized Stafford loans, interest will not accrue on loans while in their deferment period. However, the situations which warrant deferment are specific:

  • The borrowers must be unable to secure full-time employment.
  • The student decides to return to school for a minimum of half-time study.
  • The student returns to pursue graduate or post graduate studies for at least half-time study.
  • The borrower can demonstrate economic hardship will result from making the payments according to the repayment schedule. This also applies to parents who have taken out PLUS loans.
  • The borrower is called to active duty in the military, whether it is for a war or national emergency service.

What are the advantages of deferment?

  • Loans repayment can be deferred while pursuing advanced degrees, which could raise salary potential.
  • Deferment may be a way of producing a stronger repayment situation when the period is up. Thus, allowing the borrower to more comfortably meet his/her financial obligations.
  • It's better to let the lender know the borrower may be having difficulty meeting loan payments before they end up in default. Not only will the borrower still be responsible for paying off student loans, but his/her credit rating will be seriously affected until the loan payments are again current.
  • Deferment is available for up to three years, if the criteria is met.

What are the disadvantages of deferment?

  • Though the duration of loan repayment will not increase through the lender, the borrower is delaying the inevitable.
  • If paying off a Stafford loan, interest will accrue. Thus, there will either still be an interest payment required, or the resulting interest will be tacked onto the principal (capitalized), thereby increasing the current outstanding loan amount.
  • If used up frivolously, the deferment period could be squandered early on in the loan process which could later result in default if the borrower is unable to meet his/her financial obligations.

Student loan deferment is a tool designed by lenders to help ease the financial burden of loans until the student is best able to begin their repayment process. Borrowers should note that being proactive for deferment purposes is very important. Loans that are already in default cannot be deferred.

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