From losing a job to experiencing a medical emergency, there are many situations in which you may end up short of the money you need to pay your student loan bill. Because of this, public (and sometimes private) student loan providers offer the option of deferring student loans — in other words, pausing your payments until you’re back on your feet.
Still, student loan deferment is not exactly a simple solution. Knowing if it’s the right time to defer loans or whether you should consider alternatives can help you make the best decision based on your particular situation.
What does deferring student loans mean?
As the Department of Education explains, a deferment to your student loans is a period during which repayment of the principal and interest of your loan is temporarily delayed.
During a period of deferment, you don’t need to pay anything on your loan. There is typically an agreement on the length of time you’re allowed to defer, depending on the program. Borrowers should also note that although deferment can include not having to pay the interest on their loan, this actually depends on the situation.
Loan types that do not require payment of interest when deferring student loans include:
- Subsidized Federal Stafford Loans
- Subsidized Direct
- Subsidized FFEL Consolidation Loans
- Direct Subsidized Loans
- Federal Perkins Loans
- Consolidation Loans
Loan types that do require payment of interest when deferring student loans include:
- Direct PLUS Loans
- FFEL PLUS Loans
- Direct Unsubsidized Loans
- Unsubsidized Direct Consolidation Loans
- Unsubsidized Federal Stafford Loans
- Unsubsidized FFEL Consolidation Loans
Depending on the category your loans fall into, the government may or may not pay the interest on your student loans. But if the interest is not covered, then you’ll either have to make monthly payments or allow the interest to capitalize, meaning it gets added to the total principal of the loan.
Except for a few cases, such as continuing your education, you’ll probably need to apply for deferring student loans. And even if you’re re-enrolling in school, you should still speak with a financial aid representative who can help make sure deferment for both your public and private loans goes through.
If your loan came through the federal government, log in to My Federal Student Aid to find the name of your servicer. If your loan is private, your job is even easier: Call up the company through which your loan was financed. (And if you don’t know who your student loan servicer is, here’s how to track them down.)
Pros and cons of deferring student loans
Putting your student loan payments on pause may seem like a blessing, especially if you are living paycheck-to-paycheck.
Deferring your student loans in extreme cases of hardship can help you pay other immediate bills, such as rent and electricity. And for those volunteering their time or serving in the military, temporarily not having student loan obligations can help them give back to their community without an additional burden on their mind.
However, there are also drawbacks to student loan deferment, particularly if your loans aren’t subsidized by the federal government. The interest will continue to accumulate at the regular rate and then get added to the total of the loan.
For example, say the principal balance on your 10-year PLUS loan is $20,000 with a 4.8% interest rate. Applying for a six-month deferment will save you a significant amount in payments in the short term.
But if you use our specially-made calculator to run the numbers, you will see that you will have incurred $478 worth of interest. This will extend the amount of time it will take you to pay the principal. And if your ultimate goal is to conquer those student loans quickly, adding additional time and money to your payoff plan is not going to help.
Also consider that student debt in deferment can affect you if you’re involved in certain student loan forgiveness programs. Say, for example, you’re pursuing Public Service Loan Forgiveness, which requires 120 eligible payments to qualify. If you defer the loan for three months, the payments you miss during that time would not count towards the 120, even if you are still working for a qualified non-profit.
When to defer your student loan
Your own situation should guide whether deferring student loans is the right or wrong move. In some cases, such as if you are returning to school, joining the Peace Corps or taking care of a child before returning to school, for example, deferring student loans may be an absolute lifesaver and totally necessary to get by.
On the other hand, if you suffer a financial hardship but might still be able to keep paying down your loan, you might benefit from doing so, since it will get you out of debt all the sooner. Or you could just pay the interest on your loan each month to stop it from adding to the total balance of the loan.
Alternatives to student loan deferment
If you decide deferring student loans isn’t the best option for you, there are several other ways you can reduce your student loan burden to make it manageable.
If you have private student loans, the first might be going straight to your lender and trying to work out a repayment plan. Lenders would rather see some of the money come back to them than none of it, so they may be willing to reduce your payments or work out another solution.
With federal loans, meanwhile, you have some great alternatives: The government offers many income-driven repayment plans that can reduce your payments to an affordable portion of your disposable income.
And with either private or federal debt, your employer may also have a program to help you pay off your loans. Check with your supervisor or human resources department to find out what programs might be offered.
Likewise, refinancing your student loans may be a way to help reduce your payments and, potentially, also cut the interest you pay. Just be careful about refinancing federal student loans, as you will lose some of the government options like income-driven repayment.
Making the deferment decision
Student loan deferments give borrowers experiencing financial difficulty a temporary break from the pressures of loan payments. In some cases, it makes sense to apply for a deferment, but there are also alternatives that may better fit your particular situation.
Talk to your servicer or provider and ask them about your options — including deferment, but also income-driven repayment and other possibilities — to keep yourself in the best financial situation possible.
Kristina Byas contributed to this report.
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1 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of October 1, 2020.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.