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.
See: Everything You Need to Know About Student Loan Refinancing
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.