Maybe you just lost your job, you decided to go back to school, or you got hit with an unexpected medical cost. In any case, your finances have changed—and you have to put your student loan on hold.
For federal loans, you have the option of putting your student loan in deferment while you get back on your feet. Here’s a look at how it works and how to apply.
What is student loan deferment?
If you qualify, deferment lets you stop making payments to your federal loan for one year at a time. You can renew your deferment every year, for a maximum of three years.
The federal government also offers another option to pause your payments: forbearance. The difference is that under deferment, your interest won’t accumulate for certain types of loans. Under forbearance, interest continues to accumulate under all loans.
See also: Are You In Danger of Defaulting on Your Student Loans? 5 Questions to Ask
What happens during deferment?
You can pause student loan payments completely or make interest-only payments during a period of deferment. We'll talk about that more in a minute—because first, we need to talk about interest.
What happens to your loan during deferment depends on the type of loan you have. Some loans—generally subsidized loans—don’t accumulate interest during the time they’re in deferment. These include:
- Direct subsidized loans
- Subsidized Stafford loans
- Perkins loans
- The subsidized part of Direct Consolidation Loans
- The subsidized part of Federal Family Education Loans (FFEL) Consolidation Loans
The interest does continue to accumulate on other types of loans while they’re in deferment. These include:
- Direct unsubsidized loans
- Unsubsidized Stafford loans
- Direct PLUS loans
- FFEL PLUS loans
- The unsubsidized part of Direct Consolidation Loans
- The unsubsidized part of FFEL Consolidation Loans
If your loan is in the second group above, you can opt to pay off the interest on a monthly basis during deferment. That will prevent your loan principal from growing.
You can also opt to cease payments altogether during deferment. This will cause your interest to be capitalized, or and added to the principal balance of your loan. Once that happens, you'll be charged interest on accumulated interest. It also means that when the deferment period is over, your loan principal will be bigger than it was.
When can you apply for deferment?
There are a number of situations when it might make sense to apply for deferment. These include:
- When you’re enrolled at least part-time in a qualifying college.
- If you’re the parent of a child enrolled at least part-time in a qualifying college, and you have a Direct or FFEL PLUS loan.
- When you’re enrolled in a graduate fellowship program or a rehabilitative training program for a disability.
- If you’re unemployed or underemployed.
- While you’re serving in the Peace Corps.
- If you’re experiencing economic hardship.
- When you’re on active duty in the military.
How should you request a deferment?
Your first step is to get in touch with your loan servicer. They’ll have an application for you to fill out. The servicer will probably ask for supporting documentation that shows you qualify.
In some situations, your loan may be placed into automatic deferment. If you’re enrolled in a qualifying college or school as a part-time or full-time student, your loan servicer may put your loans into deferment and send you a notification.
If you think you qualify for automatic deferment but your servicer hasn't sent you a notification about it, get in touch with your school. They should send proof of your enrollment to the loan servicer.
Who is eligible for student loan deferment?
Generally, deferments are granted for the following reasons:
Education
This could mean you’re enrolled full- or part-time in a graduate fellowship, rehabilitative training, or a residency or internship.
Teachers working in a teacher-shortage area and parents who've taken out a loan for a child enrolled in school may also qualify.
Unemployment
If you’re unemployed or underemployed—working less than 30 hours per week and looking for full-time employment—you could qualify for deferment.
For economic hardship
To qualify for an economic hardship deferment, you have to meet one of the following qualifications:
- You’ve already gotten another federal loan deferred in the same period.
- You’re enrolled in a government assistance program, such as the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), or Supplemental Security Income (SSI).
- You’re working as a volunteer with the Peace Corps.
- You’re making less than 150% of the poverty level for a family of your size in your area.
See also: Everything You Need to Know about Lowering Your Student Loan Payments
Who is not eligible for student loan deferment?
If you’re not enrolled in school or the military, and if you don’t meet the economic hardship criteria, you most likely don't qualify.
If you have a full-time job and can’t afford your loan payment, the government usually prefers that you enroll in an income-based repayment program to reduce your monthly payment.
See also: Beginners' Guide to Income-Driven Repayment Plans
Deferment can be a good option for staying current on your loan when you can't make full payments, but there are pros and cons. Do your research before signing up, and hopefully you’ll be able to make the decision that’s right for you.
Interested in other ways to lower your student loan payments? Check out our Student Loan Refinancing Calculator to see how much you could save with a lower interest rate.