Student loan deferment allows you to temporarily stop making payments on your student loans.
Even if your loan is on deferment, you may still be required to continue making interest payments—or you may be able to choose whether or not you pay the interest each month. (If you choose not to pay it, that interest will be applied to your loan's principal balance.)
Student loan deferment extends the period of time that it will take you to pay off the loan, and it causes you to pay more interest on the loans, so it is important to be sure that you really need to put the loans on deferment.
Establishing When You Should Put Your Loans on Deferment
If you can't pay your student loans, and they're federal student loans, remember: the CARES Act (passed in March 2020) includes relief to borrowers with federally-owned student loans. Throughout 2020 and 2021, the forbearance period has been extended several times. As of October 2021, it expires Jan. 31, 2022.
If your loans don't qualify for federal student loan relief, and you have just lost your job, you may want to put your loans on deferment until you find another job. Additionally, if you are having a hard time meeting your basic needs, you may want to put your loans into deferment.
Some people will defer their loans to focus on getting rid of their other debt as quickly as possible, but this is only a good idea if you cannot meet your other financial obligations while also paying on your student loans.
If you are facing the possibility of not being able to pay your student loans for the long-term, then you should see if you qualify for income-driven student loan payments. This type of payment plan adjusts your payment with your income in mind. Usually, it will lower your payment. However, keep in mind that if you select this option, not only will it take you longer to pay off your loan, you will also accrue more interest, which will actually increase the amount you owe.
In some professions, you may be eligible for student loan forgiveness. While the terms vary, this generally means that if you pay your student loans for a certain amount of time and don't miss a payment, after that time period, the remainder of your loans will be forgiven. This option is usually only available for those who work in public services, like a teacher.
Student loan debt forgiven or discharged between 2021 and 2025 is tax-free, due to the American Rescue Plan of 2021.
Consider This First
Before you go on deferment, you should talk to your student loan servicer and learn about the terms of deferment.
It's also wise to create a written budget that lists all of your bills, monthly spending, debt, and income. If you are considering a deferment, it's wise to cut back on other areas of your budget. Deferment is a temporary solution—and you will only be allowed to put your loan on deferment for a limited amount of time. If you put your student loans on deferment and don't change your spending habits or earning power, you'll find yourself in the exact same position down the road.
If you take the time now to work to improve your situation, you can get out of debt and begin to build wealth.
Applying for Deferment
Contact your student loan servicer to begin the process of putting your loans into deferment. You may need to prove that you qualify for the economic hardship that allows you to put your loans on deferment. They may ask you to send documentation and give you a time limit of how long you will be in deferment. You'll also need to fill out an application.
If you do not qualify for the deferment program, you may want to consolidate your loans and select a longer term to lower your monthly payment amounts.
Handling Private Student Loans
If you have private student loans, you may not have the option to defer them. You will need to speak to your lender to find out. But private loans do not generally follow the same guidelines as federally managed loans.
With private student loans, you may have to continue making payments no matter what your circumstances are. This is one reason you should prioritize paying off your private student loans before you tackle your subsidized student loans.
Regardless of the type of student loans you have, it is important to carefully follow the guidelines set forth by your lender and to continue to make payments on your debt until any sort of payment change or deferment has been approved. That way, you'll avoid late fees or damage to your credit score.