How To Defer Student Loans When Going Back To School

A deferment is a grace period where the lender allows the student (borrower) to stop making payments for a certain period of time. Student loan deferment, therefore, means that you stopped making loan payments on your current loan for the period agreed upon between you and the lender. Before deferring your loan, you must contact your student loan servicer and inform them that either you have difficulties in making student loan repayments or that you are going back to school. If you fail to notify your lender and you making the payments beforehand, then your loan will enter into default status – along with the consequences associated with it.

Making the decision to defer your student loans can come down to various factors. Consider the following and whether they may align with your situation:

When unemployed

If you are having difficulty securing a job, then you will need a student loan deferment. Unemployment means that you don’t have an income, which translates to the fact that you can not make loan payments.

Economic hardships

Students facing economic hardships have the option available to defer their loan payments. Students who are receiving government benefits, such as welfare or are earning below the federal poverty guideline, can also apply for a deferment.

Going back to school

Students going back to school can defer their loan for as long as they remain in school. Federal loans give automatic deferment for students who are enrolled at least on a half-time basis. 

On fellowship or internship

Students attending or enrolled in an approved fellowship, those on internship, as well as medical students in residency can defer their student loans. Students enrolled in a masters’ or doctoral program can defer while in an internship or fellowship program.

Military 

If you are a student who is involved in active duty in the military, you can defer your student loans. This involves those involved in a war, military operations, or national emergency. The deferment period ends after 13 months upon completion of your active service, or after the end of your deferment’s grace period.

Cancer treatment 

Students may choose deferment if their health is on the line, especially those undergoing cancer treatment. Students can defer for as long as their treatment duration lasts. Deferment is also allowed for an additional six months after the completion of the cancer treatment.

Borrowers opt for student loan deferment for various reasons. Consider the following potential benefits and drawbacks to help you decide if deferment is the best option for you:

Pros:

The benefits of deferment include the following:

Relief on making payment

Deferment reduces the financial burden of paying for additional education for students who are going back to school, while at the same time still making payments on previous student loans. Deferment gives you relief because you don’t have to make any payments up until you finish school, military service, or internships.

Frees up money

During financial or economical hardships, money is tight and the most pressing expenses need to be paid off first. When deferring because of financial or economical hardships, deferment helps you free up some money to cater first to pending issues. The freed-up money can be used to pay off bills and offset other costs of living expenses, such as rent or food.

Frees up time to serve

For those in the military or internship programs, deferment gives them the ability to concentrate on what is currently important at that moment in time – whether that is personal growth, career prospects, or service to the country. Deferment helps to reduce the additional stress of repaying loans while you are busy serving or in residency.

The potential drawbacks of student loan deferment include the following:

Longer repayment term

Deferring your student loan adds more years to your loan term. The number of years that you put a pause on loan payments will still be added to your initial loan term. This may increase the total number of years it would have taken you to pay off your student loan.

Interest continues to grow

For most loans, deferment does not prevent the interest on the student loan from growing. As you continue with your studies, your student loan will keep growing due to accruing interest. For those who have non-subsidized loans, you might end up paying more than you previously owed before the deferment.

No progress made toward clearing the debt

Putting a pause on making monthly student loan repayments does not mean that they automatically disappear. The debt still remains and has to be cleared after the grace period is over. The deferment period does not count toward forgiveness and your debt does not reduce, so you will be in debt for a longer period of time.

In order to defer your student loans, it’s important to be aware of the eligibility criteria. Here are some of the most common requirements involved:

• Loans that qualify for deferment
  Federal loans offer many deferment options for most loan types. The types of loans eligible for deferment include Direct subsidized loans, Federal Family Education Loans (FFEL), Perkins loans, and Federal Stafford loans. For students going back to school, the in-school deferment option is what they automatically qualify for. The Grad PLUS loan is a loan that offers an additional six months of deferment after graduating from your program.
• Enrollment requirements
  To qualify for deferment while going back to school, you must be enrolled at least on a half-time basis. For in-school deferment, full-time or half-time enrollment leads you to automatic deferment on your federal student loan. Direct subsidized or direct unsubsidized loans in particular enable you to pause your loan repayments for up to six months after graduation – on the condition that the student is enrolled on a half-time basis at the very least.
• Income requirements
  In order to qualify for for economic hardship or unemployment-based deferment, an income requirement is an eligibility criterion. You must demonstrate that your income, if any, is too little to make your monthly payments. Federal student loans allow you to pause payments if the monthly payments are at least 19% or more of the borrower’s total monthly gross income. Additionally, you must be receiving federal assistance, have a salary of less than the level of the state’s poverty guideline, or be registered with a job-seeking agency looking for employment to qualify for deferment.
• Proof of enrollment
  Borrowers enrolled in the military and involved in active service are eligible for deferment. Students who have been enrolled at an approved mental- or drug rehabilitation facility have to show proof of the fact in order to be eligible for deferment. Additionally, students registered as Peace Corps Volunteers and those attending approved fellowships need to present paperwork attesting to this as proof of their eligibility to qualify for deferment.

The process of applying for student loan deferment includes the following steps:

Step 1: Identify your loan type and if you qualify

Not all student loans qualify for deferment. Federal student loans accept in-school deferment where students can pause making payments on their student loans provided that they are enrolled in school. If you have private loans, consider contacting your loan provider to inquire about what steps need to be followed in order to defer your student loan because of going back to school.

Step 2: Gather the necessary documentation 

You will need to gather all documentation evidence to prove your eligibility for deferment such as school enrolment information, fellowship acceptance letters, and evidence of unemployment. You may also need to submit proof that, upon completion of your studies, you will resume making monthly payments on your loans as expected by your lender.

Step 3: Complete the application process 

The application process may require you to attach various documents and fill out various forms. For students, the institution of study needs to update your status of enrollment to at least a half-time basis so you can have this information attached to your application form. Once you have all your documents, fill out an official application provided by your lender and ask for an in-school deferment.

Step 4: Submit the application and following up on status

After filling out all the necessary forms and attaching all the documentation, you then submit your application. Depending on your lender, the feedback can be prompt or might take some time. Ensure that you only stop making payments after permission to defer has been granted to you. Failure to do this may result in your loan going into default, which is a bad thing for your credit score.

In the event that you’ve decided deferment isn’t the best solution for your situation, consider the following alternatives.

Income-Driven Repayment Plan

The Income-Driven Repayment plan (IDR) is a good alternative to deferment. This plan helps you to make monthly payments on your student loans based on a percentage of your monthly income, as monthly loan payments are based on your income and household size. The good thing about the IDR plan is that you ou maintain your loan forgiveness eligibility and could make monthly payments of as little as $0 per month in some special cases. 

Forbearance

This is another alternative to deferment, and both federal and private student loans use it interchangeably. With forbearance, you are able to postpone making your student loan payments for up to 12 months at a time. This is a good alternative for students who do not qualify for in-school deferment for reasons such as being enrolled on a less-than-half-time basis. Interest, however, accrues on all your student loans and is added to your initial loan amount, which needs to be repaid once the forbearance period is over.

Consolidation

Consolidation is the combination of many student loans into one loan that you, as the borrower, will be making payments towards. Consolidation is only available for federal loans, though, making it easier and more manageable to pay off one combined loan. Combining all your federal student loans into one direct consolidated loan gives your loan a new term and new interest rate charges because the government pays off your previous loans and issues you with a new one. For private loans, the consolidation of loans leads to refinancing – which is a similar process to consolidation.

Deferment helps you to temporarily pause making payments on your student loan in the event of various scenarios such as going back to school, serving in the military, during unemployment phases or even if you remain confined in a hospital for cancer treatment. Depending on what you want – whether that’s time to organize your finances or loan forgiveness eligibility – deferment can be a good or bad route to follow. Thankfully, there are other alternatives to deferment that you might wish to consider. At the end of it all, student loan deferment can buy you some time off before you embark on making monthly payments to your student loan, ensuring that you remain in good standing with your provider until you’re able to resume paying off your student loan.