If you have student loans, you already know they can consume a large chunk of your monthly budget. There are times when it might even be tough to make that payment. Student loan deferment is an option that makes sense in some cases, but not all.
What Are Student Loan Deferments?
If you have a federal student loan, sudden unemployment, natural disasters or other personal tragedies can make paying bills difficult for a time. The government will sometimes agree to delay your payments to get you through a tough time, known as a student loan deferment. Some private lenders will also offer deferment for private student loans.
During the deferment period, you won't make payments. With a student loan deferment, interest won't accrue during the deferment period. There's also student loan forbearance, which also delays payment but still accrues interest during the time you aren't paying.
Another type of break is student loan forgiveness. With this type of break, you have part of your student loan debt completely wiped out. It can also be referred to as debt cancellation or debt discharge.
How Student Loan Deferment Works
During COVID-19, the government has been offering temporary relief from student loan payments. This COVID student loan deferment has offered the following student loan deferments:
- suspension of loan payments
- stopped collections on defaulted loans
- a 0 percent interest rate
You can check your federal loan status at any time by logging into the Federal Student Aid portal. With COVID relief, you'll simply not make payments until the moratorium runs out. This is currently scheduled for Sept. 30, 2021.
If you have a student loan forbearance, the missed payments will simply be added to the end of your payment due. For deferments, you'll be charged interest during the missed payments on top of having your loan payments extended. Since the federal government has made COVID forbearance have 0 percent interest, you won't owe interest for the current deferments.
Benefits of Student Loan Deferment
The biggest benefit of student loan forbearance or deferment is that you get a break when you need it most. In the case of COVID student loan relief, you're given a grace period where you won't have to pay interest.
If you have some type of loan forgiveness, such as public service loan forgiveness, you won't owe anything. Your loan will be completely forgiven. Obviously, in that situation, you can't go wrong.
Cons of Student Loan Deferment
It's important to note that you don't have to take any deferment or forbearance when offered to you. Your deferment options include continuing to pay your student loan payments, which means you won't see your repayment period extended. If you choose to take the deferment, any payments you skip will simply be tacked onto the end of your loan term, so you'll eventually pay them anyway.
One huge caveat about deferment is that some loans will be recalculated after a deferment. If your loan follows a traditional repayment plan – including a standard, graduated or extended plan – your lender will recalculate your monthly payment after deferment. Your remaining principal and interest will be used to determine what your payment amount will be moving forward.
Deferment practices can easily vary from one loan type to another, so it's important to ask questions before you agree to any deferment, forbearance or forgiveness. Make sure you keep track of when repayments will start again and whether your loan terms and payment amounts will change if you agree to put a temporary halt on payments. Remember, you can always opt to continue to send payments, although you may want to get in touch with your lender anyway to make sure there's nothing special you need to do.