Generally, student loans are taken out for each year of school — so if you’re in a four-year undergraduate program, you’ll graduate with at least four separate loans, one for each year. (This is when, and why, loan consolidation comes into the picture.) The reason you don’t have to pay on each loan as it is disbursed is something called deferment, which is an option that allows you to temporarily postpone payments on your loans.
For certain types of federal loans – Federal Perkins Loans, Direct Subsidized Loans, and Subsidized Federal Stafford Loans – the government will make the interest payments while loans are in deferment. For other types of loans (including unsubsidized federal loans*), you are responsible for interest that accrues during the deferment period. The following guidelines and situations apply to federal loans; private loans come with their own terms and rules, so read your term sheet closely.
No situation is black and white, so gather as much information as possible about your individual situation before making a decision that will impact your finances. Below, some general guidelines and points to consider:
I’m going back to grad school. Should I defer my loans?
If you are attending an accredited school program of any kind at least “half-time,” you’re eligible for a deferment. And since you will be spending the majority of your time as a student — and not as a paid employee — deferring for school is usually a good option. If you are deferring your unsubsidized loans, consider making interest-only payments as it accrues; this way, accrued interest won’t be tacked onto the loan principal at the end of your deferment.
If you’re also borrowing to cover the cost of graduate school, consider making payments on your loans when you can, even if they are in deferment to help soften the blow when your next set of due dates hits.
I’m taking a few classes — enough to count toward a deferment. Should I defer my loans?
The same principle applies here. However, I’ve read about people attending just enough classes for years to avoid paying loans, and while that may seem the most workable solution at the time, it is probably not a good strategy in the long run because the interest clock just keeps running and running.
I lost my job. Should I defer my loans?
If you’re eligible for unemployment benefits, you’re eligible for loan deferment. (I didn’t know this at first and once I found out, it saved me a few years ago) If you’re concerned about finding work soon and supporting yourself, deferment is a great option. Borrowers are eligible for up to three years of unemployment deference, and it’s generally awarded in three-month increments. You’ll need to fill out a form for approval; you can’t just stop paying once you become unemployed.
I can’t pay my monthly payment. Should I defer my loans?
If you’re not in school, you don’t qualify for an unemployment deferment, or your situation isn’t a dire financial hardship, you probably won’t qualify for a deferment. If the situation is temporary, you may be able to request a forbearance. If your situation seems hopeless or you feel like you’ll never keep your head above water, you may qualify for other forms of help, like income-based repayment.
I need a break from making payments. Should I defer my student loans?
This won’t work (trust me, I tried.) This advice is neither fun nor sexy, but your best bet is to continue to pay the monthly minimum to keep your loans in good standing. Clothes, shoes, vacations, furniture, cars and more are serious temptations; but don’t let yourself consider your loan payment optional. If you slip into a pattern of not paying, you can kill your credit for years (meaning less clothes, shoes, vacations, furniture, cars and more in the future). I’ll write more about this, and my personal experience, in future posts.
In the meantime, let us know in the comments below if you have any specific questions about student loan deferment.
*Subsidized federal loans are awarded in need-based financial aid situations. Non-need-based federal loans are unsubsidized; most middle-class families will take out unsubsidized loans.
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