Should I Defer My Student Loans?

Should I defer my student loans

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.

Image credit: arekmalang

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  • Judith Rudge

    Great article. I am in hardship deferment while I kick the butts of my revolving credit card debt but now after reading this, I feel like I should put some money towards the acrrued interest. Thanks for this!

    • Hey Judith, I’m glad you liked the article! And that’s awesome you’re focusing on your credit cards right now. I’m confident you’ll have that debt paid off in no time! If you’re interested in sharing your story with us, please e-mail me at Ben at ReadyForZero dot com.

  • Troy

    I am posting as a full time employee working to pay off undergraduate debt. I have both subsidized and unsubsidized loans. I am also in grad school full time, but, it’s paid for as one of my working benefits. So if the government pays the interest on a deferred subsidized loan, should I accept the deferments and make greater payments on my unsubsidized loans? Or should I just disallow the deferments, and continue making payments as I have been to pay off the loans quicker? I am not sure which will be fastest and least expensive in the long run!

    • That’s an interesting question. Are the interest rates for the two loans (subsidized and unsubsidized) very different? If the latter is much higher, then maybe it would make sense to try to pay that one off while deferring the other one. But it also depends on what feels the most convenient to you.

  • Meekahs

    I’ve entered repayment of my loans but am considering going back to school half-time. Can I request a deferment?

  • Erika

    Don’t do it!!!! Putting your unsubsidized loans in deferment or forbearance could result in crushing debt. I used up all of my allotted forbearance on my very large, high interest, consolidated federal loans. The loan amount more than doubled. I am still at least 2 years away from even touching the principal (been out of school 9 years), and that’s with extra payments. I could have paid off my house by now if I hadn’t put off those d*** loans.

  • Lucy

    I am a public school teacher part time and part time in graduate school. Can I put my current loans in deferment?

    • Most likely the answer is “Yes.” Of course it depends on the type of loans and whether they are federal or private, but my recommendation is to just call the lender and tell them you would like a deferment.

  • Francis Farmer

    I am thinking of an income based repayment plan in which the government will then cover my subsidized loans….I iwll then pay the interest amount on the unsubsidized loans to cover that. My question is: During this period that I am on this plan, if I do make payments will they first apply any payments to the interest on the subsidized loan that the government would be paying? or will the government pay the interest either way and I can use this as a period to drive down the principal?