How to defer student loans while in school

What are your student loan payment options if you’re going back to school?

Managing student loan payments while going back to school can feel like a juggling act. Fortunately, there are options available to ease the financial burden, such as deferment, forbearance, refinancing, and other repayment plan options. Deferment is a popular choice, but it's important to weigh its pros and cons before making a decision.

Deferment

Deferment is a grace period when you stop making payments for a certain time. If you have federal student loans, your lender may automatically place those loans into deferment once you enroll at least half-time in an eligible college or career school. If you do not automatically receive a deferment, contact your school, and they will report your enrollment status so that your loan can be placed into deferment.  

Deferment continues for as long as you’re enrolled at least half-time. For instance, you have the option to defer for seven years doing a PhD. 

Forbearance

Forbearance is a temporary pause or reduction of your student loan payments due to financial hardship. You may qualify for forbearance while in school, but borrowers with subsidized loans will benefit from the automatic deferment because of the interest payments included.

Keep in mind that during forbearance your loan will accrue (grow) interest, if your principal remains unpaid. 

Refinancing

Refinancing means swapping your existing loans for a new one from a private lender. This new loan comes with a new interest rate, terms, and possibly a different lender. While it won't pause your payments, you'll consolidate multiple payments into one, potentially at a lower interest rate.

You can refinance student loans with a private lender without eligibility requirements. However, expect a credit check before finalizing your new rates.

Changing repayment plans

If you're currently on a standard 10-year repayment plan for federal student loans, you may have the option to switch to an extended repayment plan or an income-driven repayment plan. While this could result in paying more interest over the loan's lifespan, it can lower your monthly payments in the immediate future.

Pros and cons of student loan deferment

Deferment often occurs automatically, making it a popular choice for students wanting relief from their loans while in school. While there are valid reasons for choosing deferment, it may not be the best choice for everyone. Let's explore the pros and cons of deferring your student loans.

Pros of deferment  

You take a break from paying your loans 

Without loan payments to worry about, deferring your loans allows you to focus on getting your degree. 

The federal government may pay the accrued interest

If you have a subsidized federal loan or a Perkins loan, the U.S. Department of Education will pay any interest you accrue during deferment. So, your total loan cost won’t increase when you finish school. 

You’ll retain federal benefits

You keep options open like an income-driven repayment plan or federal loan forgiveness programs with deferment. 

Cons of deferment 

Interest can add up

If you have unsubsidized loans, interest continues to accrue while you’re not paying, and it will be capitalized once your grace period is over. This means an increase in your total loan cost. 

No progress will be made on paying off your loans

Since you’re not making payments for a certain time, you’ll be extending the timeline of your future loan payments.

How to defer your student loans

Considering student loan deferment after weighing the pros and cons? Here’s how

If you have subsidized loans, deferment may be a good option if you can’t make payments while in school. Your lender may automatically put your loans in deferment once you enroll at least half-time in a program. 

If you haven't received confirmation that your loans are deferred, reach out to your school ASAP. Let them know you want to defer your loans while in school. Then, they’ll provide proof of your enrollment to your lender to start the deferment process.

Keeping documentation of your student loan deferment is a good idea when managing your loans. You should also ask about the start date for your payments to avoid any unexpected surprises. 

You’ve got options for repayment

Choosing to defer student loans while returning to school offers temporary relief from payments, with potential benefits like subsidized loan interest coverage. However, it's essential to weigh the pros and cons, considering factors like accruing interest on unsubsidized loans. And don’t forget, you can also explore alternative options like forbearance, refinancing, or other repayment plans to help manage your loans. Ultimately, your choice comes down to your unique situation, financial goals, and what makes the most sense for you.