Student Loan Deferment Explained

Student loan deferment allows you to delay payments on your loans until a later date. Depending on the structure of your loans and whether they are from private or federal programs, your options will be different. The most important thing to keep in mind with deferment is that payments may stop by interest rates do not. You will continue to rack up debt in the time you are not paying.

Who Qualifies for Deferment

Deferment is not an option for everyone in every situation. Lenders will typically only permit deferment if there are extenuating, unanticipated circumstances that will prevent you from paying the loan for an indefinite amount of time. For example, loss of a job or failure to find employment after graduation can be a reason for a lender to approve a deferment request. You will have to be out of a job for a lengthy period of time, however, in order for the request to be approved. This option became popular in the recession of 2007-2009 when a number of employers delayed hiring despite offering jobs to graduates. Only those individuals who knew they would not be able to start their employment for several months qualified.

When to Use Deferment

Deferment is costly. As previously mentioned, interest continues to accrue on the loan while you are not making payments. This means your principal sum gets larger and larger. Further, you are not paying down this principal in the mean time, and you will have to wait longer to pay off the loan in total. For these reasons, deferment is truly the best option for individuals who cannot otherwise make the payments and would face default. If you can take a part-time job to make the loan payments, this is a better option than deferring until a later date.

When to Avoid Deferment

Deferment should not be used as a strategy to simply avoid paying debts. If you are interested in traveling or taking time off after graduation, deferring your loans during that period is a luxury you may not be able to afford in the long run. Many recent graduates fail to understand the financial pressures they will face in the coming years. Paying off loans when you have the chance, before you have a mortgage or family, is the best way to assure financial independence in the long run.

Federal Loan Deferment

Federal loan deferment may be slightly more advantageous than private loan deferment. Depending on the type of federal loan you had, you may have the option of deferring without allowing interest to accrue. In this scenario, there is not as great a downside to deferment. It may be very tempting to take the deferment or income-contingent offers in order to lighten your load for awhile. You are still failing to pay down your principal, however. Additionally, it will still take you a much longer period of time to pay off the loan than if you start immediately. Even with federal loans, it is best to find a way to make payments as soon as possible.

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