Deferments allow eligible borrowers to postpone paying back their loans under certain circumstances. They are a benefit of federal student loans that allows you to temporarily stop making payments. Interest is generally not charged on subsidized loans during deferment. Interest will continue to be charged on your unsubsidized loans and PLUS loans.
Student loan borrowers are legally entitled to defer payments in certain situations. Deferment rights vary depending on the type of loan and when the loan obligation was incurred. For subsidized loans, a deferment not only postpones when a borrower must make payments, but interest obligations do not accrue during the deferment period. Instead, the federal government pays the interest portion of the loan and the student’s payments on the principal are postponed until after the deferment expires.
For unsubsidized loans, borrowers remain obligated for accrued interest during the deferment period. In this situation, lenders may forbear the interest and then capitalize it after the deferment period ends. A lender may capitalize accrued interest no more frequently than on a quarterly basis. Capitalization is again permitted when repayment is required to begin or resume.
At or before the time the deferment is granted, loan holders must send a notice informing borrowers who are responsible for paying the interest during a deferment period that they have the option to pay the accruing interest or cancel the deferment and continue paying on the loan. The loan holder must also provide additional information, including an example of the impact of capitalization of accrued unpaid interest on loan principal and on the total amount of interest to be paid over the life of the loan.
If a loan is being deferred, the loan is not in default, and the borrower will not be subject to debt collection attempts or lawsuits and will be eligible for additional educational assistance.
Finally, deferments are a valuable option for borrowers but are not always the best option. Borrowers eligible for an income-driven repayment (IDR) plan may find enrolling in such a plan to be a better option than entering deferment because of the potential for loan forgiveness.
Under certain circumstances, students can receive a deferment or forbearance that allows one to temporarily stop making federal student loan payments or to temporarily reduce the amount of federal student loan payments. Stopping or reducing payments may help avoid default. Students go through their loan servicer to apply for deferment or forbearance; and must continue to keep making payments on loans until the deferment or forbearance is in place.