Student loan deferment is a temporary method to stop payments and keep you out of default during the deferment condition.
A few basic rules:
1. You cannot get a deferment if you are in default.
2. If you have a subsidized loan, the government pays your interest during deferment while if you have an unsubsidized loan, interest accrues during the deferment period and is capitalized quarterly.
3. Although the concepts are basically the same, each loan program (e.g., Direct Loan, FFEL, Perkins) has its own specific guidelines.
4. You have to apply in writing for a deferment.
Related to deferments are grace periods. If you have a Stafford loan (college), the obligation to pay begins after graduation or after the student is enrolled less that half time. However, you given a grace period of six months to make actual payments. For Plus loans, the obligation to repay begins 60 days after the final loan disbursement. There is no grace period, which means that you need to get a deferment if you are still in school but not making payments.
Types of Deferments:
- Graduate School Deferment- You can apply for deferment while in graduate school which defers payment not only on your graduate loans but also on your undergraduate loans for a period of 6 months after graduation or 6 months after you are enrolled less than half time.
- Hardship Deferment- You graduated and are working but (a) are on public assistance, (b) earn less than 150% of the poverty level for family of your size or c) are involved in certain types of employment like the Peace Corp. The hardship deferment is for a maximum of three years, but is given in one year increments. At the end of each year, you must submit updated documentation/information to confirm that you are still eligible.
- Unemployment Deferment- You are out of a job. The simplest way to prove this is to provide proof that you are receiving unemployment benefits. Or you can prove that you registered with an employment agency and have actively been looking for a job. The unemployment deferment relates back to the time you become unemployed (up to 6 month look back) and lasts for up to three years.
- Military Deferment- You are in the military or National Guard and on active duty during a war, military operation or national emergency. The deferment lasts for 180 days after the demobilization date for each period of service.
You should note that the requirements relating to each type of deferment have and do change based on changes in the law by congress and/or regulations by the executive branch.
Deferments are a short term solution to keep you out of default. In certain case, like the unemployment deferment, there are better solutions to keep you out of default. Those solutions will be the subject of future blogs.