Student Loan Deferment Explained

Student loan deferment is the initial grace period afforded to students to allow them to concentrate on their studies rather than debt service. It is different from a forbearance or consolidation because both are available while you are still in school. Without this option, you would have to begin paying back the money you borrow for tuition, books, and living expenses immediately.

How Long Does Deferment Last

Unlike a conventional loan, most student loans have a deferment option that allows you to suspend payments while you are still enrolled in school. Typically, when you borrow money, payments begin immediately. A car loan, for example, must be serviced as soon as the money leaves the lender and is delivered to the car dealer.

In most cases, student loan deferment lasts for as long as you are enrolled as at least a half-time student. This applies whether you are attending the same school or a different school, and includes graduate school. For example, undergraduate student loans remain in deferment if you decide to attend law school or medical school. As soon as you leave school for six consecutive months, payments are expected.

Consolidation and Forbearance

Consolidation is used by most students to roll all of their various loans into a single loan. Because most lenders disburse funds to your school as needed each semester, each disbursement is treated as a separate loan for interest purposes. Consolidation rolls all of these loans into a single loan, often with more attractive payment terms.

Forbearance occurs when a lender agrees to suspend loan payments for a period of time. This is similar to deferment in that you will not be required to make payments, but the period is limited to a set duration. Forbearance and deferment are often used in conjunction for students taking an extended break between undergraduate and graduate school. You use forbearance when deferment is no longer available, returning to deferment after graduate school begins.

Risks of Deferment

While you are enrolled in school and your loan is in a deferment status, it is still accruing interest. This means that despite the fact that you do not have to make payments to the lender, the interest rate at which you borrowed the money is still being applied. The interest amount is simply added to the principal balance that must be repaid when payments begin.

It is easy to forget about this feature while you are in school. No payments are due and very little communication takes place between you and the lender. You may receive a monthly statement, but many students ignore these since no action is required. The obvious danger, however, is that when payments are due, the balance may be far higher than you originally had planned for. While it is difficult to manage, some students try to pay at least a portion of the interest due while in school to avoid this shock upon graduation. By paying the interest, you are at least keeping up. It will also make it easier to renegotiate terms when you are ready to consolidate after graduation.

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