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With federal student loan payments having resumed, applying for deferment may provide temporary relief if you can’t afford your monthly payments. Deferments can last up to three years, which gives you time to create a financial plan and hopefully avoid default. Before your deferment period ends, you’ll want to determine how much you owe, create a personal budget, and select a repayment plan that works for your budget.
Key Takeaways
- While in deferment, your student loans payments are paused, and interest may or may not continue to accrue.
- To prepare for repayment, find out how much you owe, select a repayment plan, and set up autopay to ensure you won’t miss any payments (and potentially snag an interest rate discount).
- If you’re still struggling to afford your monthly payments after a deferment ends, contact your lender or servicer to see if you can reach an agreement.
How Student Loan Deferment Works
A deferment is a temporary pause on student loan payments. When you take out federal student loans, payments are typically deferred automatically while you’re enrolled at least half-time. Most loans also have a six-month grace period after you graduate, leave school, or drop below half-time enrollment before repayment starts.
Fast Fact
Private student lenders may or may not offer loan deferment, and terms can vary heavily between those that do.
If you can’t afford your monthly payments, you can request a deferment, giving you additional time to get your finances in order. However, interest may continue to accrue on your student loans. Depending on the type of loan and your lender, the accrued interest might also capitalize at the end of the deferment period, meaning it’ll be added to the loan’s principal balance. Essentially, your interest will be charged interest.
How to Resume Your Student Loan Repayment After Deferment
In order to prepare for the end of a deferment period, you should first find out how much your monthly payment is going to be. You can do this by contacting your lender or servicer or by logging on to its online portal. Next, explore the available repayment plans to determine which one is the best fit for your financial situation. For example, you might apply for an income-driven repayment (IDR) plan if money’s currently tight.
Important
The future of the current IDR plans is up in the air following a federal court injunction stopping the United States Department of Education from implementing the Saving on a Valuable Education (SAVE) plan and parts of other plans.
There are other ways to lower your monthly payment. For instance, federal student loans and some of their private counterparts offer an interest rate discount if you enroll in autopay. You also can consolidate or refinance your student loans, potentially securing a lower interest rate or new repayment term.
Tip
Refinancing your federal student loans into a new private one means you may miss out on the benefits and protections the government offers.
If none of these measures are enough to make your monthly payment affordable, contact your lender or servicer as soon as possible. They can inform you of any options you haven’t taken advantage of yet, and you may be able to negotiate a debt settlement.
Even if student loan payments threaten to eat into much of your income and savings, it’s still crucial to stay on top of them. If you have a private lender, missing even one loan payment can damage your credit score (with federal student loans, delinquencies aren’t reported until 90 days after a payment is due). After enough missed payments, your loans can go into default.
Not only does defaulting hurt your score, which makes it harder and more expensive to get credit in the future, your lender or servicer can take you to court. In the case of federal student loans, you’ll become ineligible for further student aid, and the government can seize your tax refund, part of your Social Security benefits, or up to 15% of your paycheck.
The Bottom Line
Getting ready to repay student loans after a deferment can feel overwhelming, but there are simple steps you can take to be prepared. Find out how much you owe and choose the best repayment plan for your budget. After that, you can contact your lender if you need help securing a more affordable monthly payment.
