Student Loan Deferment When You Go Back to School
Going back to school can improve your education and earning power. But what happens to your loans? Here's how to defer student loans when going back to school.
Deciding to go back to school can be a choice you make to improve your education and earning power. But what happens to your student loans?
The good news is that you might be able to get an in-school deferment on your monthly payments if you decide to continue your higher education. Here’s what you need to know, whether you have federal student loans or private student loans.
What Is In-School Deferment?
There are different types of forbearance and deferment associated with student loans. However, student loan deferment might be a given for those returning to school, depending on your type of student loan.
Deferment allows you to pause student loan payments while you’re enrolled in school. In many cases, you won’t need to continue paying on your undergraduate or other previous loans as long as you meet the enrollment requirement for student loan borrowers.
For example, if you have federal Direct undergraduate or graduate student loans and return at least half time for further schooling, you are likely to receive an automatic deferment. Your loan servicer will send you a notice about deferment. Additionally, if you have a Direct PLUS Loan as a graduate or professional student, you also meet eligibility requirements for in-school deferment.
Many federal loans, including Perkins Loans, offer in-school deferment. If you don’t receive an automatic deferment based on your enrollment, contact your loan servicer to make sure that your loans qualify.
Depending on your loan type, you might not even have to worry about interest accruing. Those with subsidized student loans have their interest paid by the federal government while they’re in school. Other loans, though, will continue to accrue interest. That unpaid interest will be added to the loan balance at the end of the deferment and grace periods.
What About Private Student Loan Deferment?
In-school federal loan deferment is fairly straightforward. The conditions are set forth by the U.S. Department of Education, and everyone has access to the same rules. If you have private student loans, your lender determines the conditions of in-school deferment.
Check with your lender to determine whether you’re eligible for in-school deferment. In some cases, you might be able to receive a pause on your student loan repayment as long as you are attending school part time or full time.
How to Defer Student Loans When Going Back to School
As you prepare to request deferment for returning to school, here are the steps to take.
Step 1: Figure Out What Types of Loans You Have
Start by determining whether you have private or federal student loans. There’s a different process for each loan type.
With Direct Unsubsidized Loans and Direct Subsidized Loans, your deferment should be automatic once your enrollment status is verified.
Those with loans from the older Federal Family Education Loan (FFEL) Program (also sometimes called Stafford Loans) won’t always receive an automatic deferment. You might need to fill out a request form with your lender or servicer. Or you might need to get a Direct Consolidation Loan and bundle your older loans for access to automatic deferment.
You can check the National Student Loan Database System to see what federal student loans you have.
For private loans, contact your lender to find out the process. You will likely need to fill out a request form and complete other steps to secure your deferment.
Step 2: Submit Your Deferment Request
For federal loans, you likely won’t need to submit a request. Contact your servicer if you qualify for in-school deferment and haven’t received confirmation. Find out what steps you need to take to defer your student loan payments.
With private loans, the process might be more involved. Find out about your options. For example, if a private lender doesn’t offer in-school deferment, you might need to request an economic hardship forbearance instead. This can give you breathing room while you set up your school situation and move forward.
Step 3: Decide What to Do About Your Interest
When you receive a deferment, you usually end up with accrued interest. Only those with Direct Subsidized Loans avoid accruing interest during the deferment period. As the interest collects, it’s added to your loan balance at the end of the deferment period. This increases your overall student loan debt.
Check with your student loan servicer to determine if you can make interest payments while your loans are deferred. Even private lenders often allow you to make payments that can keep interest from being added to your loan balance.
Step 4: Have a Repayment Plan for the End of Your Deferment Period
Finally, make sure you have an idea of how you will handle your student loan debt at the end of your deferment.
If you have federal student loans, you might be able to use income-driven repayment as a way to keep your loan payments manageable. If you qualify, you can consolidate your federal loans and then get on a payment that works for you. After a period of time, your remaining loan balance might be forgiven.
You can also plan to take advantage of loan forgiveness programs based on your career. Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness and the National Health Service Corps are all options for receiving federal loan repayment help.
For private student loans, you might need to look into other options. You might be able to refinance your loans to a lower interest rate and monthly payment through a company like Juno. That can save you money overall and help you get out of debt faster. Be careful about student loan refinancing for federal loans, though. That amounts to a new loan with a private lender, and you lose your federal benefits eligibility.
Carefully consider what makes sense for you as you go back to school. Depending on your situation, getting an in-school deferment might make sense. On the other hand, you need to think through what it means to have accrued interest and more student loan debt and whether returning to school is worth it.
Miranda has 10+ years of experience covering financial markets for various online and offline publications, including contributions to Marketwatch, NPR, Forbes, FOX Business, Yahoo Finance, and The Hill. She is the co-host of the Money Tree Investing podcast and she has a Master of Arts in Journalism from Syracuse University
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