How to Defer Student Debt When Going Back to School
Posted by Frank Gogol in Education | Updated on September 12, 2023
Getting a new qualification can boost your career and earning potential, or it can create a path for you to enter a new career field entirely. Read on to learn how to defer student loans when going back to school so you can re-enroll in college without worrying about your student loan debt.
Do Student Loans Stop When You Go Back to School?
It is important to understand what happens to your student loans if you re-enroll in college. If you temporarily stop your student loan payments, it is called deferring your loan.
Not everyone has the option to defer their student loan payments; it depends on the type of loan you have. So, it is as important to understand if you can defer as it is to know how to defer student loans when going back to school.
What is Student Loan Deferment?
Student loan deferment is the process of temporarily stopping your student loan payments with the lender’s permission. The permission is the most important part. If you stop paying without the lender’s permission, that is called being in default. Defaulting is very bad for your finances and credit score.
Not all student loans are eligible for deferment under all conditions. Federal student loans qualify for automatic deferment as soon as you enroll in a recognized college or other institution. However, the lender usually requires that you attend on at least a half-time basis.
The deferment period lasts as long as your program if your enrolment remains on a half-time or full-time basis.
If you decide to get a student loan deferment, contact your lender and find out the following details:
- if your loan is eligible for deferment
- if the educational institution and program you want to enroll in qualifies for deferment
- if the interest on your loans continues to grow while deferred
- your lender’s procedure for student loan deferment.
Pros and Cons of Student Loan Deferment
Student loan deferment is a good choice for some situations, but it is not guaranteed a good idea for everyone. In this section, some of the benefits and disadvantages of deferment are outlined.
- No payments: Deferring reduces the financial burden of going back to school. This is especially true because you have to be enrolled on a half-time or full-time basis, so your monthly earnings are likely to be much lower or zero.
- Interest break: For a special kind of federal student loan, your loan interest will not grow over the period that it is deferred. That means you won’t owe more money after the deferment than you did before. This kind of loan is called a subsidized loan or Perkins loan. Perkins loans are subsidized by the Department of Education.
- Benefits: Deferring a federal loan means you still get all the benefits of a federal loan. This includes the possibility of federal loan forgiveness programs and other benefits.
- Extra time: Deferring your student loan does not decrease the total number of years it will take you to pay it all off. The payments you don’t have to make essentially get added to the end of your loan for later.
- Growing interest: Depending on the type of loan you have, deferment might not stop the interest on your loan from growing. If you have an unsubsidized federal loan, the balance due will grow while you are studying, so you will owe more after the deferment than you did before, even if you did not take out a new study loan to go back to school.
Alternatives to Deferment
If you want to go back to school but you have student loan debt, deferment is not your only option. Some of the other strategies you could use to deal with your student loan are outlined below.
Refinancing means taking out a new loan (e.g. loans for international students) to pay off an old loan. If the interest rate on your new loan is lower than the old one, your payments will be lower (or you can pay it off faster).
Refinancing could be an option if you have federal student loans but you are not eligible for deferment. It is also an option if you have a private student loan since private lenders are much less likely to allow you to defer.
As a working adult, you may be able to get a lower interest rate or better terms than you got for your student loans when you were younger. This could reduce your payments enough for you to manage while studying. You can negotiate with a private lender to get refinancing terms that work for you.
You can only refinance student loans with private lenders, whether your original loans were federal loans or private.
Altering Your Payment Plan
If you have a federal student loan (subsidized or unsubsidized) can apply for a special payment plan adjusted to how much you earn, called an income-driven repayment (IDR) plan. IDR plans are only available for federal student loans, not loans from private lenders.
Even if you have private student loans you can contact your lender to negotiate lower payments. Whether your lender will allow it depends on their policies.
It is important to understand that reduced payments do not affect the total balance due. If you can get lower payments, that doesn’t mean you owe less. It means you are only required to pay a smaller portion of what you owe per month.
In the long term, the result is that you will take a longer time to pay off the loan. Since the interest on the outstanding balance continues to grow over that extra time, the total amount you pay back is also higher.
However, this makes sense if you cannot afford to make the payments in the short term. It might be better to stretch the loan out and pay more in the long term than default on the higher payments in the short term and damage your credit score.
Forbearance is similar to deferment. It is when the lender is willing to let you temporarily stop making payments on your loan. However, unlike deferment, the interest on your outstanding balance continues to grow while it is under forbearance for every type of student loan.
You can apply for forbearance with your lender if:
- you have a federal loan but you don’t qualify for an automatic deferment
- you have a private loan and you have lost the ability to make payments because of injury, serious illness, or other events
Federal student loan forbearance usually lasts for up to 12 months at a time. Contact your lender to find out whether you are eligible for student loan forbearance and how to apply if you are.
Note: A number of student loan borrowers utilized forbearance during the COVID-19 pandemic to defer payments while the economy was down and unemployment was up. For some Coronavirus forbearance was incorrectly reported by student loan services, leading to negative impacts on credit scores. If this happened to you, check out our guide on how to fight back.
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The procedure for how to defer student loans when going back to school (and getting loans for second Master’s degree) depends very much on the type of loans you have and the lender. Subsidized federal loans have the most benefits. You qualify for automatic deferment and the amount owed does not increase while you are not paying. There are several options other than deferment, including refinancing, setting up a payment plan, or forbearance. Only stop making payments if you have your lender’s permission. Otherwise, they consider you to be in default, which damages your credit score.