How to Defer Student Loans When Going Back to School
Going back to school after a pause is one of the best ways to increase your long-term earning potential. There’s just one short-term problem: what about making your student loan payments? Do student loans pause when you go back to school?
We have good news: in most cases, you can hit the pause button on your payments until you’ve completed your studies. If you have federal student loans, this may even happen automatically. That’s not always the case with every loan, though. Read on to find out how in-school deferment works.
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Do student loans pause when you go back to school?
Student loans generally fall into two camps: federal and private. The type of loan you have dictates whether you’re allowed to defer your student loans, and, if so, how it works. If you’re not sure what type of loans you have, you can check with your lender or servicer.
If you’re like most borrowers, you probably have federal student loans, which are easier to defer if you return to school later. In fact, your loans will probably be put into deferment automatically after your new school reports your enrollment to the Department of Education, which oversees your loans.
Some borrowers, however, have private student loans. These are offered by individual lenders that set the terms for their loan contracts. Most private student loan lenders allow you to defer your loans if you return to school for a period of time, but not all. In these cases, you’ll need to reach out to your lender.
Ask the expert
If your lender doesn’t allow deferment when going back to school, discuss other repayment options the lender offers that could fit into the borrower’s budget. Or, possibly refinance into a loan that does offer the terms you need. If you are unsure how to navigate this, consult a financial counselor or advisor (ideally one that chargest little or no fees) to understand your options and prepare a plan to repay in school or upon final graduation.
How to defer student loans when going back to school
Most lenders allow you to defer your student loans as long as you’re attending an accredited institution on at least a half-time basis. This means you generally won’t qualify for an in-school deferment if you return for a coding bootcamp, for example, or if you’re just taking a class or two on the side for fun.
If you are returning for a serious study, however, the way you’ll put your loans into deferral depends on what type of loans you have:
Federal student loans
- Enroll in classes: You’ll need to enroll in at least six hours of credits to qualify for half-time status with most standard term-based semesters. Your school will report this to the Department of Education, which will automatically defer your current federal loans.
- Verify loan deferment: Watch for a letter from your current loan servicer to verify that your loans have automatically been put into deferment. If you don’t receive one before the semester starts, reach out to them with proof of your enrollment to request it.
- Consider paying extra: You don’t have to send any money in at all, and most people don’t. But if you can send in some money, you may be able to keep some or all interest from accruing in the meantime, making repayment easier.
- Graduate and prepare for repayment: Most federal student loans offer a six-month grace period after you drop below half-time status or graduate from school. Keep this in mind as you finish your studies to ensure you can start repaying them again.
Private student loans
- Verify your options: Not all private lenders allow you to defer your student loans, but if so, they may impose special rules. For example, Sallie Mae only allows you to defer your loans for 48 months while in school. Check your loan contract or reach out to your lender to clarify requirements.
- Enroll in classes: Once you’re sure you’ll be able to defer your student loans along with any specific requirements, you’ll need to meet, go ahead and enroll in classes. Save your enrollment confirmation letter so you can prove to your lender you’re in school again.
- Contact your lender: Contact your lender with your proof of enrollment and request a deferment. You may be able to do this online, by printing and mailing a form, or by calling your lender over the phone.
- Consider paying extra: You generally won’t be required to make any payments while your loans are in deferment, but some lenders may allow it. Many lenders offer discounts if you sign up for an affordable in-school payment plan.
- Graduate and prepare for repayment: Lenders also vary regarding their grace period policies. Make sure to clarify with your lender in advance about when you’ll be expected to begin repaying your loan again.
Pros and cons of deferring student loans
For most students, putting your loans into deferment while you’re returning to school is a no-brainer since you may not be earning any income anyway. That doesn’t mean it’s not worth comparing the pros and cons of doing it, however, so you know what to expect.
Pros
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No need to make payments
For many people, this feature alone is what makes it possible to return to school at all.
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Focus more on your studies
If you don’t have to worry about working, you can spend more time on your studies, potentially graduating even sooner.
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Avoids damage to your credit score
Compared to the alternative of just stopping payments entirely and defaulting on your debt, an in-school deferment allows you to avoid any negative credit damage.
Cons
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Interest may accrue
Unless you have federal subsidized loans, your interest won’t stop accruing. In fact, it’ll be added to your outstanding loan balance, potentially causing it to grow even larger.
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Longer loan payoff timeline
Any payments you aren’t making now will need to be made later, potentially with interest. That can tack on many extra years on to your debt repayment.
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Deferment may come with time limits
Private student loan lenders, in particular, often only allow in-school deferment for a limited period of time. If you aren’t able to finish your degree in that timeframe, you may be out of luck.
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