Student loans are often the first type of debt that many people take on. They are also next to impossible to eliminate during a bankruptcy, so they have the potential to follow a person for the rest of their lives if they’re not able to pay them off quickly. Unfortunately, it can be difficult to make payments when your income doesn’t provide enough money. Because this is actually a common situation for many new graduates, the option to defer payments is becoming more popular.
Deferring student loan payments means delaying payments for a period of time. This can allow a person to pursue higher education or give them the extra time they need in their job search. There are several disadvantages to deferring student loan payments, however.
There is a limited amount of time that you can defer your loans for. Most federal student loans allow a person to defer their payments for six months to one year. Sometimes this can be extended if a person is continuing their education, depending on the type of loan that you have. At the end of this time, payments must resume.
You have to have a good reason to defer. Specifically, you have to be able to prove that you have circumstances that are preventing you from making payments. Being in school at least part-time, being unemployed or having a physical disability can qualify a person for a deferment. You should be aware, however, that you cannot claim financial hardship without giving a reason. This means that you cannot get approved for a deferral in order to get time off from your loan payments to pay off other debt.
You can only defer payments once. Deferments are only allowed once per loan. This means that once you choose to defer your payments, you will never get another chance to do so again. Because of this, it is important to make sure that you really need to defer your payments before applying for deferment. If you can make your payments by cutting back on other expenses, then it is usually a good idea to do this rather than get a deferral. Wait until you can no longer make your loan payments before applying for a deferral.
Interest still accumulates while the loans are in deferment. This is one of the most overlooked facts about deferment. Even though you are not making payments, interest is still accumulating on the balance that you owe. This means that when you go back to making payments on your loan, your loan balance will be higher than when you started deferment. Depending on the type of loan you have, this could mean that your payments will be higher when you come out of deferment or that you will pay off your loans over a longer period of time. In order to avoid this, some people choose to make interest payments while they are in deferment. This prevents interest from accruing on the loan balance.