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Updated on Thursday, May 23, 2019
With student loan debt in the U.S. surpassing $1.56 trillion, it’s not surprising that more than 1 million borrowers default every year. If you’re struggling with payments, you might be wondering about student loans with deferred payments.
Here’s what you need to know about postponing payments on your student loans, followed by seven lenders that offer private student loan deferment and forbearance.
Forbearance vs. deferment: What’s the difference?
Both forbearance and deferment allow you to postpone payments on your student loans without going into default. But when it comes to federal student loans, these two programs have some key differences.
Deferment is available for students who go back to school, lose their job or are on active military duty. Forbearance is designed primarily for borrowers who have encountered financial hardship.
If you have subsidized federal student loans, they won’t accrue interest during deferment. But you will be responsible for interest that accrues on your loans, subsidized or not, during forbearance. So deferment is a preferable option if you have subsidized loans and can qualify.
While forbearance and deferment are different programs with federal loans, the distinction can get fuzzy with private loans. Some private lenders use the terms interchangeably since they effectively work the same way.
The downside of student loans with deferred payments
Pausing payments on your student loans could be important while you look for a job or work on your next degree. But unless you have subsidized loans in deferment, interest will keep rising.
Let’s say you owe $30,000 in student loans with a 5% interest rate on a 10-year term. After three months of student loans with deferred payments, you’ll accrue an additional $373 in interest. After a year of paused payments, your balance would increase by $1,500.
Taking loans out of deferment or forbearance is typically considered a capitalization event, meaning the interest that has accrued will be added to the principal. In effect, you’ll end up paying interest on top of interest.
That’s why deferment and forbearance should only typically be used as a last resort. If you can continue to make payments, or at least pay off the interest each month, you won’t run the risk of a ballooning student loan balance.
Another option is adjusting payments on your federal student loans through an income-driven repayment plan, which adjusts your bill based on how much money you make. Unfortunately, you probably don’t have this option with private student loans.
So if you can’t afford to pay, private student loan deferment could be the way to go.
7 lenders that offer private student loan deferment and forbearance
Terms and conditions vary by lender, and only some offer student loans with deferred payments. Here are seven lenders that offer deferment or forbearance on their private student loans or refinanced student loans.
If you refinance your student loans through LendKey, you can apply for deferment for up to 18 months for any reason. LendKey approves these requests on a case-by-case basis, so make sure to reach out to your loan servicer if you’re having trouble making payments. However, LendKey doesn’t offer in-school deferment with its private student loans.
2. Sallie Mae
If you have a Sallie Mae Smart Option student loan, you could request up to 60 months of deferment for returning to school or taking part in an internship, fellowship, residency or similar program. Sallie Mae suggests it can postpone payments through forbearance for those who run into financial hardship, but it encourages borrowers to call customer service to discuss their options.
Student loan refinancing provider SoFi lets you pause payments for a few reasons. Along with a general forbearance policy, SoFi offers deferment for economic hardship, unemployment or military service. It will also defer your payments while you’re in school. To submit a deferment or forbearance request, you’ll need to contact SoFi’s servicing partner, MOHELA.
As a SoFi member, you can also benefit from its career coaching program, which helps you search for jobs and transition into a new career.
CommonBond offers both private student loans and student loan refinancing. If you took out a cosigned loan for school, you’ll get a 60-month academic deferment, including the grace period. This means you won’t have to pay your loan while you’re in school or for a few months after graduation. Depending on your circumstances, you can also apply for up to 12 months of forbearance.
If you get a Master of Business Administration loan from CommonBond, you’re eligible for 32 months of academic deferment and 12 months of forbearance. Finally, CommonBond’s refinanced student loans are eligible for 32 months of academic deferment and 24 months of forbearance, which can be used three months at a time.
5. Laurel Road
Laurel Road allows forbearance for up to 12 months if you run into financial hardship. The provider, which funds graduate student loans and refinanced student loans, reviews forbearance requests on a case-by-case basis.
As for students in school, it’s up to you if you want to make payments on your loan or defer them until after you graduate. Laurel Road does not offer in-school deferment on its refinance student loan products.
Earnest offers private student loans and refinanced student loans. If you go back to school, you can defer your Earnest student loan payments for up to 36 months as long as you’re enrolled at least half time.
And if you run into financial hardship, you can apply to skip a payment or put your loans into forbearance.
7. Education Loan Finance
Student loan refinancing provider Education Loan Finance offers 12 months of forbearance for financial hardship or disability over the term of your student loan. You’ll need to apply each month to keep your loan in forbearance. If you don’t contact Education Loan Finance each month, your loan will come out of forbearance and full repayment will resume.
Explore all your options before pausing payments
Deferment and forbearance options can be a godsend if you’re struggling to keep up with payments on your student loans. But both are a temporary solution, and your loans could get more expensive over time.
Before applying for deferment or forbearance, look into alternative ways to adjust your student loan payments. You might put federal loans on an income-driven plan, for instance, or refinance private student loans to get a new term.
While pausing payments can bring immediate relief, don’t forget to account for long-term costs before making changes to your repayment plan.