Going back to school as an adult can be daunting, but it can help boost your qualifications, improve your career prospects and increase your earning potential. According to the National Student Clearinghouse Research Center, 944,000 adults with some college education but no degree returned to school in the 2020-2021 academic year. A recent CivicScience survey found that 11% of adults consider returning to school. If you’re one of them, you may be concerned about managing your current loan payments when you re-enroll in college. However, due to student loan deferments, you may not have to make payments while you’re in school. Here’s how deferments work and how to defer student loans when going back to school.
What is Student Loan Deferment?
If you’re going back to school with student loans, you might be eligible for a deferment. If you qualify, you can temporarily postpone your loan payments until after you graduate from college. Interest may continue to accrue on your student loans, but you won’t have to worry about paying off student loans while in school. Deferring student loans to go back to school can give you some relief and breathing room in your budget. Deferments are similar to forbearance programs. In both student loan deferment and forbearance programs, you can pause your payments. However, the key difference is that interest will not accrue on certain loans if you’re in deferment; with forbearance, interest normally accrues on all loan types.
Do Student Loans Stop When You Go Back to School?
One of the biggest questions you might have if you have education debt is, “If I go back to school, will my student loans be deferred?” Whether your student loans are eligible for deferment is dependent on the type of loans you have.
Student Loan Deferment Eligibility
Student loan deferment eligibility varies based on loan type:
Federal Student Loans
Federal in-school deferments are available to borrowers that return to college to earn another degree, certificate, or advanced credential. Your loan payments are suspended while you’re in school. If you are a graduate or professional student with a Grad PLUS Loan, you can get an additional six months of deferment after graduating from your program. You may qualify for an in-school deferment if you meet the following criteria:
- You are enrolled at least half-time at an eligible school
- You are pursuing a qualifying degree or certificate
Private Student Loans
With private student loans, the ability to defer your student loans is dependent on the lender. While some private loan lenders offer in-school deferments, not all do, so you may have to make payments while you’re in school. Check with your lender about their in-school payment policies if you’re not sure if payments are required.
Pros and Cons of Student Loan Deferment
Before deferring your student loans, make sure you carefully consider the benefits and drawbacks.
Pros
- It frees up money for other expenses: Since you don’t have to make your student loan payments, you’ll have more money to use for other expenses, such as rent or transportation.
- You can focus on your education: Because you don’t have to worry about your payments, you may be able to work fewer hours or skip a part-time job altogether, dedicating your time and attention to your classes.
- There is no impact on your credit score: Deferments allow you to postpone your payments without falling behind on your loans, so there is no negative impact on your credit score.
- You can maintain federal benefits: If you have federal loans and take advantage of in-school deferment, you can still qualify for other benefits, such as income-driven repayment plans, later on. And depending on the type of loans you have, the government may cover the interest that accrues.
Cons
- Interest capitalization adds to your loan’s cost: At the end of the deferment, your interest is capitalized, adding to your loan’s overall cost.
- You may be in debt longer: Deferments may add to how long you’re in debt, making it difficult to plan for other financial goals, such as buying a home or saving for retirement.
- You won’t make any progress toward loan forgiveness programs: If you plan on applying for forgiveness programs like Public Service Loan Forgiveness, it’s important to know that time spent in deferment does not count toward forgiveness.
How Deferments Affect Your Repayment
Deferring your payments can give you some breathing room in your budget as you pursue your degree, but deferring your payments could add to your total repayment cost and keep you in debt longer. To demonstrate how deferments affect your total repayment, consider this example. Tim has $15,000 in outstanding student loans. All of his loans are Direct Unsubsidized Loans, and they have a 4.99% rate and eight years left in repayment. He decides to return to school to complete his bachelor’s degree, and he estimates it will take him two years to finish college. If Tim defers his payments by 24 months, his loan balance will grow by $1,498.02 due to accrued interest, bringing his new loan balance to $16,498.02 when he enters repayment after graduating college.
Which Types of Loans Accrue Interest During Deferment?
How interest is handled while your loans are in deferment varies based on the type of student loans you have. For example, federal unsubsidized and subsidized loans accrue interest differently.
Student Loans That Accrue Interest During Deferment
- Federal Direct Unsubsidized Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- Federal Family Education Loan (FFEL) PLUS Loans
- Unsubsidized portion of Direct Consolidation Loans
- Unsubsidized portion of FFEL Consolidation Loans
- All private student loans
Student Loans That Don’t Accrue Interest During Deferment
- Federal Subsidized Loans
- Subsidized Federal Stafford Loans
- Federal Perkins Loans
- Subsidized portion of Direct Consolidation Loans
- Subsidized portion of FFEL Consolidation Loans
Managing Interest Charges While in School
If your student loans will accrue interest when you go back to school, there are three different strategies you can use to manage your interest:
- No payments: If you’re eligible for a payment deferment, you can opt to make no payments at all while you’re in school. Your loans will accrue interest, and the interest will be capitalized — added to your principal — once your deferment is over.
- Interest-only payments: While you might decide not to make any payments against the principal, you can pay the interest that accrues on your loan each month. When deciding between interest payments vs principal payments, consider that interest-only payments are typically lower but won’t chip away at the principal. However, this approach will reduce interest charges, helping you save money.
- Flat payments: If you can’t afford to pay all of the interest that accrues each month, another option is to make a flat payment every month, such as $25 or $50. It will reduce your interest charges, and a smaller amount will be capitalized.
Before deciding on a plan, make sure you review your loan documents or speak to a lender representative about your student loan repayment terms to make sure you’ll meet the lender’s requirements.
Parent PLUS Student Loan Deferment
Parent PLUS Loans — a form of federal student loan parents can take out to pay for their child’s undergraduate education — are often eligible for deferments. Parent borrowers may qualify for deferments in the following circumstances:
- The parent is enrolled at least half-time at a college or career school
- The child for whom the parent took out the loan is enrolled at least half-time at a college or career school
- Six months after the child graduates from college or drops below half-time status
- The parent is in a full-time rehabilitation program for individuals with disabilities
- The parent is serving on qualifying active duty with the U.S. armed forces or National Guard
How to Request Student Loan Deferment
The process for requesting deferments differs between federal and private student loans. For federal loans, you rarely have to request an in-school deferment. Instead, your payments are automatically deferred when you enroll because the school notifies the government about your status. There are some extenuating circumstances where the loan servicer isn’t notified about your enrollment. If that happens, you can fill out and submit an in-school deferment request form. The process for deferring private student loans varies by lender. If you have outstanding private loans, contact your loan servicer to ask about the required process. Some schools will update your lender on your behalf, while others will require you to submit a form.
3 Alternative Options to Reduce Student Loan Payments
If you are ineligible for deferments or decide they’re not right for you, there are other options you can use to manage your loans:
1. Changing Your Student Loan Repayment Plan
If you have federal loans, you can apply for an income-driven repayment (IDR) plan. With these plans, your monthly payments are capped at a percentage of your discretionary income. As a student, your income will likely be low, so you will probably qualify for a much lower monthly payment. Private student loans aren’t eligible for IDR plans. However, contact your lender if you can’t afford your payments. You might be eligible for a reduced monthly payment for a few months.
2. Student Loan Forbearance
If you don’t qualify for an in-school deferment because you’re enrolled less than half-time or for another reason, you may be eligible for forbearance. With a forbearance, you can postpone your payments for up to 12 months at a time, but interest will accrue on all of your loans.
3. Student Loan Refinancing
If you have private student loans or are otherwise ineligible for federal deferment or forbearance, another option is student loan refinancing. When you refinance your loans, you consolidate them with a loan from a private refinancing lender. Your new loan will have different terms, including interest rate, repayment term, and monthly payment. The benefits of student loan refinancing often include saving money, reducing your monthly payments, and paying off your loans faster. You can also refinance student loans while in school.
Refinance Your Student Loans with ELFI
Now that you know how to go back to school with student loans without worrying about your payments, you can think about what works best for you. If you decide that student loan refinancing makes more sense than deferring your payments, you can get a rate quote from ELFI without affecting your credit score. Use ELFI’s Student Loan Refinancing Calculator* to find out how refinancing will affect your monthly payments and your total repayment cost.
