How Does FAFSA Loan Deferment Work?

FAFSA loan deferment can disrupt your monthly payments, often for up to three years. But it’s not a good long-term option. Even if you qualify for a deferment, you probably shouldn’t use it unless the following conditions are met:

  • You have Perkins loans or subsidized federal loans; these do not accrue interest during the deferral.
  • You can’t afford to pay off your student loan.
  • You can restart the payment pretty quickly.

If you’re not going to be in good financial shape for a while, opting for an income-based repayment plan is a better option.

What is FAFSA Loan Deferment?

A FAFSA student loan deferment allows you to stop making payments on your loan, or reduce the amount you pay, for up to 3 years in most cases. During the deferral, no interest accrues on government-sponsored loans because the government pays the interest. However, interest on unsubsidized loans will accrue and be added to the amount owed at the end of the deferral period.

How to Cancel your Student Loan

In order to defer student loans, you must meet certain eligibility criteria and still have deferment time available over your lifetime limit. You can only defer federal student loans for a certain amount of time; in most cases the maximum is three years in total.

To apply, submit the relevant application and all the necessary documents, such as proof of unemployment benefit, with your student loan officer. Your student loan officer should give you a FAFSA loan deferment if you qualify, but you should continue to make payments until they are officially approved.

Types of FAFSA Loan Deferment

The following types of deferment apply to FAFSA student loans. As noted, some private lenders also offer deferment, but the types, rules, and requirements vary by lender.

In-School Student Deferment

This is the only automatic adjournment offered by the federal government, and it comes with an obligation to attend school at least part-time. If you have a Direct or Federal Stafford student loan, subsidized or unsubsidized, or if you are a graduating or working student with a FFEL PLUS or Direct PLUS loan, your loan remains paused for up to 6 months after you graduate or leave the school. All other PLUS borrowers must start paying as soon as they leave school. If you don’t get an automatic deferral, ask your school’s admissions office to send your registration information to your loan officer.

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In-School Parent Deferment

If you are a parent who took out a FFEL PLUS or Direct PLUS loan and the student you took out the loan for is at least half enrolled, you can also benefit from a deferral, but you must meet the requirement. Your deferral comes with the same 6-month grace period granted to the students listed above. There is no time limit for any type of FAFSA loan deferment.

Unemployment Deferment

You can apply for a deferral of up to three years if you lose your job or are unable to find full-time employment. To qualify, you must be receiving unemployment benefits or seeking full-time employment by registering with an employment agency. You must also apply for this deferment every 6 months.

Economic Hardship Deferment

Hardship deferral is available for up to three years if you currently receive federal or state assistance, including through the Temporary Assistance for Needy Families (TANF) or Supplemental Nutrition Assistance Program (SNAP). The same applies if your monthly income is less than 150 percent of your state’s poverty guideline. You must reapply for this deferral every 12 months.

Peace Corps Deferment

A deferment of up to three years is also available if you serve in the Peace Corps. Although Peace Corps service is largely considered an economic hardship, you do not need to reapply during the deferral period.

Military Deferment

Active military service in a war, military operation, or national emergency may also qualify you for a FAFSA student loan deferment. This may include a 13-month grace period after service ends or until you return to school at least part-time.

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Cancer Treatment Deferment

If you have cancer, you can request a moratorium on your student loan during treatment and for 6 months after treatment ends.

Other FAFSA Loan Deferment Options

If you don’t qualify for any of the deferment types just listed, you may still qualify for one of the following:

  • Graduate scholarship deferral if enrolled in an approved program
  • Rehabilitation training deferment if you are enrolled in an approved rehabilitation training program
  • Perkins loan forgiveness deferment if you have received a Perkins loan and are working to pay off that loan
  • Enhanced/additional deferment options if you had a direct or FFEL loan before July 1, 1993. Contact your loan officer for details.

Is FAFSA Student Loan Deferment a Bad Idea?

Deferring student loans isn’t necessarily a bad idea, but it can be costly if you have unsubsidized federal student loan. This loan accrues interest during the deferment, which you are responsible for paying. If you don’t do so while the loan is in forbearance, such unpaid interest will be capitalized or added to your loan balance when the refund comes in. You can find out if your loans are unsubsidized by checking your account.

These additional costs may be worth it if the alternative is to garnish your wages or lose your tax refund due to a student loan default. FAFSA loan deferment is also a better option than student loan forbearance because you are still paying interest during forbearance.

Income-driven Repayment vs Deferment

Are you worried about not being able to pay your payments in the long term? Enrolling in income-driven repayment can provide the same immediate relief as FAFSA student loan deferment, plus additional long-term benefits.

You will probably pay even less each month. Many factors contribute to how income-driven repayments are calculated. If you are deferring loans because you are not making a lot of money, your income-driven repayments could be as low as $0, essentially the same amount as pausing repayments.

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You can also save on interest. An important benefit of deferment is that no interest is paid on subsidized loans. However, most income-driven repayment plans also waive these fees if your payments don’t cover accrued interest. This has a duration of three years and is, therefore, as long as the economic hardship and unemployment deferments.

You may receive loan forgiveness. After 20 or 25 years of repayments, income-driven plans forgive the remaining balance on your loans. Instead of suspending payments for three years with a student loan deferment, you could pay with an income-driven repayment plan and get much closer to forgiveness.

You can pay more interest on income-driven repayment because these plans extend your payment period. Estimate short-term and long-term costs with the Federal Student Aid’s Loan Simulator to see if an income-driven repayment plan makes more sense for you than a FAFSA student loan deferment.

Final Thought on FAFSA Loan Deferment

FAFSA loan deferment makes more sense if you have subsidized federal or Perkins loans, since they do not earn interest. Forbearance should only be considered if you are not eligible for a deferment. Remember that forbearance and deferment are ideal for short-term financial difficulties. The income-driven repayment (IDR) is a better option if your financial problems last more than three years and you are paying off federal student debt. In any case, be sure to contact your loan servicer right away if you are having trouble paying your student loans.

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