What Does It Mean When Student Loans Are Deferred?

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Many incoming college students take out student loans so that they can afford tuition. These loans give students the financial resources to attend college, but students may have many questions about loan payments after graduating. 

You may have heard about the student loan deferral program that the federal government set up during the pandemic. It has impacted many people’s budgets and student loan payment plans, but it is set to go away after 2022. 

Let’s have a conversation about the program and how student loan deferrals can affect you.

How does student loan deferment work?

Student loan deferrals allow you to temporarily stop making student loan payments without any penalties. Normally, you have to make monthly payments towards your student loans. 

Usually, missing a payment can also hurt your credit score while simultaneously creating other issues. However, with the deferral program, you have a window of opportunity to make loan payments without worrying about monthly minimums. 

Do deferred student loans accrue interest?

Deferred student loans usually accrue interest, but there are notable exceptions. The Federal Government’s initiative to defer student loans during the pandemic put a temporary freeze on student loan payments and the accumulation of interest. 

Now, keep in mind that you can still make student loan payments to catch up on your balance while also benefiting from this opportunity. That said, it’s not required, and choosing not to pay does not come with a penalty. 

Will student loans keep getting deferred?

Student loan deferrals started on March 20, 2020, but they won’t last forever. The government is currently positioned to end the student loan deferral program after 2022. 

While the government has pushed back the deadline before, borrowers should treat 2022 like a firm deadline as the extension is only speculation. It will remain a rumor until it happens if it even happens at all.

Do deferred student loans affect credit?

Deferred student loans will not help or hurt your credit score since interest will not accrue. Even so, making payments can improve your credit score by improving your payment history and credit utilization. Using this opportunity to catch up on the loan’s principal will make interest more bearable once the deferral ends.

Is it better to get student loan deferment or forbearance?

Student loan deferment and forbearance allow you to avoid loan payments. While a forbearance lasts 12 months, student loan deferrals can transpire for even longer. 

Both of these structures allow interest to accumulate on the loan, with the government’s response to a pandemic as a notable exception. The current student loan deferment program does not allow interest to accumulate on borrowers’ loan balances.

Student loan forgiveness in 2022

Student loan deferment isn’t the only federal initiative in recent years. President Biden recently announced $10,000 in student loan forgiveness to borrowers who earn less than $125,000 per year. 

That said, households must not earn more than $250,000 per year in order to qualify for loan forgiveness. Pell Grant recipients can receive up to $20,000 in student loan forgiveness, and remaining balances will be reamortized.

Who is eligible for student loan forgiveness?

Borrowers with income levels below $125,000 per year or households with an annual income that is less than $250,000 will qualify for student loan forgiveness. That said, you will also need to have taken out a federal loan to receive student loan forgiveness. 

You may not receive forgiveness for a privately held FFEL loan. Still, you can consolidate it into a federal student loan to participate in debt forgiveness.

Navigating student loan payments

The student loan deferral program and debt relief measures will help borrowers get closer to zero debt. Combining these relief efforts with consistent payments can reduce your balance sooner and result in lower interest when the student loan pause period comes to an end. Any payments you can make will put you in a stronger position to get out of debt.

Will Biden extend the student loan pause?

The student loan pause is set to end after December 31, 2022. While the two most recent administrations have extended this pause multiple times, you should act as though the pause will not be extended just in case.

Are student loans going to get deferred again?

The student loan deferral program ends after December 31. The U.S. Department of Education can extend the pause before the deadline, but that remains to be seen.

What does payment deferment mean?

Payment deferment is when you can temporarily stop making loan payments. Most deferral plans result in the accumulation of interest, but the federal government’s student deferral program is a notable exception.

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