How Does Student Loan Deferment in Grad School Work?
Attending graduate or professional school requires careful consideration so that you don’t end up with a heavier student debt burden than you planned for.
That means not only having a plan for graduate school loans but knowing what to do with any existing undergraduate student loans. One question many potential grad students may have is, if I go to graduate school, will my loans be deferred?
You could defer loans while in grad school for temporary relief, but loan refinancing or an income-driven repayment plan could bring longer-term help.
Read on to learn more about how to defer student loans while in grad school, and other alternatives to consider.
Deferment vs Forbearance
Graduation from undergrad or graduate school is followed by a payment grace period of six months for most federal student loans. But if you hit a snag at some point and can’t afford payments, both deferment and forbearance are designed to allow you to apply to postpone payments.
The main difference between the two: Interest accrues on only some federal student loans during deferment, whereas it accrues on nearly all of them in forbearance. Any unpaid interest is capitalized, or added to your loan balance, at the end of the payment pause, increasing the total amount you end up repaying.
To answer the question of, if I go to graduate school, will my loans be deferred?, it is possible to do, as long as you qualify for deferment.
Deferment, for up to 12 months at a time, for a maximum of 36 months, may be a better choice than forbearance if:
• You have subsidized federal student loans and
• You’re dealing with substantial financial hardship
If you apply to defer student loans while in grad school and don’t qualify, and your financial hardship is temporary, forbearance is an option.
If you have private student loans, many lenders will allow you to apply for a payment pause during hardship, too, though the terms and fees may be less borrower-friendly than is the case with federal student loans.
Do I Qualify to Defer My Payments?
Here’s how to defer student loans while in grad school: For federal student loans, you’ll need to submit a request to your student loan servicer, usually with documentation to show that you meet the eligibility requirements for the deferment. For private student loans, you’ll need to check the rules directly with the lender.
A variety of circumstances may qualify you for deferment. These are several of them.
Economic Hardship Deferment
You:
• Are receiving a means-tested benefit, like welfare
• Work full-time but have earnings that are below 150% of the poverty guideline for your family size and state
• Are serving in the Peace Corps
Unemployment Deferment
You receive unemployment benefits or you are unable to find full-time employment.
Graduate Fellowship Deferment
You’re enrolled in a graduate fellowship program that provides financial support while you pursue graduate studies and research.
Military Service and Post-Active Duty Student Deferment
You are on active duty military service in connection with a war, military operation, or national emergency; or you’ve completed active duty service and any grace period.
Rehabilitation Training Deferment
You’re enrolled in an approved program that provides mental health, drug abuse, alcohol abuse, or vocational rehab.
Cancer Treatment Deferment
You may qualify for deferment while undergoing cancer treatment and for six months afterward.
When Interest Accrues in Deferment
If you’re looking into defer student loans while in grad school, you’ll want to check how interest would be handled during the payment pause and whether, if unpaid interest is capitalized, you’re prepared to take on a higher overall cost of the loan.
During deferment, you are generally not responsible for paying interest on:
• Federal Perkins Loans
• The subsidized portion of Direct Consolidation Loans
• The subsidized portion of Federal Family Education Loan (FFEL) Program Consolidation Loans
With deferment, you are generally responsible for paying interest on:
• Direct Unsubsidized Loans
• Direct PLUS Loans
• FFEL PLUS Loans
• The unsubsidized portion of Direct Consolidation Loans
• The unsubsidized portion of FFEL Consolidation Loans
• Private student loans (if the lender allows deferment)
If you’re starting graduate or professional school or are in the thick of it, your federal borrowing options are Direct PLUS Loans (commonly called grad PLUS Loans when borrowers are graduate students) and Direct Unsubsidized Loans (also available to undergrads).
As noted above, those loan types accrue interest during a deferment.
Direct loans for graduate students currently carry a 7.54% rate (the rates are set by federal law for each academic year), with a loan fee of 4.228%.
Nongovernment lenders may offer private graduate student loans, sometimes with a fixed or variable rate and no loan fee.
Something to consider: If you pursue deferment on loans in the second category above to manage costs while in grad school, it’s a good idea to at least consider making interest-only payments during the deferment.
Options to Deferment in Grad School
There are at least two other ways, beyond forbearance, to get a handle on student loan payments in grad school.
Income-Driven Repayment
Some graduate students who have federal student loans might want to consider switching, even temporarily, to an income-based repayment plan.
Your monthly payment would be tied to family size and income, which may be low for a graduate student enrolled full time.
The four income-driven repayment plans stretch payments over 20 or 25 years, after which any remaining balance is supposed to be forgiven. After graduation, you could switch the student loan repayment plan back to the standard 10-year plan.
Though borrowers often pay less each month using one of these plans, they’ll generally pay more in total interest over the duration of the drawn-out loan.
The good news is that new federal regulations will prevent interest from accruing in certain situations with these plans. For example, previously, a monthly payment might have been less than the amount to cover interest on your loans. That unpaid interest was added to the amount you borrowed, and the amount you owed increased. However, under the new rules, excess interest will no longer accrue starting in July 2023, which could save you money.
In addition, any student debt that was forgiven used to be taxed as ordinary income, but the 2021 COVID relief package put a stop to that at the federal level, at least through 2025.
Refinancing
Another way to potentially lower your monthly payments without deferring your loans (and accruing interest) is by refinancing your student loans. Note: You may pay more interest over the life of the loan if you refinance with an extended term.
With student loan refinancing, a private lender pays off your loans (both federal and private) with one new loan, ideally with a lower interest rate.
A decrease in an interest rate while maintaining the loan’s duration is a compelling way to both save money each month and over the life of the loan. To understand how a change of even 1% can affect how much interest you’ll pay on a loan over time, you can use this student loan refinance calculator.
Should you refinance your student loans, it’s important to first understand that you’ll lose access to federal programs such as income-driven repayment and loan forgiveness as well as future benefits applicable to federally held loans. Be sure to consider this carefully before refinancing.
Private lenders may or may not have a deferment option.
Lenders that offer student loan refinancing typically require a good credit history and a steady income, among other factors. A student loan refinancing guide can help you learn more about the process.
The Takeaway
Student loan deferment before or during grad school could bring temporary relief. It could also add unpaid interest to loans and create a bigger balance to pay off. Those looking to manage payments long term may want to look into alternatives.
One option is student loan refinancing. SoFi offers low fixed and variable rates, flexible terms, and no fees for refinancing student loans.
Plus, as a SoFi member, you’ll have access to a professional-grade list of benefits like career coaching and financial advice.
SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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