Deferment is a financial term you should know. Bankrate explains.

What is deferment?

Deferment is an agreement between a lender and a borrower to temporarily suspend debt payments. Young people with large student loan debts and low or no income are frequently granted loan deferments. Under a student loan deferment, interest is frozen and is not added to the balance. Forbearance is a similar suspension of debt payments, although interest continues to accrue on the principal balance.

Deeper definition

There are four main types of student loan deferments, each with unique requirements and terms.

  • Enrollment grace period: Available when students are enrolled in postsecondary education on at least a half-time schedule. This grace period ends six months after graduation or after students have left the educational program, whether they have completed the program or not.
  • Unemployment: For student loan deferments, unemployment is defined as an inability to find employment of at least 30 hours per week, for a period of at least three months.
  • Economic hardship: Available for borrowers who are receiving federal or state public assistance, serving in the Peace Corps or working full-time but earning less than the federal minimum wage or less than 150 percent of the poverty line for the borrower’s family size. There is a three-year limit.
  • Military service: Borrowers who are called to active duty in the armed forces during war, military operations, or national emergencies are eligible for deferment over the duration of their service.

Borrowers experiencing financial stress who are ineligible for deferment can also explore options such as forbearance, debt consolidation, or lower monthly payments.

Check out Bankrate’s loan calculator to estimate your monthly student loan payment.

Deferment example

With a federal Perkins loan, a direct subsidized loan, or subsidized federal Stafford loan, the federal government may pay the interest during a deferment. When these sorts of deferments are granted, interest does not compound, freezing the amount due when the deferment ends.

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