In theory, a student loan deferment sounds great. You are a little low on cash, so instead of paying any money towards your student loan, you tell your lender, let’s try this again next month.
Some deferments can last six months or even a year. For many borrowers, a deferment can seem like a great option.
The Problem with Deferments
A deferment is kind of like financial procrastination. Right now, it may seem like a good idea, but all you are doing is creating a bigger headache for the future.
As most people know, student loan interest grows daily. Struggling to afford this month’s payment may suck, but if you ignore it during a deferment, your mountain of student loan debt will only grow.
For this reason, this site has called student loan deferments a recipe for disaster.
That all being said, there are a few circumstances in which a deferment might make sense…
A New Job Might Justify a Deferment
If you are about to start, or just started a brand new job, a deferment could make sense. The idea here is that even though you can’t make your current payment, soon you will have no trouble making your payment and perhaps even paying extra.
This approach gets dangerous when the future is less certain. Looking for a job and having one lined up are two very different things. Getting a deferment in the hopes that you might someday be financially better of is a mistake. This is also true for people who think a new promotion is in their future. Unless your future income is a sure thing, going on a deferment could make your current problems much worse.
Borrowers with federal loans should carefully investigate income-driven repayment plans. Borrowers earning little or no income may qualify for $0 per month payments. Paying $0 per month might sound like a deferment, but in the world of student loans, they are dramatically different.
Help with a Huge Bill
Suppose you had an unexpected injury and are low on cash this month, or maybe you need the extra money for some other essential purpose. In these circumstances, a deferment is a reasonable option. Yes, it isn’t an ideal choice, but it sure beats missing a payment or not being able to pay a critical bill.
The problem with going this route is that it can be a slippery slope. One month it is unavoidable medical bills; the next, it is a down payment on a car. The next month it is for a once in a lifetime trip. Before you know it, you are applying for a deferment because your favorite band is in town, and tickets are crazy expensive. The second you start looking at student loan payments as optional, your finances are in real trouble.
A True Last Resort
This is true more for private loans than federal loans. If you simply do not have the money to pay, and you have explored every other option, a deferment could be a last act of desperation to avoid a missed payment.
The problem with this approach is that some people jump to this step way too soon. With federal loans, there are several plans based upon your income. As a result, there is no reason why you should be facing a student loan payment that you cannot afford.
Private loans get trickier, but many lenders have programs for borrowers who cannot make their payments. Some might even temporarily lower your interest rate. If you are thinking about a deferment as a last resort, make sure it is truly your final option.
The Bottom Line
A student loan deferment is a temporary solution. Student debt is a long-term problem. This particular temporary solution will often make your long-term student loan situation worse.
The student loan bill in your mailbox may be a headache, but the real problem is the bills that will be coming for the next ten years or more. When you put together your student loan plan, avoid the dangers of deferments by thinking long term. Instead of focusing just on this month’s bills, think about the next 100. When you have a plan for all those bills, you will be able to get your student debt under control.