Does deferring student loans affect credit?

Deferring a student loan means delaying the payment or stopping the payment temporarily. Reasons for the deferral could be allowing the student some time to find a job or a financial crisis. This delay in repayment does not forgive the loan. The maximum period of a deferment could be three years. But this is not a good long-term option. Let’s know whether Does deferring student loans affect credit?

Does deferring student loans affect credit?

Deferring a student loan does not directly affect the credit score since the deferral requires the approval of the institution or person who has done the lending. The deferment will be shown in the credit report. An indirect effect can be seen. Delaying a payment increases the term of the loan and the amount of debt remaining. As a result, the credit score gets affected. Not getting a deferral for a default account also affects the credit score. Deferring a student loan happens in certain situations. These situations may be the inability to find a suitable earning opportunity, a disability or rehabilitation process, maternity leave, or just unemployment. The inability to find a job may be due to additional courses joined which may result in time insufficiency. A credit score implies the ability to fulfill obligations to creditors. Non-repayment is a clear indication of failure of obligation. The deferment of a student loan stands out as a different scenario. The borrower did not directly decide upon deferral on his terms. If the delay opted for is due to financial issues, further inability to repay brings about a negative impact on the credit score. This is also true if earlier there have been delays in making repayments. The deferral may also result in accruing of interest. As interest is adding up, the amount owed increases. Payment history is the main factor that affects the credit score. Before a deferral is granted, missing an installment to be paid is bad. It leads to a negative impact on the credit score. 

What Happens To The Interest If A Loan Is Deferred?

When a student loan is deferred, the payment of interest is postponed up to a certain time. By this time specified, it is better to pay off the loan. Not paying off the loan leads to accruing of interest. Delaying the payment of interest works on the principle of holding off the interest during a promotional period. The promotional period is as per the terms and conditions of the financial institution. If the loan is repaid during this time, interest need not be paid at all. Interest starts adding up once this specified time ends. When repayment is done on time, this deferred interest loan does not affect the credit score. 

How Long Are Student Loans Deferred?

The maximum time limit for deferring a student loan is three years. Delaying the repayment any further will affect the credit score. It also results in interest amounts getting piled up. The term of deferment is an agreed-upon between the mender and the borrower.

What Is The Difference Between Deferment And Forbearance?

In both forbearance and deferment, there is a pause or delay in making the repayment. The difference arises in the aspect of interest. Forbearance is delaying the payments with interest continuing to accrue. Deferment is delaying the payment without the accrual of interest. This implies that forbearance may increase the actual amount to be paid. Deferment will not bring about an increase. Based on this aspect of accrual of interest it is better to opt for deferral. But each financial institution may use these terms with a different perspective in the various contexts of mortgages and student loans. 

Does Deferment Increase The Life Of the Loan?

The life of the loan will be extended by three months even though there is no additional interest accrued on the loan during the term of deferment. This is because a deferment is not absolving oneself from repayment of the loan.

A federal student loan is a financial aid provided as part of the educational Institution’s offer of help. A federal student loan can be deferred too. 

Process for deferring a student a loan

There is a step-by-step process for getting a student loan deferred. It is not automated.

Step 1: The first step in the process is requesting a deferment.

Step 2: For the above step, a request to the student loan servicer has to be submitted. 

Step 3: The student loan servicer will provide a form to be filled. 

Step 4: The above form has to be submitted upon filling in all the required details. 

Submission and acceptance of this form imply that all the criteria for deferment have been met. The deferment can be initiated. 

Opting for a student loan is not uncommon. It may not always be possible for a student to repay on time or before time. The option of deferring a loan is beneficial to students. It does not squeeze them out on the aspect of time.