With rising costs of higher education, more students are turning to deferred student loans as a source to fund their education. At least 2/3 of undergraduate students have some form of educational student loan debt. Student loans can come from the government or private lenders. No matter whom finances the education for the applicant, students has an option of beginning repayment immediately, pay interest only now, or defer principal and interest. To avoid the financial burden, most students opt to defer their student loan payments. Deferment is temporary relief from making payments and can be granted for a number of reasons. Deferment is often granted if the borrower is temporarily totally disabled, enrolled in a rehabilitation program, unemployed, experiencing economic hardship, enrolled in school, involved in a branch of the military, or performing community service. However, these students do not realize the future costs to them that are involved in letting interest compound on the money they borrowed to finance their education.
Deferred student loans can be subsidized, which means that interest is paid by the government while the borrower is in deferment, or unsubsidized, which means that interest accrues and is added to the principal amount of the loan while in deferment. By deferring unsubsidized student loans, interest is capitalized at graduation and added to the principal amount of the loan, increasing the size and cost of the loan. The interest rates on these loans vary and often adjust according to the economic times. On private loans, interest rates are normally higher than government-secured student loans. Therefore, if payments are deferred on private loans, higher interest is accruing onto the balance of the deferred student loan.
If at all possible, students should try to pay at least interest only in school, so they are not overwhelmed with substantial student loan bills after graduation. Students who go into repayment of the student loans often are unable to afford the payments and seek consolidation in order to lower their monthly obligations toward student loans. Students should try to keep their student loan obligations in good standing so that their credit is not affected. Late payments or default on student loans could lead to paycheck and tax refund withholdings. If consolidation is not feasible, students should request deferment or forbearance with the loan lender. Students will need to contact his or her lender or servicer of the loan and request a deferment. The lender will then determine if the student qualifies for student loan deferment.