Student loans can be a gift and a curse. Many students are unable to afford college without the help of loans, but after graduation learn that monthly loan payments may be higher than they can afford. Luckily, there are deferment options available depending on your personal circumstances. Student loan deferments can help or harm your credit score, depending on how the debt is managed.
Deferments
Student loan deferments happen for a variety of reasons, including military service, unemployment or economic hardship. During a period of deferment, you are not obligated to repay your student loan debt as agreed. "You are responsible for paying your education debt even when granted deferment. Deferment is temporary and limited to specified time frames," explains Sallie Mae. There are also limits to the amount of times you can defer your student loans. The impact your deferment has on your credit is contingent upon the type of loan deferment you request.
Interest
While your loans are in deferment, the interest on your loan continues to accrue. However, whether you are responsible for the interest depends on whether you have an unsubsidized or subsidized loan. On subsidized loans, the government pays the interest during your deferment period. You are responsible for the interest that accrues during your forbearance if you have an unsubsidized loan.
Payments During Deferment
Some students request the option of making these interest payments each month while their loans are in deferment to help mitigate the added loan balance. If you are not sure which option works best for your circumstances, contact your lender. Alleviating the debt as soon as possible is a priority, but selecting the wrong option on your own after rushing through the application can lead to delinquency.
Pay any agreed interest payments by the the assigned due date. Falling behind on your interest payments can result in a decrease in your credit score.
No Payments
If you choose not to make any payments during your deferment period, or if your loan package does not offer this option, your credit score will not be negatively affected. During a deferment period, your account is reported in good standing with the credit bureaus, which can help to increase your score. Make a note of the date your deferment ends. If you miscalculate the length of your deferment, you could miss a future statement and fall behind on your payments. Late payments lower your credit score.
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