Types of Loans That Do Not Accrue Interest During a Deferment Period

Some types of student loans are subsidized, meaning that the federal government pays the interest on the loan during certain times. This prevents the student from having to make interest payments during these times. It also keeps the interest from being added to the loan balance, which increases the cost of repaying the loan.

Subsidized Stafford

Stafford loans, which are the main type of loan issued by the federal government, come in two major varieties. With an unsubsidized loan, the borrower is responsible for paying all of the interest. With a subsidized loan, the federal government pays the interest while the student is in school, during the grace period and whenever the loan is in deferment. This keeps the loan balance from increasing during times when the student cannot afford to pay the loan.

Perkins

All Perkins loans are subsidized by the federal government, disbursed through schools to qualifying students. An additional benefit of Perkins loans is that there are no origination fees, so the full amount of the loan is applied to the student's tuition balance. Plus, the Perkins loan has a nine-month grace period following graduation, rather than the six-month grace period on most other types of student loans.

Subsidized Consolidation Loans

When a student consolidates loans through the federal government's consolidation program, the loans are grouped into two categories. The subsidized portion of the consolidation loan includes only the subsidized Stafford loans. This portion of the consolidation loan does not accrue interest during deferment. Unfortunately, Perkins loans are grouped into the unsubsidized portion of the consolidation loan, so borrowers who consolidate their Perkins loans forfeit their interest subsidy during future deferment times. Borrowers who plan to return to school or defer the consolidation loan for other reasons should not consolidate Perkins loans.

Applying

Apply for subsidized Stafford loans and Perkins loans by filling out the Free Application for Federal Student Aid. The information you enter on the FAFSA combined with the cost of attending your school will determine whether you have enough financial need to qualify for a subsidized loan. Your financial aid award letter from your school will list the types of loans you are eligible to receive. Accept all subsidized loans offered to you, including Perkins loans, before taking any unsubsidized loans.