Does interest accrue during deferment? This is a common question among students and borrowers who are considering taking out loans to finance their education. The answer to this question can have significant implications for the total cost of the loan and the borrower’s financial obligations in the long run. In this article, we will explore the concept of interest accrual during deferment and its impact on student loans.
Interest accrual during deferment refers to the process of interest accumulating on a loan while the borrower is in a deferment period. A deferment is a temporary suspension of loan payments, typically granted to borrowers who meet certain criteria, such as being in school, serving in the military, or experiencing financial hardship. During this period, the borrower is not required to make payments on the principal amount of the loan, but interest may still accumulate.
The accrual of interest during deferment varies depending on the type of loan and the specific terms of the borrower’s agreement. For federal student loans, interest may or may not accrue during deferment, depending on the loan program. For example, Direct Subsidized Loans do not accrue interest during deferment, which is a significant benefit for borrowers. However, Direct Unsubsidized Loans and PLUS Loans do accrue interest during deferment, which means that the total amount owed on the loan will increase over time.
Private student loans, on the other hand, generally accrue interest during deferment. This can be a significant concern for borrowers, as the interest that accumulates during deferment can add to the total cost of the loan and potentially lead to higher monthly payments in the future.
It is important for borrowers to understand the terms of their loans and the potential impact of interest accrual during deferment. For federal loans, borrowers can request a deferment by completing a deferment form and submitting it to their loan servicer. It is crucial to do this as soon as possible, as there may be a delay in processing the request, and interest may continue to accrue until the deferment is approved.
For private loans, borrowers should contact their loan servicer to discuss the options available for managing interest accrual during deferment. Some private lenders may offer interest-only payment plans or other arrangements to help borrowers manage their loans during this period.
In conclusion, does interest accrue during deferment? The answer depends on the type of loan and the specific terms of the borrower’s agreement. Borrowers should carefully review their loan documents and understand the potential impact of interest accrual during deferment. By being proactive and informed, borrowers can make the best decisions to manage their student loan debt and minimize the long-term financial burden.
