The Dangers of Deferring Your Student Loans
Deferring your student loans might seem like the easy answer to your current financial struggles. You’re bogged down with your student loans on top of credit card debt and/or a mortgage and car payment, and you’re looking for a way out. But before you get the ball rolling with deferment, you need to be aware of its potential to drive you into a never ending cycle of debt and know that there are other options to take control of your student loan debt today.
That Capitalized Interest Adds Up
If you do your research, you know that the federal government gives you a couple options to delay payment on your student loans after you graduate. Student loan deferment allows you to temporarily postpone payment on your student loans. During the period of deferment, you may not have to pay any monthly payments, but you’ll be accruing interest on all unsubsidized loans. Student loan forbearance is usually your option if you don’t qualify for deferment. When your loan is in forbearance, you will continue to accrue interest on all your student loans.
For both deferment and forbearance, the interest accrued is capitalized, meaning all that extra interest is added to your principal when you finally start repaying your loan. So in the end, you’re paying interest on top of interest. This can add up to hundreds and thousands of dollars depending on how large your principal loan is and how long you keep your loan in deferment or forbearance.
NOT a Long Term Financial Plan
Student loan deferment is not a long term financial plan, because it simply drives you further into debt the longer you keep your loan in deferment. The longer you delay paying off the principal of your balance, the more interest you accrue on unsubsidized loans. You’re going to be paying more for a longer period of time on your student loan in the end… if you ever get there.
If you defer your loans, you’ll start to feel a false sense of financial security, and that psychological effect is perhaps the greatest danger of student loan deferment. If you have a job, but you’re simply strapped for cash every month, deferment won’t fix your problems, because you’re only delaying the reality of your debt. The pain and hassle of budgeting will return two-fold when it’s time to pay up.
When Does It End?
There can be no set end when it comes to delaying or deferring your loans. Perhaps the most common time you might consider student loan deferment is when you’re unemployed. Let’s say you just graduated and can’t find a job, but your first student loan repayment due date is looming. You tell yourself that deferment is a temporary fix until you get back on your feet again. But when does it end? When your job comes along, and you’re struggling to cover other expenses, it’s all too easy to put that student loan on the back burner while the unsubsidized loans continue to accrue interest.
There Are Other Options
Don’t feel stuck or forced into student loan deferment if you’re struggling to pay your bills. There are many other ways to deal with overwhelming student loan debt. So before you dive head first into deferment, consider these alternatives first.
- Call your lender: If your monthly payments are just too much to handle right now based on your income or other extenuating circumstances, you can call your lender and see if other repayment plans can offer you lower monthly payments.
- Consolidate your student loans: Consolidating your student loans means you put all your student loans- federal and private- into one loan, and you have just one monthly payment. Sometimes, this can result in lower monthly payments and/or better interest rates.
- Ask for help: Don’t hesitate to ask for help from places that offer student loan services. Every person’s student loan situation is a little bit different, so speaking to someone knowledgeable in student loans can help you find the right personalized option for you.
At studentloanservice.us, we help you consider all your options. We want you to take control of your student loan debt instead of just ignoring or delaying reality. Be confident in your financial decisions and start working toward reaching your financial goals today.