How to Understand the Affect of Deferred Student Loans on Your Credit Rating

Deferring is not the same as defaulting. Defaulting on a loan is severely damaging to your credit rating, while deferment is common and usually goes unpenalized. Here are some steps to understand how a deferred student loan will affect your credit rating.

Difficulty: Moderately Easy

Instructions

1. Note that when you defer a loan, you enter an agreement with your lender to suspend repayment of the principle for a period of time.

2. Know that you must apply for deferment before you default. Be sure to make your payments during the application process.

3. Learn about federal loans. They can be deferred until graduation without penalty. These loans are designed to be repaid after you get your education.

4. Understand the duration of your grace period. After you drop below half-time enrollment (12 semester hours, usually) you have a grace period--6 months for Stafford loans, 9 months for Perkins loans--before you have to begin repaying your loan.

5. Explore the benefits of consolidation. If you consolidate your loan through a program--such as the Income Contingent Repayment Plan--all your loans will be combined and you will be given a new loan with new terms. This is one way to defer your payments without affecting your credit rating.

6. Look into private lenders. Almost all private lenders will offer deferment, but some require fees or quarterly interest payments.

Tips & Warnings

• If student loan payments are not made for 270 days and no special arrangements are made with your lender, the loans will be in default.
• Some deferred loans still collect interest, which is then capitalized. Other loans require you to pay the interest during deferral. Be sure to review your situation to ensure you'll be able to handle the extra costs.

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