Loan deferment increases interest costs

While students do have the option to defer payment on their loans until after graduation, this may not be financially advisable. You should keep in mind that you will be paying interest on the loan whether you are making payments or not. As such, during the time of deferment, the balance on your student loans will increase even though they are not increasing your funding. Before you make the decision to defer payments on your student loan, you should look at the consequences.

Balance Increases Because of Interest

One of the problems with a loan deferment is while you are not required to make any payments, the balance increases because of the interest. Certainly it appears to be an advantage for those students who choose to attend school full-time and do not want the added pressure of working. This freedom leaves plenty of time for studying, homework and leisure time, but it also means you will be strapped with more student loans after graduation when you have to begin paying them back.

Increases Repayment Term

When you choose a loan deferment on your student loans you increase the length of time it takes to repay the loan. This also has the added disadvantage of causing the interest to increase as well since a higher balance means higher interest on the unpaid amount. Even though student loans have lower interest rates than consumer loans, with the higher loan amounts, you are facing quite a substantial amount of interest.

Hardship Deferments

Another problem that many students face is the need to apply for hardship deferments because they are not able to obtain sufficient employment by the time they need to begin making payments on their loans. Just like deferring payment until after graduation, hardship deferments will increase the balance of your loans as well as the repayment term.

Does this mean you should not apply for deferments whether after graduation or because of inability to make payments? It doesn't mean that at all, but each student needs to be aware of what these deferments mean in terms of their financial futures. Applying for hardship deferments because you don't have a job—or one that pays enough—in order to make the payments is preferable to not making the payments at all and ruining your credit.

Student Loans Never Go Away

No matter what steps you take in terms of loan deferments, the loans will not go away. In fact, they will follow you into retirement, which may provide the added frustration of preventing you from qualifying for some government programs you may need at that time in your life. Making the right choice while you are still in college can help you avoid financial ruin later in life because of unpaid student loans. You want to begin by only borrowing the amount of money you need and choosing a college that is within the scope of your future earning capacity. What this means is avoid trying to get into Yale if your future earning capacity will not allow you to make the payments for such a prestigious education.

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