Definition
A temporary pause on student loan payments granted for specific reasons, such as being enrolled in school at least half-time, unemployment, or economic hardship. On subsidized federal loans the government pays the interest during deferment; on unsubsidized and private loans interest keeps accruing.
Why it matters
A deferment protects your credit and cash flow when you cannot pay, but on unsubsidized loans the interest bill grows the whole time and can capitalize afterward. Choosing deferment over forbearance, when you qualify, saves the interest on subsidized loans.
Example
A borrower with $12,000 of subsidized and $18,000 of unsubsidized federal loans at 5% returns to graduate school for two years and defers both. The subsidized loan is frozen at $12,000; the unsubsidized loan accrues about $1,800 of interest, which is added to the balance when payments resume.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.