Do Deferred Student Loans Affect Your Credit Score?

Student loans have become a defining feature of many young adults’ financial landscape. With a collective debt in the trillions, student loans are a matter of concern for borrowers and non-borrowers alike. What’s more, many borrowers rely on having the ability to defer their student loans. But what does deferment mean for your financial health, particularly your credit score?

Student loan deferment shouldn’t negatively affect your credit score, but you must take specific actions to properly go about it. Empower yourself with a clear understanding of how education loans affect your credit score and credit report.

Student Loan Deferment And Credit Reports

Your FICO^® credit score ranges from 300 to 850 and is determined based on the data in your credit report. This score represents the creditworthiness of a borrower. A higher credit score typically leads to a more favorable loan repayment term and interest rate, translating to future financial security and opportunity.

Student loans are installment debt, meaning you borrow a fixed amount of money and repay it over time in monthly installments. These payments impact your credit history and your credit score. As such, managing your student loans responsibly is key to maintaining a good credit score.

What Is Student Loan Deferment?

Deferment is the temporary postponement of loan payments, typically due to financial hardship or enrollment in school at least part-time. During deferment, interest may still accrue on the loan, but the borrower isn’t required to make any payments.

When a lender grants deferment to a borrower, the loan is still considered in good standing, and it won’t negatively impact their credit score – at least in most situations. If the borrower fails to apply for deferment or misses payments thinking they’ll receive automatic deferment, it can result in a delinquency on their credit report, which can lower their credit score.

The Impact Of Deferment On Credit Scores

Because student loans are installment loans, they’re scored differently than revolving credit such as credit cards or lines of credit. However, student loans can still have an impact on your credit score. While in deferment, a student loan carries a “deferred” status on the borrower’s credit report. This means the borrower isn’t making payments, but the loan is still active and in good standing. If the borrower resumes loan repayment after deferment ends, this deferred status should not hurt the borrower’s credit score.

However, if the borrower fails to apply for deferment or misses payments before or after the deferment period, it can result in a delinquency on their credit report, lowering their credit score.

Making timely payments shows a lender you’re a responsible borrower, and it can increase your credit score. While deferment in and of itself won’t hurt your credit score, resuming repayments and managing student loans responsibly can positively impact your credit profile.

Qualifying For Student Loan Deferment

Student loan deferment is like pressing pause on your payments for a set period. It’s typically available after a specific financial hardship or life event, such as unemployment.

Eligibility for deferment isn’t automatic; you must apply. The requirements for deferment vary based on the type of loan and the lender, so it’s crucial to contact your loan servicer for information specific to your loans.

Here are some circumstances under which student loan borrowers are commonly granted forbearance:

• In-school deferment: Borrowers enrolled in school at least part-time can typically defer their loans until they graduate or drop below part-time enrollment.
• Military deferment: Active-duty military and National Guard members may be eligible for a military deferment during deployment or another qualifying activity related to military service.
• Unemployment deferment: If you can’t find full-time employment, you may be eligible for an unemployment deferment of up to 3 years.
• Economic hardship deferment: Borrowers experiencing economic challenges can apply for a deferment based on their income and family size, usually for up to 3 years at a time.
• Parent PLUS borrower deferment: Parent PLUS loan borrowers can receive a deferment while the student is in school and for an additional 6 months after graduation.
• Graduate fellowship deferment: Students enrolled in graduate fellowship programs may be eligible for a deferment during their time of service, typically up to 3 years.
• Cancer treatment deferment: Borrowers undergoing cancer treatment may be eligible for a deferment if they can’t work.
• Rehabilitation training program deferment: Borrowers enrolled in an approved rehabilitation training program for vocational, drug abuse, mental health or alcohol abuse treatment may be eligible for deferred payments.

Differences Between Student Loan Forbearance And Deferment

Student loan forbearance and deferment aren’t the same. The most notable difference between deferment and forbearance is that during a deferment period, interest won’t accrue. The differences don’t stop there, though.

Forbearance Of Federal Student Loans

Just as with deferment, you shouldn’t expect student loan forbearance to happen automatically if you stop making payments. Instead, you must contact your loan servicer to request it. Here are the two types of student loan forbearance:

• General forbearance: A general forbearance is typically granted when you’re facing financial hardship but don’t qualify for a deferment. You’ll still be responsible for paying the interest on your loans during this time.
• Mandatory forbearance: If you become eligible by serving in AmeriCorps or enrolling in a medical or dental internship/residency program, for example, you may be able to receive a mandatory forbearance.

Forbearance and deferment can both be a financial lifeline if student loan repayment becomes a struggle. Depending on the loan servicer, you may continue to accrue interest on your loans during a forbearance period, meaning you’ll pay more in the long run.

When Deferred Student Loans May Affect Your Credit Score

While deferring student loans doesn’t directly impact your credit score, it’s important to understand the immediate and longer-term implications. Examples include: 

• Being reported to credit bureaus: Loans in deferment are reported as such to credit agencies. On their own, they don’t negatively affect your credit score.
• Long-term considerations: The indirect impact of deferred loans is worth considering. Without a long-term plan for managing your loans, deferment can lead to financial challenges.
• Interest accumulation: Loans in forbearance may still accrue interest during the forbearance period. When payments resume, they may be significantly higher than before.

Managing Your Student Loan Payments

While there are times when it can be perfectly appropriate to defer student loan payments, this strategy shouldn’t be your first option. Consider these strategies for managing private and federal student loan payments without deferment.

Federal Student Loan Repayment Options

In addition to federal protections, federal student loans offer several unique repayment options not always available with private student loans. Examples include: 

• A standard repayment plan: This consists of fixed payments aiming to clear the debt in 10 years and offering the lowest amount of interest paid over time.
• A graduated repayment plan: Payments begin lower and increase over time. This plan is designed to reflect rising income, with a typical term of 10 years.
• An extended repayment plan: For borrowers with more significant debts, this plan offers terms of up to 25 years with fixed or graduated payments. The plan reduces monthly amounts but increases overall interest paid.
• Income-driven repayment (IDR) plans: Payments are recalculated yearly based on income and family size, with four main types (IBR, PAYE, REPAYE, and ICR) extending terms to 20 or 25 years, followed by potential loan forgiveness.
• Public service loan forgiveness (PSLF) program: This offers loan forgiveness after 120 qualifying payments for those in public service jobs. This plan is often paired with an IDR plan for reduced payments and maximized forgiveness.
• Other student loan forgiveness options: The PSLF program isn’t the only option for having student debt forgiven. See if you qualify for one of these 11 student loan forgiveness programs.

Private Student Loan Repayment Options

Private student loans often lack the flexible repayment options of federal loans. However, borrowers still have some strategies they can employ. Understanding your lender’s policies and communicating openly about your financial situation can lead to modified repayment terms that better suit your financial capacity.

Here are some private student loan repayment options that are fairly common:

• Standard repayment plan: This plan involves fixed payments over the agreed loan term, typically 10 years. However, repayment terms can vary depending on the lender and other factors.

• Refinancing: This option involves taking out a new loan with a potentially lower interest rate or different repayment term to pay off existing student loans. Refinancing student loans can consolidate multiple payments into one and may lead to a more favorable repayment term and interest rate.

Protecting Your Credit Score While Dealing With Student Loans

Navigating the complexities of student loans can be daunting, especially when trying to safeguard your credit score. Adopting a proactive approach toward your student loan repayment strategy isn’t only advisable, it’s crucial.

Here are some practical ways to protect your credit score while you manage student loan payments:

• Stay informed. Regularly check your student loan accounts and understand the terms of your loans. This includes knowing your repayment options, the current interest rate and applicable fees. Quickly and easily access your credit score using Rocket Money^SM.
• Communicate with your lender. If you anticipate difficulties making payments, contact your lender right away. Lenders may offer solutions such as adjusting your repayment plan, which can prevent missed payments from negatively impacting your credit score.
• Automate payments. Setting up automatic payments can ensure you never miss a due date. Some lenders may even offer a slight reduction in interest rate for enrolling in autopay.
• Monitor your credit report. Regularly review your credit report for errors and discrepancies. If your student loans are inaccurately reported during a deferment or forbearance period, contact the credit bureaus to correct the misinformation.

The Bottom Line: Deferment Doesn’t Hurt Your Credit Score When Done Correctly

Your credit score is a vital component of your financial health, and student loans play a significant role in shaping this number in the early stages of your financial life. While deferment might not impact your credit directly, the long-term financial implications can have an impact.

For insights into your finances, including how your student debt payments are affecting your budget, download the Rocket Money app.