The Only Time You Should Defer Your Student Loans

January 27th 2017

Kyle Jaeger

The federal government filed a lawsuit against the nation's largest student loan servicer earlier this month — in part because the company allegedly failed to adequately inform borrowers about their repayment options.

Instead, Navient promoted deferment, or delayed loan payments, for borrowers struggling to keep up.


But deferment only makes sense in two scenarios, Robert Farrington, a student loan consultant who runs the personal finance site The College Investor, told ATTN:

  • If you're a recent graduate with federal loan debt, it's reasonable to take the six-month deferment window.
  • If you're injured and expect to become permanently disabled, defer because your student loans will be forgiven under a federal policy known as "disability discharge."

For the vast majority of borrowers, however, income-based repayment is your safest and most financially prudent option.


"Get the repayment plan that makes the most sense for you at your income level," Farrington said. "If you don't do anything, you start right at the 10-year, standard repayment plan — and that's where you have equal payments over 10 years.

"If you can swing it, that's the fastest way to get out of debt, and I would say go for it. But if that's not working for you — if that's not going to fit in your budget — get on an income-driven payment plan," Farrington added. Those are:

  • Income-based repayment
  • Pay-as-you-earn
  • Revised pay-as-you-earn
  • Income-contingent repayment

"Those are the four big ones," Farrington said. "Get on one of the plans, certify your income, and you will have a payment that's going to be 10 to 15 percent of your monthly discretionary income."

Not everyone seems to be aware of income-based repayment plans.

There's a "huge gap in knowledge about these repayment options," Farrington said.

Borrowers are technically responsible for exploring options for themselves. But some student loan servicers such as Navient have failed borrowers by neglecting to provide the resources they need to make informed decisions about their student loans — and, in some cases, pushing deferment plans that will cause interest to accumulate and set you further back.

"I think it's one of the failures of the Department of Education and these loan servicing companies as a whole," Farrington said. "I think there needs to be a lot more education about student loan debt and the different repayment options" — in spite of improvement around these problems over the past three years, including a more accessible federal student loan website.

The average student leaves college with about $30,000 in loan debt in the U.S.

And about 11 percent defaulted on their loans in 2016, according to the Department of Education.

Helping to keep borrowers informed about their options can mitigate the problem and drive down the student debt bubble, experts argue.

Navient CEO Jack Remondi told The Washington Post that the company was "extremely disappointed" with the federal lawsuit:

"We had been working with the regulators, particularly the CFPB since their inception, to find ways to improve the student loan program. The complexity to this program is outrageous, and is certainly very impactful in terms of how it works for borrowers. The most frustrating part for us is despite five years of effort, there really has been zero action to improve the program. Instead, they have sought to force standards on one servicer and apply those standards retroactively, both of which we think are very unfair."