An in-school deferment while completing a graduate degree could provide a temporary student loan respite.
Student loan payments were deferred in 2020 under a provision of the CARES Act. This deferment has provided critical relief to tens of thousands of borrowers during the COVID-19 pandemic. However, as a part of the recent debt ceiling deal, effective August 30, 2023 student loan payments are scheduled to resume.
While the reprieve has served as an economic lifeline for many, research shows 89% of student loan borrowers aren’t ready to begin repayment. If you find yourself in this group there may be a way to continue deferring loan payments while also increasing your income potential.
Questions about specific payment amounts and terms for existing loans should be discussed directly with your lender. You can find your lender information at www.studentaid.gov.
Pros of deferment:
If you decide to enroll in graduate school, your current student loans may be deferred during your studies. Student loan payments will resume six months after graduation. Though repayment cannot be avoided, research shows that you should be better able to pay once you have completed your graduate education.
The good news is that completing your master’s degree will likely result in a significantly higher salary. The Bureau of Labor Statistics finds that master’s degree holders earn an additional $12.5k annually over those with only a bachelor’s degree.
In order to qualify for an in-school deferment borrowers must maintain at least half-time enrollment status. Three graduate credit hours per semester (typically one class) is considered half-time enrollment. Most master’s degree programs may be completed in two years or less when attending full-time (six credit hours per semester), with a completion timeframe of four years for those on a half-time schedule.
It is possible to defer current student loan payments for up to two years by attending full-time, or four years by attending graduate school half-time.
Cons of deferment:
Student loan debt does not go away. When payments pick back up after graduate school you’ll be starting from where you left off, or worse.
If your student loans are unsubsidized interest could accumulate during deferment and you may end up owing more than when you started the deferment. Check with your loan servicing organization to be sure.
Additionally, any new loans taken out during graduate school will be added to your undergraduate loans increasing your monthly payments when deferment ends.
If you are able to decrease, or eliminate graduate tuition expenses (e.g., employee tuition reimbursement, graduate assistantships, scholarships, grants, etc.) and therefore avoid taking out new student loans, deferment starts to look like a more attractive option.
Summary:
If you are qualified for acceptance into a master’s program you may be able to pause your current student loan payments while you pursue a graduate degree. Before you pull the trigger though, do your research (i.e., loan terms, graduate tuition costs, scholarships, grants, post-graduate pay increases, etc.) and have a good idea of whether or not the educational investment is likely to pay off.
In-school student loan deferments may be a useful tool under the right circumstances. However, if you’re not careful you could end up in a bigger hole than the one you started out in.
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