What Is Stafford Loan Deferment?

Stafford loan deferment may be a good choice for you if you are in some financial difficulty at present, but expect to be in an improved situation soon after you graduate. Deferment normally works only with unsubsidized Stafford loans. This needs a bit of explanation.

Stafford Loan: Different Types

There are two types of Stafford loans – the subsidized and the unsubsidized. With the subsidized loans, you have the advantage that no interest is applicable to the principal borrowed amount while you are in school, and this continues till six months after you get your degree or drop out of class. In effect, the accrued interest for this period is paid by the US Dept of Education.

With unsubsidized Stafford loans, your interest starts to build up from day one. The rate is quite low while you're in school, and will rise to 6.8% per annum after you graduate. However, there are a couple of trade-offs against the subsidized variety.

The Advantages of the Unsubsidized Stafford

First, you can get a much higher borrowing limit on unsubsidized loans – up to $18,500 per year – less any other grant (including a subsidized Stafford loan) that you might be getting. Compare this with the subsidized loans, where you can get only up to $8500 per year.

Secondly, you get the option for Stafford loan deferment. Under this option, you may choose not to start your repayments while you're a student, and not till six months after graduation.

For and Against Stafford Loan Deferment

Stafford loan deferment is an effective measure against current hardship, specially if you expect your finances to improve considerably after graduation. The grace period of six months is a reasonable window for finding suitable employment.

However, before applying for Stafford loan deferment, always keep in mind that the interest shall continue to accrue during your period of deferment, and will place an extra burden on you when you start the repayment.