Do Deferred Student Loans Affect Your Credit Score?

Deferment gives you a temporary reprieve from student loan payments. Your loans are usually automatically deferred while you’re in school. You can also request additional periods of deferment when you enter repayment—if you’re on active duty or unemployed, for example.

While this break can benefit your budget, it may impact your credit. Keep reading to find out how.

Do deferred student loans affect your credit score?

Deferred student loans are reported to the credit bureaus, so you’ll see them on your credit report. How deferred loans affect your credit is complex, and the impact isn’t positive or negative. The table below shows how deferment can influence your score.

Impact	Boosts or reduces score?
Increases credit utilization	Reduces
Adds to credit mix	Boosts
Contributes to avg. age of accounts	Boosts
Contributes to new accounts, if recent loans	Reduces

Student loan deferment can be a useful tool for managing your educational debt. After all, it doesn’t hurt your score like late payments would. Depending on how long ago you opened your loans, deferment could even help increase the length of your credit history.

However, deferred payments still count toward your overall debt obligation. This can elevate both of the following measures:

• Your credit utilization, or the amount of debt you carry relative to your credit limits
• Your DTI, which compares your monthly debt obligations to your monthly income 

You want your credit utilization and DTI to be as low as possible. While your loans are in deferment, you’re somewhat limited in how low those measures can be. This won’t necessarily damage your score, but it can make seeing the credit score gains you’re likely hoping for more difficult.

How are credit scores calculated?

Credit scores are composed of several factors. Some factors weigh more heavily on your score than others. Here’s an overview of what goes into your credit score, in order of importance:

Factor	Weight	What it is
Payment history	35%	How often do you pay your debts as agreed
Credit utilization	30%	How much you owe compared to available credit
Age of accounts	15%	Avg. number of years you’ve had a credit history
Credit mix	10%	How many different types of debt you have (such as loans and credit cards)
New credit	10%	Any recent hard inquiries or freshly opened accounts

Remember that deferred student loans are part of your cumulative debt balance. This balance directly correlates to your credit utilization, which makes up nearly a third of your credit score.

Carrying large amounts of debt—even if that debt is deferred—can drag down your score. It can also jeopardize your ability to qualify for mortgages and other forms of financing. 

Conversely, paying off that debt can help build a positive payment history and demonstrate responsible money management.

Pros and cons of deferring student loans

Pros

• You can put money toward other expenses.

  Not having to pay your student loans can free up much-needed funds. You’ll have more control over where your money goes, be it to back rent, auto repairs, or the emergency fund you’ve been meaning to start.

• You can prioritize higher-interest debt.

  Deferment gives you financial space to focus on debt with higher APRs. Not only can this result in significant interest savings, but it’ll also reduce your credit utilization and DTI. It can also make student loan repayment more feasible once your deferment ends.

• You can still work toward loan repayment

  Deferment means you don’t have to pay on your loans, not that you can’t. While your loans are deferred, you still can reduce your loan balance by as much or as little as you like.

• You could avoid late payments or going into default

  If your choices are deferment or default, deferment is the clear winner. While deferment can increase your balance and lengthen your loan term, it’s far less damaging than a default on your credit report.

Cons

• Interest may still accrue on your loan.

  Most private and federal loans generate interest even when no payments are due. That accrued interest increases the size of your debt. The result? Your loans become more expensive, and it’ll take longer to pay them off.

• You won’t make progress toward loan forgiveness.

  Among other requirements, you generally need to make 120 to 300 qualifying payments to receive loan forgiveness. Unless you’re in AmeriCorps or the Peace Corps, deferment periods won’t count toward that threshold.

How to manage deferred student loans

Deferment can be the perfect opportunity to tackle credit issues you otherwise couldn’t afford to address. You don’t want to neglect your student loans, however. Here are a few tips you can use to stay on top of both obligations:

• Monitor your credit: You can pull your credit reports every week for free, and your credit card issuer may provide no-cost score monitoring. Check your reports for errors, and track your score over time to monitor your progress.
• Pay your debts on time: The best way to raise your credit score is to keep your accounts current and your balances low. Making timely payments can help you do both.
• Catch up on past-due payments: If you’ve fallen behind on any loans or credit cards, use your deferment period to catch up. The sooner you get back on track, the sooner your payment history can rebound.
• Make extra payments: As you can, try to pay more than the minimum due on your outstanding debts. This can help reduce your credit utilization, DTI, and interest expense.
• Save your deferment end date as a calendar reminder in your phone: You’ll avoid being caught off guard when your payments resume.

Before your deferment window closes, you should also set aside time to talk to your loan servicer. Get an idea of how much your payments will be, and start tucking away those funds now. 

That way, you can enter repayment knowing you’ve made solid strides toward improving your credit—and that you’re prepared to charge full speed ahead at your student loan debt.

One of the biggest elements of financial planning is to create flexibility in your financial plan. By deferring loans, you can select the most appropriate use of your money.

Micheal Menninger

CFP®

Alternatives to deferment

Deferment can offer temporary relief, but other solutions may better suit your needs. Here’s a look at forbearance, income-driven repayment plans, and refinancing as viable alternatives to deferment.

Forbearance

Forbearance allows you to postpone or reduce student loan payments, similar to deferment. However, the most significant difference between deferment vs. forbearance for student loans is in interest accrual. Some federal loans don’t accrue interest in deferment. But in forbearance, interest always accrues, even on Direct Subsidized Loans.

The benefit of forbearance is its flexibility; it can be easier to qualify for than deferment. The primary drawback is the significant interest buildup, which can increase your total repayment amount. If you’re considering deferment due to financial struggles, forbearance might be an easier—but more expensive—solution.

Income-driven repayment plans

Income-driven repayment (IDR) plans adjust your monthly payments based on your income and family size, potentially lowering your payments if you demonstrate financial hardship. Unlike deferment, these plans often require you to make payments.

Tip

Borrowers with low incomes may qualify for monthly payments of $0 with certain IDR plans. Check out the federal Loan Simulator to see what your IDR payments could look like.

The primary benefit is that interest accumulation is more predictable, and these plans can lead to loan forgiveness after 20 to 25 years. However, income-driven plans require annual income verification and may extend your repayment period. This is a longer-term strategy compared to the temporary relief of deferment.

Refinance

Refinancing involves taking out a new loan with a private lender to pay off your student loans, potentially at a lower interest rate. Unlike deferment, you won’t postpone your payments, but you may secure a lower monthly payment through a more favorable interest rate.

The advantage of refinancing is the potential for significant interest savings over the life of the loan. The downside if you have federal loans losing federal loan protections, such as deferment options, income-driven plans, and loan forgiveness. 

Refinancing suits individuals in stable financial situations looking to reduce long-term interest costs, unlike deferment, which caters to short-term financial relief.