In-School Deferment: What It Means, Interest, and How to Apply

In-school deferment is an authorized pause on your federal student loan payments while you’re enrolled at least half-time in an eligible program. No monthly payment is due, no late fees accrue, and nothing negative hits your credit. The catch is what happens to interest: on subsidized loans the government covers it, but on unsubsidized and PLUS loans it keeps growing the whole time, and any months you spend in deferment don’t count toward Public Service Loan Forgiveness or income-driven repayment forgiveness.

What the Pause Actually Does

Deferment is tied to a specific qualifying event, in this case your enrollment, and it puts your loans into a recognized status where no payment is required.¹ That’s different from forbearance, which is typically granted for financial hardship and always charges interest on every loan type. With deferment, the government picks up the interest tab on certain loans while you’re paused.

You’re not skipping payments. You’re in a status the servicer recognizes, which is why deferment doesn’t damage your standing the way missed payments would.

Which Loans Are Covered

All the major federal student loans qualify: Direct Subsidized, Direct Unsubsidized, Direct PLUS, Federal Family Education Loan (FFEL) Program loans, and Federal Perkins Loans.² The Perkins program stopped issuing new loans after 2017, but if you still carry a Perkins balance you remain eligible.³

Private student loans are separate. There’s no federal requirement that private lenders offer in-school deferment. Some do, but the terms are set by your loan contract and are almost never as favorable as the federal version.⁴ If you hold private loans and are going back to school, call the lender.

Enrollment and School Requirements

The core rule is simple. You must be enrolled at least half-time at an eligible college, university, or career school. For standard credit-hour programs, half-time generally means at least six credit hours per term.⁵ Clock-hour and nonstandard-term programs measure half-time by workload, so check with your financial aid office if you’re in one of those formats.

Your school also has to participate in federal student aid programs. Most accredited U.S. institutions do. Some foreign schools qualify as “deferment-only” institutions if they’re legally authorized to provide postsecondary education in their country, offer at least a one-year program leading to a credential equivalent to a U.S. degree, and are public or nonprofit; the school has to apply to the Department of Education for that status.⁶ Confirm eligibility before you enroll abroad.

How Interest Behaves During the Pause

This is where the real money is, and the answer splits by loan type.

Subsidized Loans

On Direct Subsidized Loans, the federal government pays the interest that accrues during deferment. Your balance stays flat. What you owed going in is what you’ll owe coming out.⁷ The same applies to any remaining Federal Perkins balances.

Unsubsidized and PLUS Loans

On Direct Unsubsidized and Direct PLUS Loans, interest accrues from the day the loan is disbursed and keeps accruing through any deferment.⁷ Nobody covers it for you. You can pay it as it accrues, or you can let it accumulate.

Capitalization Is Where It Gets Expensive

Unpaid interest on unsubsidized loans gets added to your principal balance when deferment ends. That’s capitalization, and once interest becomes principal you start paying interest on the interest.¹

A concrete example. Owe $30,000 in unsubsidized loans at 6% and defer for three years without making payments, and roughly $5,400 in interest accrues. That capitalizes into a new principal of $35,400. Every future payment is then calculated on the higher balance. Over a standard 10-year repayment, capitalization like that can add thousands of dollars to the total cost.

Getting Into Deferment

It Usually Happens Automatically

In most cases you don’t have to do anything. When you enroll at least half-time, your school reports enrollment to the National Student Clearinghouse, which notifies your loan servicer, and the servicer places your loans in deferment.² Schools typically submit enrollment data monthly.

Watch the timing. Enrollment data may not reach your servicer immediately, and a payment can come due before the deferment posts. Keep making your regular payments until the servicer confirms the deferment is in place.⁸ Stopping early because you assume it’s active is how borrowers rack up missed payments.

Applying Manually

If the automatic process doesn’t trigger, submit an In-School Deferment Request form directly to your servicer. It requires your personal information and certification from an authorized school official confirming your enrollment status and expected completion date.⁹ Paper requests typically take about 10 business days; online submissions through some servicers can process within 24 hours.¹⁰

Backdating

If you were already enrolled but didn’t request deferment right away, you can apply retroactively. The deferment can be backdated up to six months before your lender receives your request and documentation.⁸ Payments you made during that eligible window can be credited back or applied to your balance.

You Don’t Have to Take It

Qualifying doesn’t mean you have to accept. If your school triggers an automatic deferment, you can call the servicer and cancel it to keep making payments.⁹ Opting out makes sense if you’re pursuing forgiveness and need qualifying payments to accumulate, if you want to avoid capitalization on unsubsidized loans, or if you can afford to keep shrinking the balance while in school.

When Deferment Ends

In-school deferment ends the day you graduate, withdraw, or drop below half-time enrollment.⁹ What happens next depends on your loan type.

Direct Subsidized and Unsubsidized Loans come with a six-month grace period after you leave school or fall below half-time. No payments are due during that window. If you re-enroll and later leave again, you still get the full six months; short enrollment breaks don’t use it up.⁸ Graduate or professional students with a Direct PLUS Loan get an additional six-month deferment period after ceasing half-time enrollment.²

Your school is required to provide exit counseling covering your total loan balance, repayment options, and servicer contact information. If you withdraw without the school knowing, it has to send counseling materials within 30 days of finding out.¹¹ Read it. That’s often the first place borrowers see the specifics of what they now owe.

Parent PLUS Works a Little Differently

Parent PLUS Loans first disbursed on or after July 1, 2008 can be deferred while the dependent student is enrolled at least half-time, and the parent can request an additional six-month deferment after the student graduates, withdraws, or drops below half-time.¹² Interest accrues throughout, because there’s no interest subsidy on any PLUS Loan.

The Forgiveness Trade-Off

Months in deferment don’t count toward loan forgiveness. Public Service Loan Forgiveness requires 120 qualifying monthly payments, and deferred months aren’t qualifying payments, so deferment pushes your forgiveness date out.¹³ The same is true for the 20- or 25-year income-driven repayment forgiveness clock.

If you’re working a PSLF-qualifying job while in school, the math often favors declining deferment and enrolling in an income-driven repayment plan instead. With low or no income, your IDR payment could be as low as $0, and those $0 months still count as qualifying payments toward forgiveness. The Department of Education does offer a PSLF Buyback option that lets borrowers retroactively pay for months lost to deferment or forbearance, but staying on IDR from the start is simpler and cheaper.¹⁴

Making Deferment Cheaper

If you’re carrying unsubsidized loans, pay the interest each month before it capitalizes. You don’t need to touch principal. Interest-only payments prevent capitalization entirely and keep your balance from growing.⁸ Ask your servicer to set that up.

Interest you pay on student loans is deductible up to $2,500 per year on your federal return.¹⁵ It’s above-the-line, so you don’t need to itemize. Capitalized interest that was added to your principal also qualifies, but only in years when you actually make loan payments.¹⁶ Your servicer reports eligible interest on Form 1098-E, including capitalized interest for loans made on or after September 1, 2004.¹⁷

1
Federal Student Aid. FAQ – Deferment and Forbearance
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Federal Student Aid. Loan Deferment
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FSA Partner Connect. Federal Perkins Loan Program Administrative Responsibilities and Reporting Requirements Through Eventual Wind-Down
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Consumer Financial Protection Bureau. Is Forbearance or Deferment Available for Private Student Loans?
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FSA Partner Connect. Enrollment Status Minimum Requirements
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FSA Partner Connect. Foreign School Frequently Asked Questions
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Federal Student Aid. Top 4 Questions: Direct Subsidized Loans vs. Direct Unsubsidized Loans
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FSA Partner Connect. Grace Periods, Deferment, and Forbearance in Detail
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FSA Partner Connect. Chapter 5 Forbearance and Deferment
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Nelnet – Federal Student Aid. FAQ – Deferment and Forbearance
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eCFR. 34 CFR 682.604 – Required Exit Counseling for Borrowers
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Federal Student Aid. Parent PLUS Borrower Deferment Request
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Federal Student Aid. Temporary Expanded Public Service Loan Forgiveness
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Federal Student Aid. Public Service Loan Forgiveness (PSLF) Buyback
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Internal Revenue Service. Topic No. 456, Student Loan Interest Deduction
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Internal Revenue Service. Publication 970, Tax Benefits for Education
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Internal Revenue Service. 2026 Instructions for Forms 1098-E and 1098-T