Deferment vs. Forbearance

Struggling to keep up with your student loan payments and not sure where to turn? Whether you're considering deferment or forbearance, understanding the ins and outs of each can help you make the best decision for your financial future. Let's dive into what these options entail and how they differ.

Key takeaways

• Deferment may pause your student loan payments without accruing interest on subsidized loans
• Forbearance pauses your payments, but still allows your loans to accrue interest, increasing your total amount owed
• Deferment is generally the better option if you qualify, especially for subsidized loans

Understanding deferment and forbearance

Feeling overwhelmed with loan jargon? Let's break down what deferment and forbearance actually mean.

What is deferment?

Deferment is a temporary pause on your student loan payments. During this period, you might not have to pay interest on certain types of federal loans, like Direct Subsidized Loans or Perkins Loans. That means your loan balance doesn't grow while you're taking a breather.

TuitionHero Tip

Did you know you can qualify for an automatic deferment if you're enrolled in school at least half-time? You’ll need to apply to qualify for other types of deferment, however, including pauses related to unemployment, military service, or economic hardship.

What is forbearance?

Forbearance also allows you to temporarily stop making payments or reduce your monthly amount. However, interest accrues on all types of loans during forbearance—even subsidized ones.

This can lead to a larger balance when you resume payments. What’s more, this interest will be capitalized (added to your principal balance) when forbearance ends, potentially increasing future interest charges.

TuitionHero Tip

During the COVID-19 pandemic, federal student loan payments were automatically paused for over three years. This unprecedented move gave many borrowers a taste of deferment and forbearance relief without having to apply.

Key differences between deferment and forbearance

Understanding the nuances between deferment and forbearance is crucial for making an informed decision.

Interest accrual

• Deferment: For specific federal loans, interest does not accumulate during deferment. If you have a Direct Subsidized Loan, you won't owe more than you borrowed when deferment ends. Interest will accrue, however, on unsubsidized and PLUS loans.
• Forbearance: Interest piles up on all loan types during forbearance. When the period ends, that interest may capitalize, adding to your principal balance.

Qualification requirements

• Deferment: You must meet certain criteria, such as being enrolled in school at least half-time, facing unemployment, or serving on active military duty. If you qualify, your loan servicer must grant the deferment.
• Forbearance: Qualification is generally more flexible but can be at your loan servicer's discretion. Reasons may include financial hardship or medical expenses. There are also mandatory forbearances for specific situations, like serving in AmeriCorps.

Length of relief

• Deferment: Duration varies but can last from one month to three years, depending on your situation. In most cases, automatic in-school deferment will last as long as you are enrolled at least half-time.
• Forbearance: Typically granted for up to 12 months at a time. General forbearance has a cumulative limit of three years, but mandatory forbearance has no maximum as long as you qualify.

Application process

• Deferment: Requires submitting the appropriate deferment form along with supporting documentation to your loan servicer. Be prepared to provide proof of your eligibility.
• Forbearance: Easier to apply for, sometimes even over the phone. Generally involves a single form and less documentation.

Impact on your credit

Neither deferment nor forbearance directly affects your credit score. However, these statuses will appear on your credit report, showing that you're meeting your obligations. If you think you won’t be able to make your payments, don’t just stop making payments without reaching out to your lender, as this will affect your credit negatively.

TuitionHero Tip

Fun fact: Some private lenders offer unique hardship programs, so it's worth asking even if they don't advertise them. Learn more about private student loan repayment terms.

Which option is best for you?

Choosing between deferment and forbearance depends on your specific circumstances.

When to choose deferment

If you qualify for deferment—especially with Subsidized Federal loans—it's usually the better option. Since interest doesn't accrue on certain loans, you can pause payments without increasing your debt.

When to choose forbearance

If you don't meet deferment criteria but need temporary relief, forbearance is available. Keep in mind that interest will continue to accrue, so it's best used when you expect your financial hardship to be short-term.

Alternatives to deferment and forbearance

If neither deferment nor forbearance seems like the right fit, consider other options.

Income-driven repayment plans

These plans adjust your monthly payments based on your income and family size, potentially lowering your payments and extending your loan term.

• Pros: Keeps you on track with payments and counts toward loan forgiveness programs.
• Cons: Extends repayment period, possibly increasing total interest paid.

Loan consolidation or refinancing

Combining multiple loans into one may lower your interest rate or monthly payment.

• Pros: Simplifies payments and potentially lowers your overall interest rate.
• Cons: May lose federal loan benefits and requires good credit for attractive refinancing rates.

Learn more about loan consolidation vs. refinancing.

Steps to apply for deferment or forbearance

Applying for deferment

1. Determine your eligibility: Check if you meet the criteria for deferment.
2. Gather documentation: Collect required proof, such as enrollment verification or unemployment benefits statements.
3. Submit the deferment form: Complete and send the necessary forms to your loan servicer.
4. Continue making payments: Until your deferment is approved, keep up with your payments to avoid delinquency.

Applying for forbearance

1. Contact your loan servicer: Explain your financial situation.
2. Complete the forbearance request: Some servicers allow you to apply over the phone.
3. Confirm approval: Ensure that your request has been processed to avoid missed payments.

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Why trust TuitionHero

TuitionHero unpacks the differences between deferment and forbearance, helping you choose the best option for managing student loan payments during financial challenges. Understand interest accrual, eligibility, and alternative repayment strategies for smarter financial planning.

Frequently asked questions (FAQ)

Can I switch from deferment to forbearance if my situation changes?

Yes, you can switch between deferment and forbearance if your eligibility changes. Always communicate with your loan servicer to adjust your repayment plan accordingly.

Does interest capitalize during deferment and forbearance?

Interest capitalizes during forbearance and on unsubsidized loans in deferment. This means accrued interest is added to your principal balance when your payment pause ends, increasing the total amount you owe.

Are there alternatives to deferment and forbearance?

Absolutely! Income-driven repayment plans can adjust your monthly payments based on your income, potentially offering a more sustainable long-term solution.

How do deferment and forbearance affect loan forgiveness programs?

Periods of deferment and forbearance might not count toward loan forgiveness criteria, like Public Service Loan Forgiveness, though there are some exceptions.

Can private student loans be deferred or put into forbearance?

Some private lenders offer deferment or forbearance options, but they aren't required to. Check with your specific lender to see what's available.

Final thoughts

Whether deferment or forbearance is right for you depends on your loan type and financial situation. Don't hesitate to reach out to your loan servicer—they're there to help you find the best solution.

Source

• Bankrate - Deferment or forbearance: Which is better for student loans?
• Investopedia - Student Loan Forbearance vs. Deferment: What's the Difference?
• NerdWallet - Student Loan Deferment and Forbearance: What to Know
• Thrivent - How to Decide if Deferment or Forbearance of Student Loans is Right for You
• LendingTree - Student Loan Deferment and Forbearance