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In June 2010, my financial life was in turmoil. My husband had accepted a job in another state, and we were expecting our first child. To make matters more complicated, it took us nearly a year to sell our old house, so we ended up paying two mortgages at once for quite some time.
It didn’t take us long to realize that we needed to hit the pause button on our monthly student loan payments. We compared deferment versus forbearance as potential repayment options. Thankfully, we qualified for student loan forbearance, which gave us the breathing room we needed until our financial situation stabilized.
If you’re facing similar economic turmoil, you might be wondering if you should pursue student loan forbearance or deferment. Or, maybe you’re wondering what the differences are between deferment versus forbearance.
For a comparative breakdown of forbearance versus deferment, including what kinds of loans qualify for each option and which one might be right for you, let’s look at these four topics:
Qualifying loans for deferment vs. forbearance
The first thing to remember is that deferment and forbearance are both available for federal student loans. Federal student loans come in many forms, such as Staffordloans and PLUS loans. Although the Perkins loan program ended in September 2017, older Perkins loans are still eligible for forbearance and deferment.
To qualify for deferment or forbearance, you cannot be in default on your federal student loans.
|Administrative forbearance on federal loans during the coronavirus pandemic|
|Only federal direct loans (not Perkins or federal family education loans) were eligible for the student loan interest freeze brought on by the COVID-19 crisis. For millions of these borrowers, payments were paused without penalty and interest rates temporarily fell to zero. The moratorium began in March 2020 and was slated to expire in September 2021. After its expiration, federal loan borrowers of all stripes could still access standard deferment and forbearance options.|
If you have private student loans, you may not be eligible for either deferment or forbearance, though some lenders do offer these safety nets.
Characteristics of deferment vs. forbearance for federal student loans
Deferment and forbearance are two different repayment processes. They are similar in that both options allow you to postpone your monthly federal student loan payments.
But they are different in some very important ways, so bear in mind when comparing deferment versus forbearance.
When you defer payments, you postpone your monthly dues on subsidized federal loans without accruing interest. You also don’t have to pay interest on the subsidized portion of direct consolidation loans or FFEL consolidation loans during deferment.
If you have unsubsidized loans, a deferment allows you to postpone payments, but the interest will still accrue on your loans during the deferment period. You may pay the interest during your deferment period in order to avoid having it capitalized (added to your principal), but you aren’t required to do so.
Borrowers may be eligible for deferment under the following circumstances:
- You are enrolled at least half-time in an eligible postsecondary school.
- You are enrolled in an approved graduate program.
- You are enrolled in an approved rehabilitation training program.
- You are unemployed or unable to find full-time employment. This type of deferment is limited to three years.
- You are experiencing economic hardship, as defined by federal regulations. This includes receiving federal public assistance benefits (such as food stamps), or if your monthly income does not exceed the larger of the federal minimum wage rate or 150% of the poverty line income for your family size and state. This type of deferment is also limited to three years. Peace Corps service is covered by this circumstance.
- You are currently on active duty with the military, or you have been on active duty with the military within the last 13 months.
- You are currently undergoing cancer treatment.
To receive a deferment, you must apply directly to your loan servicer. For information on how to contact your loan servicer, you can access the StudentAid.gov website. Deferments are typically granted in six-month increments.
If you believe you are eligible for deferment, use our student loan deferment calculator below to calculate how much interest you’ll accrue by deferring your student loans.
Student Loan Deferment Calculator
Forbearance may be an option for borrowers who don’t qualify for deferment. When your loans go on forbearance, you may pause student loan payments, usually for around 12 months. However, interest will accrue on your loans, whether they are subsidized or unsubsidized. That accrued interest will be capitalized unless you pay the interest during the forbearance period.
There are some situations where forbearance is mandatory, meaning your loan servicer is required to offer you forbearance.
Mandatory forbearance may be available in the following circumstances:
- You are serving in a medical or dental internship or residency program.
- Your total student loan payment each month is equal to 20% or more of your total monthly gross income.
- You are serving in a national service position through Americorps.
- You are eligible for teacher loan forgiveness.
- You are eligible for the U.S. Department of Defense Student Loan Repayment Program.
- You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
If none of these circumstances apply to you, you may be eligible for a general, or discretionary, forbearance. Those are granted at your lender’s discretion, based upon reasons such as the borrower’s financial hardship, medical expenses or a change in work situation.
In our case, my husband and I qualified for a discretionary forbearance based upon financial hardship since I was unemployed by choice (and because of the timing of my son’s birth), rather than due to an inability to find full-time work.
How to apply for deferment vs. forbearance for federal loans
When you’re looking to pause your payments through either deferment or forbearance, even if the reason is a mandatory one, you’ll still have to apply for either option through your student loan servicer. The process is rarely automatic.
You may also be required to submit documentation to support your request and demonstrate that you meet the eligibility requirements. When my husband and I requested forbearance, we needed to provide documents showing that we were paying two mortgages at one time in order to prove that we were experiencing financial hardship.
Once you’ve submitted your request for deferment or forbearance, you’ll need to continue paying your monthly student loan payments until you hear that your request has been granted. If you fail to make payments and your deferment or forbearance request is denied, you’ll be considered delinquent and risk defaulting on your loan.
What to consider before applying for deferment or forbearance
While applying for student loan deferment or forbearance can be a viable option for many people, it may not always be the right solution for your individual situation. Here are some questions to ask yourself before making this decision.
- Is my current financial situation temporary? Something like a job loss or long-term illness can undoubtedly make your financial future unpredictable. But if you’re confident you’ll get things under control within a certain time frame, then deferment or forbearance could be a good option for you.
- Do I qualify for deferment or forbearance? Before making the decision to pursue either repayment option, you’ll need to make sure you meet the specific criteria required to qualify. As previously mentioned, factors such as the type of loan, your specific financial hardship and other circumstances will be considered.
- Is postponing my student loan payments an absolute must? If you can find a way to simply restructure your budget and/or adjust your current repayment schedule, it could be a much simpler way to get a handle on your student loan debt than applying for deferment or forbearance.
If you do decide to apply, understanding the differences between deferment versus forbearance is an important part of being an informed borrower.
|How long does it last?||From six months to three years, depending on the deferment type||Maximum 12 months at a time|
|Will interest pile up?||No (for subsidized loans), yes (for unsubsidized)||Yes|
|Will it affect my credit?||No||No|
Whether or not you’re currently facing an economic hurdle, the ability to pause student loan payments is one of the biggest perks of federal student loans. Make sure you know all your options so you can be ready if you ever need to take a break from making your student loan payments.
This report was originally published Dec. 20, 2016. Andrew Penitis and Emilia Benton contributed to this report.
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