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Deferment vs. Forbearance for Student Loans

tl;dr

What You Need To Know

  • Deferment and forbearance pause your student loan payments
  • These are temporary solutions, but deferment usually lasts longer than forbearance
  • The total amount owed continues to grow during forbearance and on unsubsidized loans during deferment

Contents

Show of hands if paying off your student loans is hard. 👋 👋 👋

In Q2 of 2021, out of the more than 42 million student loan borrowers, 26.6 million student loan recipients were in forbearance or deferment.

So don’t beat yourself up if you’re struggling. Understanding the difference between deferment versus forbearance will help you figure out which temporary student loan relief option could work for you.

Round One: Deferment vs. Forbearance

When it comes to the differences between deferment and forbearance, one of the biggest is interest accruals.

Interest always grows during forbearance. And forbearance is also harder to renew.

However, with deferment, interest won’t accumulate on some types of student loans.

Here’s a breakdown of the key differences and similarities between deferment and forbearance.

DefermentForbearance
Interest?No – on federally subsidized loans

Yes – for unsubsidized loans
Yes
Do Payments Pause?YesYes
Length of Time?Up to 3 years12 months, with possible renewals up to a maximum of 3 years
Types?In-school deferment

In-school parent deferment

Other deferment types categorized by type of hardship, service or qualifying group

Deferments for FFEL Programs or Direct loans pre-dating July 1, 1993
General or discretionary federal student loan forbearance

Mandatory federal student loan forbearance

Private student loan forbearance
Does Interest Accrue?Yes – on unsubsidized and private loans

N/A – for federal subsidized loans
Yes
Application Process?Online form or phone application with your loan servicerOnline form or phone application with your loan servicer
Who is Eligible?Students who are not in default and meet the various qualifications of their federal or private service lendersStudents who are not in default and meet the various qualifications of their federal or private service lenders
Credit Requirements?No. And has no impact on credit scoreNo. And has no impact on credit score

Round Two: Loan Deferment vs. Forbearance: Which Is Best for You?

Most federal student loans have an automatic grace period. It starts when you’re done with college or significantly reduce your classes. You typically have 6 months after either situation to start repaying your loan.

But that may not be enough time to find a job that pays enough to support you while also repaying your loans. Plus, life is unpredictable. People get injured, get sick, lose jobs and change careers.

These and other life events can cause financial problems that make student loan payments unaffordable. So you may need to extend that grace period with deferment or forbearance. Psst, need to know more about student loan grace periods? We got you.

Why you should pick deferment

Deferment may be a suitable option for the following eligibility situations if you:

  • Have a federally subsidized student loan or Perkins loan: They don’t accrue interest
  • Can’t find a job: If you can’t find full-time employment, student loan deferment lasts for 3 years
  • Are still enrolled in school less than part time and the grace period expired: A qualifying factor
  • Are an active-duty service member: Deferment applies to active duty National Guard, Armed Forces Reserves and retired members called to active duty at the time, or 6 months prior to the time, of school enrollment
  • Are in rehab: Eligible if enrolled in an approved rehabilitation training program for vocational skills, drug abuse, mental health or alcohol abuse treatment
  • Are a graduate fellow: Eligible if enrolled in an approved graduate fellowship program
  • Have a temporary financial hardship that will last no longer than 3 years: Deferment is best when you need a long-term break

Why You Should Pick Forbearance

There could be times or certain conditions that make deferment the wrong option and forbearance the way to go, like you:

  • Don’t qualify for deferment
  • Are in danger of default: Missing consecutive months of federal student loan payments because you didn’t get necessary temporary relief can put you at risk of having your wages garnished
  • Are in wage garnishment: Can be eased by a pause thanks to the COVID CARES Act
  • Are temporarily unemployed: A financial challenge that you hope is temporary but could last longer
  • Have a medical emergency: Such as having emergency surgery or paying off the bill
  • Qualify for mandatory forbearance: Possible after providing your student loan servicer with documents that prove that you meet the forbearance requirements

Are experiencing economic problems that should resolve within 12 months: Forbearance is best when you need to take a short-term break

What Do You Need To Qualify For Student Loan Deferment?

Reach out to your lender or log into your online student loan account to learn what’s available and how to qualify for student loan deferment. Proof of military deployment or a job termination letter are some examples of documentation you may need to provide.

If you have a private student loan, deferment qualifications can be more difficult than they are with federal loans.

What Do You Need To Qualify For Student Loan Forbearance?

Borrowers experiencing financial hardship can request a general forbearance from their loan servicer by doing the following:

  1. Gather qualifying criteria, such as unemployment and medical expenses.
  2. Complete an online form or call your lender to apply.
  3. If you qualify for mandatory forbearance, you must prove your eligibility.

Before picking a lender to start the process, know that private lender forbearance eligibility varies. Contact your lender for details.

Round Three: Student Loan Deferment vs. Forbearance vs. Income-Driven Repayment

Deferment and forbearance options address short-term financial problems and temporary life events that impact your ability to repay. Income-driven repayment plans (IDRs) are repayment solutions with different options designed for longer-term financial situations.

IDR plans set payments based on your income rather than on a timeline. Qualifying borrowers can earn student loan forgiveness after 20 years. In some cases, the payment amount will drop to zero. This effectively pauses your loan until your income increases, but you have to give in a new application each year with proof of income to qualify.

Overcome Student Loan Stress

Dealing with student loans when you can’t afford them is stressful. But don’t avoid or ignore the problem–that will only make things worse. Fortunately, there are various student debt relief options. Check out our MoneyTips Guide to Paying Off Student Loans for more ideas if you’re struggling to make payments.

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In Case You Missed It

Take-aways

  1. Interest is capitalized during forbearance. Even with lower interest rates, that can be a big hit in the long run
  2. When seeking eventual loan forgiveness, understand that deferment and forbearance periods don’t count toward qualifying time
  3. While your loan is in deferment or forbearance, continue paying on the interest if you can. That way, your loan doesn’t increase as much as it could during the non-payment period

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