Student loan deferment and forbearance both permit you to pause your loan payments. But there are several variations in how each program works, including who's eligible, whether interest accrues, how long you are able to postpone payments and more.
If you are seeking some respite from your education loan payments, this is what you need to know regarding your deferment and forbearance options.
What Is Student Loan Deferment?
Deferment can pause your payments for a variety of reasons. For those who have federal student education loans, you might be able to be eligible for a education loan deferment if:
- You're going back to school.
- You're on and have recently returned from active duty military service.
- You're unemployed.
- You've signed up for an approved rehabilitation program.
- You're undergoing cancer treatment.
- You're enrolled in an approved graduate fellowship program.
- You're serving within the Peace Corps.
- You're experiencing financial hardship.
- You're a parent or gaurdian who got Parent PLUS Loans, as well as your child is still in class.
The duration of your deferment can vary depending on why you qualify.
In contrast, private lenders may only offer deferment if you are returning to school, but that is not the case with all of lenders. Here are some benefits and drawbacks of student loan deferment to consider.
Pros
- Interest might be subsidized: If you have federal subsidized loans or Perkins Loans, the federal government will pick up the tab on any interest that accrues on your deferment period.
- Can protect your credit: If you're concerned about falling behind on payments or you're already behind, making a deferment plan will keep you against missing more payments or perhaps defaulting on your loans. The deferment itself won't impact your credit rating.
- Can give you a breather: Not having to pay has given can free up some money to cover other essential expenses and give you serious amounts of get back on your feet financially.
Cons
- Interest may accrue: If you haven't any of the loans mentioned above, interest will continue to accrue in your loans on your deferment period. At the end of the time, the lending company or loan servicer will capitalize the interest and add it to your balance, which will increase your monthly payment and total costs. This can be avoided by making interest-only payments during the deferment period.
- Short-term solution: Depending on why you're requesting deferment, you might only get a couple of months to get your finances so as. Even with longer-term deferment plans, it can be hard revisit your regular repayment plan.
- No guarantee of approval: Depending in your reason for requesting deferment, you might not qualify. And when you have private loans, your lender may not even offer it as being a choice.
How to Sign Up
For those who have federal student loans, you'll submit your request directly to the loan servicer while using correct form for your situation.
If you have private student loans, contact your lender to find out if deferment is definitely an option and just what the application process looks like.
What Is Education loan Forbearance?
Like deferment, student loan forbearance can pause your monthly obligations for various reasons. There's two types of federal student loan forbearance: mandatory and general.
With mandatory forbearance, the loan servicer is needed to give you forbearance should you request it. This is applicable if you meet certain criteria for an additional situations:
- You're serving in AmeriCorps.
- You're entitled to partial repayment of your loans with the U.S. Department of Defense Student Loan Repayment Program.
- You're inside a medical or dental internship or residency program.
- You're part of the nation's Guard who's been activated from your governor but aren't entitled to military deferment.
- You're an instructor whose service qualifies for the Teacher Loan Forgiveness Program.
- Your payment per month is much more than 20% of your gross monthly income.
General forbearance can also be referred to as “discretionary forbearance” because it's at the loan servicer's discretion whether or not to approve your application. You might apply for this option if you are experiencing financial difficulties, have medical expenses, have had a current alternation in employment or every other reason why the loan servicer accepts.
Regardless of the type of forbearance you request, it can only be granted for up to Twelve months at any given time. Terms and eligibility requirements can vary from lender to lender, and if you've private student loans, your lender may or may not offer forbearance whatsoever.
Pros
- Protect your credit: As with deferment, forbearance can provide you with a rest on payments without negatively impacting your credit rating.
- Help you get back on track: If you're struggling financially, forbearance can relieve some of the pressure in your budget, giving you time to get back on the feet financially.
Cons
- Interest accrues: Regardless of the kind of loans you have, interest continues to accrue and be capitalized after your forbearance period unless you make interest-only payments during the forbearance period.
- Temporary solution: While you will get up to 12 months of forbearance at a time with federal loans, that won't be sufficient time for you to help you get back on track. If you have private student loans and your lender offers forbearance, you might only obtain a couple of months at a time. Make sure to get ready for payments to resume after your forbearance period has ended.
- May not be eligible: Unless you be eligible for a mandatory federal forbearance, the loan servicer reaches decide whether you're eligible. And if you have private student loans, your lender may not even offer forbearance being an option.
How to Sign Up
If you have federal student education loans, evaluate the forbearance applications and choose the one that best suits your circumstances, then send it in to your loan servicer.
If your loans are private, speak to your lender straight to inquire about your choices and how to apply for relief.
When to select Deferment vs. Forbearance
For the most part, your choice will be based on your reasons for needing respite from your monthly payments. With federal loans, there are specific types of deferment and forbearance, so you will want to review each one of these and make an application for the one that fits your situation.
If you have subsidized loans or Perkins Loans and may qualify for either deferment or forbearance, consider choosing deferment so you can avoid having interest accrue in your loans.
If you have private student education loans, you may be limited based on what your lender offers. Call and speak with a customer support representative to obtain an idea of what's available and which choice is best for your needs.
Alternatives to Deferment and Forbearance
Every situation is different, but it is always a good idea to research all of your choices to determine the very best course of action. Some potential alternatives to both deferment and forbearance include:
- Income-driven repayment plans: For longer-term relief on federal loans, you may make an application for an income-driven repayment plan. These plans lower your payment per month to 10% to 20% of your discretionary income and extend your term to 20 or 25 years. Once your repayment period has ended, any remaining balance will be forgiven.
- Student loan refinancing: Refinancing federal student education loans having a private lender may not be the best move if you would like access to better relief programs later on. But if you've private loans, you can refinance them with another lender that provides better relief options or can provide you with an extended repayment term, producing a lower payment.
- Budgeting: Depending in your situation, you might be better suited to afford your student loan payments by scrutinizing your budget and making some adjustments. Take a look at your expenses and look for regions of discretionary spending where you can cut back and reallocate those funds toward your student loans.
- Picking up a side gig: If you've tried everything and still can't quite find enough money to pay for has given, consider taking on a side gig. Even driving for a rideshare app a few nights per month or pet sitting throughout the summers can give you the extra boost you have to be sure that your payments get made on time.
Focus on Protecting Your Credit Score
It doesn't matter how you decide to handle has given, it's crucial that you prioritize protecting your credit score from late payments and default. Deferment and forbearance can do that, but consider other options to avoid missing payments.
Also, consider using Experian's free credit monitoring service to track your credit score and Experian credit report, so that you can observe how your actions impact your credit over time.