Student Loan Deferment vs Forbearance & Other OptionsJune 11, 2018
Updated December 2, 2020
When you graduate from college with student loan debt, you typically have a 6-month grace period before you have to start paying off your loans. There’s no guarantee, however, that after your grace period ends, you’ll be in a good financial position to begin the student loan repayment process. In these situations, you may be able to request loan deferment or forbearance to make your payments more manageable or delay them altogether.
Both federal and private student loan programs offer deferment and forbearance options. These options provide you with temporary relief from your burdensome monthly payments, and they may seem like a good option to avoid delinquency or default. Think again.
Not making payments during your deferment and forbearance periods results in the capitalization of the interest you owe, meaning your loan principal will subsequently increase. After that, not only will your monthly payments have ballooned, but you’ll owe even more in interest than before.
What is Student Loan Deferment?
Student loan deferment allows you to temporarily postpone or stop making student loan payments. Before signing on the dotted line, however, be sure you fully understand the terms of your deferment. In some cases, the interest may be covered during deferment, while in others, you will be responsible for paying the accrued interest.
For Federal Subsidized Stafford Loans and Federal Perkins Loans, the government will pay interest during the deferment period, while they will not with Federal Unsubsidized Stafford Loans. Also, parents are responsible for paying interest on Federal PLUS Loans while in deferment.
It’s also important to familiarize yourself with the length of your deferment. Some deferments, for example, the Economic Hardship Deferment, can last up to three years.
Here are a few reasons a person may qualify for student loan deferment:
- Experiencing unemployment
- Economic hardship
- Student enrollment
- Graduate fellowships
- Rehabilitation training
Federal Student Loan Deferment Types
In order to qualify for student loan deferment, you must have experienced a qualifying event. These include changes to your student or financial status which may make repayment difficult, including:
- Enrollment in a qualifying college, career or graduate program
- Participation in a rehabilitation program
- Receiving unemployment benefits
- Actively serving in the military
- Experiencing a qualifying economic hardship
- Undergoing cancer treatment
- Parent PLUS Loan Deferment: Child’s enrollment or re-enrollment in an eligible college or career program
What is Student Loan Forbearance?
In the case that you don’t qualify for a deferment, you may have to request a forbearance on your student loans. When in forbearance, you can either make reduced payments or no payments at all for a limited period of time. In almost all forbearance cases you will be responsible for the interest that accrues on your student loan balance.
As with deferments, you must continue to make your monthly payments until the request for forbearance is approved by your loan servicer. Going into forbearance will not cancel out or erase any missed payments you have, so if you are in need of forbearance, it may be better to request it quickly to avoid a negative impact on your credit score.
The two types of forbearances are general and mandatory. While your loan servicer is not required to grant you a general forbearance, you can request one if you are unable to make your student loan payments for reasons outside of your control. You may qualify for a general forbearance if you’ve experienced major medical expenses, job loss or significant financial difficulties.
For mandatory forbearances, if you meet the eligibility criteria for the forbearance, your loan servicer is required to grant the forbearance. You can request a mandatory forbearance if:
- You’re serving with Americorps, in a medical or dental internship or residency, or are an activated member of the National Guard
- You’re eligible for partial loan repayment through the U.S. Department of Defense
- You qualify for teacher loan forgiveness
- Your loan payment exceeds 20% of your total income
Deferment vs Forbearance
While student loan deferment and forbearance sound similar, they are different in a few key ways:
|Length||Deferment may last for several years, depending on the type||Forbearances generally have a maximum of 12 months|
|Interest||Loans generally continue to accrue interest, but will not always||Loans always continue to accrue interest during forbearance|
|Qualifying Event||Required||Not required|
|Lender Requirements||If you meet the requirements, your lender is often required to approve a deferment request||Lenders are not normally required to approve general forbearance requests, but they may be required to approve some mandatory forbearance requests|
|Application||You must apply with your lender for the type of deferment you seek||You can submit a general forbearance application or call your lender with a request|
Despite their differences, however, it’s important to note that neither student loan deferment or forbearance will impact your credit score. You can use the above chart to determine which may be a better fit for your needs.
Alternatives to Student Loan Deferment & Forbearance
If you’re interested in decreasing your monthly student loan payment, but you aren’t sure about deferment or forbearance, you can explore a few different options:
If you have federal student loans, you may be eligible for an income-driven repayment program. These programs only require you to pay a percentage of your total income, but will increase the total length of your repayment and the amount of interest you’ll pay over time.
Student Loan Consolidation
If you’re struggling to keep track of many different student loan payments, then student loan consolidation may be a good choice for you.
When you consolidate your federal student loans, you’ll roll all your loans into one, and will pay the weighted average of all your interest rates, rounded up to the nearest one-eighth percent. While this may simplify your repayment schedule, however, it often will not save you money on interest.
Student Loan Refinancing
Student loan refinancing is a best-of-both-worlds approach that may enable you to both lower your monthly student loan payment and save money on interest.
When you refinance your student loans with a private lender, your new lender will purchase the loan from your former lender. The new lender will offer you an entirely new interest rate based primarily on your credit score and debt-to-income ratio.
Refinancing with a trustworthy lender like ELFI will also ensure you’ll receive top-notch customer service throughout the refinancing process.
Deferment or Forbearance: Which Is Right For You?
If you need a reprieve from student loan payments, then consider whether deferment or forbearance may be right for you. Be careful, though, not to choose an option that could skyrocket your interest costs in the process.
Even if you’re unsure about deferment and forbearance, you can explore several options to simplify your repayment experience.
Student loan refinancing could offer you the option to both lower your interest rate and your monthly student loan payments. Here are a few circumstances that may help you determine when to refinance your student loans.