Understanding Student Loan Deferment Vs. Forbearance

Forbearance vs. deferment: What's the difference?

Forbearance and deferment are sometimes used interchangeably, but the two terms (and what they represent) are drastically different.

Both forbearance and deferment are options for borrowers who need to temporarily put off student loan repayment because of financial difficulties or some other type of financial situation.

The most notable difference between the two is that when you defer your loans, the interest that accrues on certain types of loans may also be suspended. 

This is the exact opposite of forbearance, where interest on student loans is never suspended throughout the forbearance period.

What is deferment?

Deferment allows you to temporarily postpone payments on a loan under certain circumstances.

The types of  loans that qualify for suspended interest include:

• direct subsidized loans
• the subsidized portion of direct consolation loans
• subsidized federal Stafford loans
• the subsidized portion of Federal Family Education Loans (FFEL) Consolidation Loans
• federal Perkins Loans

When you defer these types of federal student loan payments, interest stops accruing as well, so your loan balance stays the same throughout the entire period of time your loans are in deferment.

It is important to note that if you have unsubsidized loans, you are  unlikely to qualify for suspended interest, and any accrued interest will be added to your loan balance at the end of your deferral period. 

If you have private student loans, qualifying loans vary from lender to lender. 

What is forbearance?

Like deferment, forbearance temporarily relieves your obligation to make monthly payments on your student loans.

There are two main types of forbearance: general forbearance and mandatory forbearance: 

• General forbearance — Whether or not you qualify for a general forbearance (sometimes called discretionary forbearance) is decided by your student loan servicer and based on certain criteria. (More on this below.) A general forbearance can only be granted for up to 12 months at a time for a total of three years. It applies only to direct loans, Perkins loans, and Federal Family Education Loans (FFEL). 
• Mandatory forbearance — If you meet certain eligibility requirements, your student loan servicer must grant you a forbearance for your direct and FFEL loans, and in some circumstances, Perkins loans. 

During forbearance, your regular loan payments are temporarily reduced or put on pause. However, it’s important to note that even though your principal payments are postponed while the loan is in forbearance, the interest on the principal continues to accrue.

The problem with accrued interest

Capitalization occurs when you miss interest payments, or in this case, have your payment placed on hold. While the loan itself is on hold, the unpaid interest gets added monthly to the principal of the loan.

So, the next month, you’re charged interest on a higher principal amount, thus increasing the total amount owed.

Both forbearance and deferment (for unsubsidized loans/loans from private lenders) result in capitalization.

The good news is, you can (and should) choose to make interest-only payments while your loan is in forbearance. This will help keep the principal at the same amount until you’re ready to start making payments again.

Eligibility requirements: Deferment vs. forbearance

Whether you're eligible for deferment or forbearance will depend on a few factors: The kinds of student loans you have, whether you're currently an enrolled student or a graduate, if you're facing financial hardships, or if you're enrolled in another program that grants a forbearance/deferment, such as Americorps or Peace Corps. Keep reading for more details. 

Who is eligible for deferment?

If you’re enrolled in an eligible college or career school at least half-time, in most cases, your loan will be placed into a deferment automatically, and your loan servicer will notify you that the deferment has been granted.

You may also be eligible for deferment based on other circumstances as defined on the Federal Student Aid website. This includes things such as:

• Being unemployed or unable to find full-time employment (for up to three years)
• Being enrolled in an approved graduate fellowship program
• Being enrolled at least half-time  at an eligible college or career school
• Experiencing economic hardship, or a significant decrease in monthly income
• Serving in the Peace Corps (for up to three years), or
• Being in active duty military service in connection with a war, military operation, or national emergency.
• Medical expenses, and if you're undergoing certain medical treatments like cancer treatment

 If you don’t meet the qualifications for a deferment, you might be eligible for a forbearance.

Who is eligible for forbearance?

Lenders may grant you a forbearance if you’re facing a financial hardship, such as a serious medical issue that leaves you unable to work.

Anybody can apply for a general forbearance on their student loans. Qualifying situations may include if you're having trouble making your monthly student loan payments due to: 

•  medical expenses
• a job change
• other financial challenges
• a similar issue that your student loan servicer accepts as a reason for forbearance.

You may also qualify for a mandatory forbearance. Qualifying situations include: 

• receiving a national service award through Americorps
• qualifying for partial repayment of student loans through the U.S. Department of Defense Student Loan Repayment Program
• being a National Guard member, activated by the governor in your state but you don't qualify for a military deferment
• qualifying for the teacher loan forgiveness program
• serving in a medical/dental internship or residency and meeting certain other criteria
• the monthly total you owe for all your federal student loans is 20 percent or more of your total monthly gross income.

Alternatives to forbearance & deferment

Circumstances may be such that you don't qualify for forbearance or deferment but you still need help making your monthly student loan payment. The good news is you do have other options, even if they don't allow you to put those payments on hold. If you need an alternative to forbearance or deferment, consider one of the following:

• Student loan refinancing — You can refinance all (or just some) of your student loans with a private lender. Benefits of this are streamlining your finances by having one payment for all your loans. And often, a private lender will offer you a better interest rate than you had. 
• Income-driven repayment plans — These plans allow you to base your federal student loans payments on a specific percentage of your income. So when you're making little, you don't have to pay as much. But keep in mind, they increase the length of your repayment, and therefore, the total amount of interest you'll owe on your loans.  
• Student loan consolidation — This can be a good option if you have many loans you're making separate payments on. In consolidation, you combine all your federal student loans into one, with an interest rate based on the weighted average of the existing loans and then rounded up to the nearest one-eight of a point. This can save you a lot of headaches, but isn't likely to save you much on interest.

How to obtain a deferment or forbearance

if you need to request either a forbearance or deferment, the process is similar, but slightly different, depending on which you need and your specific circumstances. 

Requesting a deferment

If you believe you qualify for a deferment, in most cases you'll need to make a request by filling out a form with your loan servicer. 

Because there are many different types of deferment, based on things such as current military service, being enrolled at least half-time as a student, and more, the criteria you need to meet are different for each type of deferment as well. 

You can get a deferment for your direct student loans, FFEL loans, and Perkins loans. 

Requesting a forbearance

If you’re interested in a forbearance on your federal student loan, you will need to submit a request to your loan service provider.

You may also be asked to provide documentation to show that you meet the eligibility requirements.

FAQ

What is better, deferment or forbearance?

If you need to postpone paying your student loans, then between deferment or forbearance, the best option is the one you can qualify for.

If you have a choice, in general, deferment will save you more money in the long run since it also suspends the amount of interest your student loans accrue.  

Keep in mind, neither forbearance nor deferment should be relied on for the long haul. They're meant to be used to ease short-term financial pressure. If you think you'll need a longer-term solution, look into options such as loan consolidation, loan refinancing, or an income-driven repayment plan.

Does deferment or forbearance hurt your credit?

As long as you make your payments as required under your deferment or forbearance agreement, the process won't hurt your credit. (That's definitely not the case if you miss a payment without an agreement in place.) 

One word of warning: A deferment or forbearance can have an indirect negative impact on your credit score if you forget to restart payments  or don't budget for that extra expense once they're due again. If you do receive a forbearance or deferment, make sure you stay on top of all communications from your loan servicer so you don't get an unwelcome surprise when your payments restart. 

Is it bad to have your student loans in forbearance?

Generally speaking, no. But like everything in life, they do have downsides. 

If you need a break from paying your student loans to get your financial life back on track, forbearance or deferment are good options. The downside comes from the longer-term costs of extending repayments. You can minimize that by making small payments toward your loan when possible. Even if you can only pay the interest each month, that can go a long way to reducing your lifetime loan costs. 

The information in this article pertains to federal student loan forbearance. Student loans from a state or a private lender will have different forbearance options. Learn more about private student loan forbearance.