Taking on student loans is often a necessary step to pursue higher education. However, once you graduate, those loans become a large financial obligation you must repay. Fortunately, federal student loans offer borrowers options to temporarily postpone payments through deferment or forbearance if you’re facing financial hardship.
While deferment and forbearance both allow you to temporarily pause payments, there are important distinctions between the two that borrowers should understand. This comprehensive guide will explain deferment and forbearance in detail, outline the key differences, provide tips for weighing your options, and address frequently asked questions.
What is Student Loan Deferment?
Student loan deferment is a temporary postponement of payments and interest accrual on federal student loans. Deferment is granted based on meeting specific eligibility criteria, not simply upon request. You must proactively apply for deferment and provide documentation to your loan servicer to verify your eligibility.
There are several circumstances that allow you to qualify for deferment:
- Enrolled in school at least half-time – If you are enrolled in college, trade school, or graduate school at least half-time, you can defer loan payments until 6 months after you are no longer enrolled at least half-time.
- Unemployment – Up to 3 years of deferment may be granted if you are seeking full-time employment but cannot find work. You must provide documentation such as statements from your state unemployment office.
- Economic hardship – You may qualify for up to 3 years of economic hardship deferment by providing documentation that you receive government assistance such as food stamps, are earning below 150% of the poverty line, or are experiencing circumstances that represent true economic hardship.
- Military service – Active duty military personnel can defer loans for up to 3 years.
- Graduate fellowship – Recipients of eligible graduate fellowships can defer while enrolled in the program.
- Rehabilitation training – You may qualify for deferment while enrolled in an eligible rehabilitation training program for individuals with disabilities.
The length of deferment depends on the specific eligibility criteria. Certain circumstances like in-school deferment can be renewed indefinitely so long as you remain enrolled at least half-time. Others like economic hardship have a 3 year cumulative limit.
A major benefit of deferment is that interest does not accrue on subsidized federal loans during the deferment period. For unsubsidized and PLUS loans, interest continues to accrue but is not capitalized as long as payments are made.
What is Student Loan Forbearance?
Student loan forbearance allows you to temporarily stop making payments for up to 12 months at a time. The main difference from deferment is that forbearance is granted at the discretion of the loan servicer regardless of your specific circumstances.
You simply have to request forbearance and affirm you are experiencing financial hardship, then the servicer can grant approval without requiring extensive documentation. Forbearance is meant as short-term financial relief if you are willing, but temporarily unable, to make payments.
Common situations where borrowers request forbearance include:
- Temporary unemployment or reduction of income
- Personal health issues, disabilities, or medical expenses
- Family emergencies such as death, divorce, or major illness
- Months where excessive debt payments exceed income
- Financial impacts of national emergencies or natural disasters
Unlike deferment, forbearance is always limited to 12 months at a time. You can apply for additional forbearance periods after the first term ends if you continue facing financial hardship.
Key Differences Between Deferment and Forbearance
While both deferment and forbearance allow you to temporarily postpone payments, there are several important differences:
Eligibility Requirements
Deferment is granted based on documented eligibility for specific circumstances like full-time student status or unemployment status. Forbearance is given at the discretion of the loan servicer regardless of your situation, as long as you affirm financial hardship.
Interest Accrual
No interest accrues on subsidized loans during deferment, and you can make interest-only payments on unsubsidized loans to avoid capitalization. During forbearance, interest continues accumulating on all loan types and is added to the principal balance when forbearance ends.
Limits on Timeframe
Deferments for reasons like in-school enrollment or economic hardship are limited to 3 years total. Forbearance is granted in 12 month intervals that can be renewed if you continue demonstrating hardship.
Impact on Loan Term
Periods of deferment do not extend the total loan repayment term. Months spent in forbearance do get added on to the end of your loan schedule.
Application Requirements
You must proactively apply and provide documentation for deferment eligibility. Forbearance can be requested using self-certification of financial hardship.
Weighing Deferment and Forbearance Options
Ideally, deferment should always be your first choice since it prevents interest accumulation and has less long-term impact on repayment. However, forbearance serves as a safety net if you do not meet deferment eligibility criteria for your situation.
Here are some tips for deciding which option to pursue:
- Apply for deferment first whenever possible, and only use forbearance as a backup plan or if you have already exhausted deferment limits.
- Minimize forbearance periods to the shortest timeframes absolutely needed, and pay interest during forbearance to avoid capitalization.
- Avoid using forbearance simply for convenience or to temporarily lower payments, since interest accumulation makes it costly over the long run.
- Be strategic about timing if using both options – for example, use deferment while enrolled, then use forbearance during job transitions.
- Contact your servicer early on if struggling to make payments so you can discuss which options are suitable for your circumstances.
- Understand how each option will impact your overall repayment timeline as you approach loan forgiveness eligibility.
Making smart decisions about deferment and forbearance requires assessing both your short-term cash flow needs and your overall repayment strategy. Avoid accumulating unnecessary interest fees and capitalization that add to your total debt.
Key Takeaways
- Deferment is based on eligibility for circumstances like enrollment or unemployment status. Forbearance is given at discretion of the servicer if you demonstrate financial hardship.
- Interest accrues on all loans during forbearance. With deferment, interest is paused for subsidized loans and can be paid on unsubsidized loans.
- Deferment periods do not extend your loan term, but months in forbearance are added to the repayment timeline.
- Forbearance should be used as a short-term backup plan when deferment is not an option. Minimize forbearance periods to avoid interest capitalization.
Frequently Asked Questions
How do I apply for deferment or forbearance?
To apply for either option, you need to contact your student loan servicer directly. For deferment, be prepared to submit documentation such as student enrollment records, unemployment claims, or proof of economic hardship. Forbearance can be requested by self-certifying financial hardship, but you may need to provide details on your situation.
When do I need to start making payments again after deferment or forbearance?
For both options, you will enter repayment status again 6 months after the deferment or forbearance period ends. You must resume making normal monthly payments at that point.
Can I get both deferment and forbearance?
Yes, it is possible to make use of both options at different points if you qualify. For example, you could defer loans while enrolled in school, then request forbearance during your job search after graduation.
Does interest accrue during deferment?
Interest does not accrue on subsidized loans during deferment. It continues accumulating on unsubsidized and PLUS loans, but you can make interest-only payments to avoid capitalization.
Is loan forgiveness possible during deferment or forbearance?
Yes, months spent in deferment or forbearance still count toward the 240 monthly payments required for Public Service Loan Forgiveness and other forgiveness programs.
Making smart decisions about student loan deferment and forbearance requires understanding the implications for your finances both now and in the long run. This guide provides in-depth information on the key differences between the two options to help you make the choice that best meets your needs. Reach out to your loan servicer early if you anticipate difficulty making payments so you can discuss your specific situation.## Common Misconceptions
There are some common misconceptions borrowers have about deferment and forbearance. Here are a few myths along with the real facts:
Myth: Both options can be used indefinitely if I keep having financial issues
Fact: There are limits on cumulative timeframes. Many deferment types have a 3 year cap, while forbearance runs in 12 month intervals.
Myth: I can pause payments without applying if I can’t afford them
Fact: You must actively apply and get approved – payments will not just stop automatically if you don’t take action.
Myth: Interest never accrues during deferment periods
Fact: No interest builds on subsidized loans in deferment, but interest does accrue on unsubsidized and PLUS loans.
Myth: Deferment and forbearance are my only options if I can’t pay
Fact: You may qualify for income-driven repayment plans that determine your payment amount based on earnings.
Myth: Getting forbearance is quick and doesn’t require documents
Fact: While not as extensive as deferment, you still must request forbearance in writing and may need to provide some details on your situation.
Myth: I can renew forbearance indefinitely if my hardship continues
Fact: Forbearance has a maximum limit of 12 months at a time, and periods of hardship over 3 years generally warrant looking at other long-term options.
Strategies to Minimize Interest Costs
Since interest accumulation can become costly with deferment or forbearance, it helps to employ strategies to minimize interest wherever possible:
- Make interest-only payments on unsubsidized loans during deferment
- Pay some or all accruing interest during any forbearance periods
- Limit use of forbearance only to situations where deferment is unavailable
- Shorten forbearance periods from 12 months to only what is absolutely necessary
- Time deferment and forbearance strategically around lower-interest phases like school
- Avoid early loan payoff during deferment/forbearance to sustain eligibility for forgiveness programs
Every bit of interest paid helps. Even small payments make a difference over the long run by preventing compounding interest growth.
Exit Strategy for Returning to Repayment
As you approach the end date for either deferment or forbearance, it’s vital to have an exit strategy for returning to repayment. Here are some tips:
- Recertify your income for income-driven repayment plans before payments resume
- Build a budget to realistically allocate for upcoming student loan payments
- Contact servicer to discuss options if initially unable to afford scheduled payment
- Temporarily adjust expenses where possible for a few months after deferment/forbearance
- Explore changing repayment timeline through extended or graduated repayment plans
- Consider loan consolidation or refinancing to combine multiple loans
Mapping out a proactive exit plan can ensure a smooth transition back into active repayment status when your deferment or forbearance period concludes.
When to Seek Alternatives
Although deferment and forbearance serve as helpful short-term solutions, alternatives may be preferable in certain situations:
- If you’ve already reached cumulative limits for both options but still can’t pay fully
- When you expect financial hardship to continue long-term, not just temporarily
- If you are seeking Public Service Loan Forgiveness, to maximize qualifying payments
- If you can afford an income-driven payment now, even if it’s lower than standard payment
Consult your servicer on options like changing repayment plans, loan consolidation, or cancellation/forgiveness programs that may better suit your needs or offer more lasting relief.
The key is being informed on all potential solutions so you can determine the optimal approach based on your unique circumstances and financial outlook.