Deferment vs. forbearance: Which is best for your student loan?

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If you’re having trouble making student loan payments, you may be able to request student loan deferment or forbearance. Both relief options freeze federal student loan payments up to a specified time frame and can help keep your account in good standing.

The main difference between deferment and forbearance is that interest always accrues when you’re in forbearance, while deferment is interest-free in some cases. Generally, the question of whether to request forbearance versus deferment comes down to which hardship program you qualify for.

What is the difference between deferment and forbearance?

Both deferment and forbearance allow you to postpone federal student loan payments, but they differ in a few key ways.

For one, deferment on federal student loans must be tied to a qualifying event, while forbearance eligibility is determined by your loan servicer.

Additionally, interest accrues on all federal student loans during forbearance and will be added to the loan balance later, a process known as capitalization. This isn’t the case for deferment; while interest will still accrue on unsubsidized loans, subsidized student loans and Perkins Loans will not accrue interest during periods of deferment.

Key takeaways

  • In forbearance, your interest continues to accrue. If you qualify for a deferment, the accrual of your interest is paused if you have subsidized loans or Perkins Loans.
  • Student loan deferment is usually tied to a qualifying event, like being unemployed or attending school. Forbearance is typically not tied to a specific event.
  • If you qualify for deferment, your servicer must grant it. Forbearance is typically at your loan servicer’s discretion, but in some situations it is mandatory.
  • Forbearance lasts for up to 12 months at a time, while deferment has differing lengths, depending on the type of deferment.

What is student loan forbearance?

Federal student loan forbearance allows you to pause student loan payments for up to 12 months at a time, with a three-year cap. Interest on your loans will accrue while you’re in forbearance, whether the loans are subsidized or unsubsidized. At the end of forbearance, your loan servicer will add unpaid interest to your principal balance, a practice called “capitalization.” This increases how much you owe, and interest will compound on a larger balance. The only type of loan not subject to capitalization is Perkins Loans.

There are two main types of forbearance:

  • General forbearance: This is granted at your loan servicer’s discretion. You may request this type of forbearance if you have financial difficulties, a change in employment, medical expenses or other hardships.
  • Mandatory forbearance: The loan servicer must grant the forbearance if you are enrolled in a medical or dental internship or residency, serving in the AmeriCorps, eligible for the U.S. Department of Defense Student Loan Repayment Program, paying more than 20 percent of your income toward federal student loans each month or eligible for teacher loan forgiveness.

The Department of Education may also implement periods of administrative forbearance, which applies to all federal student loan borrowers. This was the case with the coronavirus relief measures put into motion in early 2020, which halts student loan payments and interest accrual on all federal student loans through Jan. 31, 2021.

How to apply for student loan forbearance

There is a general student loan forbearance form that can be used no matter who your loan servicer is. If you’re looking to apply for student loan forbearance, it still makes sense to contact your loan servicer directly, since your servicer will be able to guide you through the forbearance process and let you know about any other repayment options that it might offer.

Note that you should keep making your payments until your servicer confirms that you qualify for forbearance. If you stop, you may be considered delinquent, which may affect your forbearance application.

What is student loan deferment?

Another option is federal student loan deferment, which also freezes your loan payments. You’ll need to have a specific qualifying event for this type of relief, but it comes with more perks than forbearance. The time frames are longer in some cases, and interest won’t accrue on Direct Subsidized Loans, Subsidized Federal Stafford Loans, Perkins Loans and the subsidized portions of Direct Consolidation Loans and FFEL Consolidation Loans. Interest will accrue on other types of federal student loans in deferment, though.

Deferment is available if you are:

  • Undergoing cancer treatment.
  • Living on a monthly income less than 150 percent of your state’s poverty guidelines or receiving a means-tested benefit like welfare.
  • Serving in the Peace Corps.
  • Enrolled at least half time in an undergraduate or graduate degree program.
  • On active-duty or post-active-duty military service.
  • A parent who received a Direct PLUS Loan and your child is enrolled at least half time in school.
  • Enrolled in an approved rehabilitation training program.
  • Unemployed and unable to find full-time employment.

How to apply for student loan deferment

There is not one specific way to apply for federal student loan deferment; the deferment process varies by student loan servicer. The first step in applying for student loan deferment is to contact your servicer. It will let you know how to apply for student loan deferment, and it may also be able to give you additional options, such as an income-based repayment plan, that might be better for you. As with applying for forbearance, it’s important to continue making your payments until your servicer confirms that you qualify for deferment.

Which is better for me?

If you qualify for student loan deferment, it’s usually a better option. You may be able to freeze payments for longer than you would in forbearance, and interest won’t accrue if you have subsidized loans or Perkins Loans. But if you’re in financial trouble and there’s no deferment available for your situation, then apply for forbearance.

But before taking the next steps, make sure that you qualify for deferment or forbearance. You can’t apply for either option if your federal student loans are in default. You also must meet specific requirements for deferment or mandatory forbearance. Check the criteria before pursuing these options.

Alternatives to student loan deferment and forbearance

Student loan forbearance and deferment are temporary solutions that can help you through a short-term hardship. But if you can’t afford your student loan payments in the long term, then you should look for other strategies to alleviate your monthly payments.

Income-driven repayment

Income-driven repayment plans, such as Pay As You Earn and Revised Pay As You Earn, base your monthly student loan payments on your income and family size. After enrolling in one of these plans, your payments may become more manageable — in some cases, your payment could be as low as $0 per month. Income-driven repayment plans also come with loan forgiveness. If your loan isn’t paid in full after 20 or 25 years, the remaining balance is forgiven.

Student loan refinancing

Another option is refinancing your federal student loans into a private loan. A strong credit history can help you qualify for a lower interest rate, which can lower your monthly payments. However, you give up all of the borrower protections that come with federal student loans, including income-driven repayment plans. Some private student loans come with deferment and forbearance options, but they’re not as generous as what you’d find on federal student loans.

Budget restructuring

Go through your monthly expenses to see if you can get rid of any expenses to make more room for your student loan payment. Things like rent, utilities, your cellphone plan and groceries are critical. But things like cable bills, streaming services and gym memberships are not. You might also consider making bigger changes, such as moving into a cheaper apartment or getting a part-time job to earn more money.

The bottom line

Student loan deferment and forbearance both allow federal student loan borrowers to hit the pause button on payments. Deferment sometimes offers more perks than forbearance, so check this option first. If there’s no deferment available for your financial situation, then apply for forbearance.

But these are short-term solutions, and you might need to find other ways to make room in your budget for student loan payments.

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