What Are Deferment and Forbearance?
When you have student loans, you may encounter situations where making regular monthly payments becomes difficult. Two options that allow you to pause or reduce your loan payments are deferment and forbearance. While these terms sound similar and serve somewhat related purposes, they work differently and have distinct rules about how interest accumulates during the pause period. Understanding the differences between these two options is important because choosing one over the other can affect how much you ultimately pay back on your loans.
Deferment is a period during which you can postpone making payments on certain federal student loans. During deferment, depending on the type of loan you have, interest may or may not continue to accumulate. This distinction is crucial because it affects the total amount you will owe when repayment resumes. Forbearance, on the other hand, is a temporary reduction or pause in your loan payments that is available for most federal student loan types. Like deferment, forbearance allows you to temporarily stop or reduce payments, but the interest continues to build during this period in most cases.
Both options exist to provide relief when you face financial hardship or other circumstances that make regular payments difficult. However, they have different may be able to access criteria, different effects on interest accumulation, and different time limits. Learning about both will help you understand what options may be available to you and what the long-term consequences of each choice might be for your overall loan balance.
How Deferment Works and When You Might Use It
Deferment allows you to postpone loan payments for a set period of time, typically up to three years, depending on the reason for the deferment and the type of loan you have. The key advantage of deferment is that on certain loan types—particularly subsidized federal loans—the government pays the interest that accumulates during the deferment period. This means your loan balance does not grow while you are in deferment, which can save you significant money over time.
There are specific reasons you may be able to request deferment. These include being enrolled in school at least half-time, pursuing an approved graduate fellowship program, experiencing economic hardship, serving on active duty in the military, or participating in certain volunteer service programs like the Peace Corps. Each of these situations recognizes that you may not be in a position to make loan payments and provides a pathway to pause those payments without penalty.
The process of obtaining deferment typically involves contacting your loan servicer and providing documentation of your may have access to circumstance. You will need to show proof of your situation, such as school enrollment documentation or military service papers. Once approved, your deferment period begins, and you are no longer required to make monthly payments. When your deferment ends, you return to your regular repayment schedule. The significant benefit of deferment, particularly for subsidized loans, is that interest does not accrue, so your principal balance remains the same.
Understanding Forbearance and Its Characteristics
Forbearance is another temporary option that allows you to stop making payments or reduce your monthly payment amount. Unlike deferment, forbearance is more broadly available and does not require you to meet specific may be able to access criteria based on your life circumstances. However, the major drawback of forbearance is that interest continues to accumulate on your loans during the forbearance period, regardless of the loan type. This means your total loan balance grows, and you will owe more money when forbearance ends and regular payments resume.
There are two types of forbearance: general forbearance and mandatory forbearance. General forbearance is granted at the discretion of your loan servicer and is available when you are experiencing financial difficulty or other hardship. Mandatory forbearance must be granted by your servicer if you meet certain criteria, such as serving in the military, teaching in a low-income school, or experiencing a medical or dental internship. Mandatory forbearance is typically for shorter periods, often up to one year, while general forbearance can extend up to three years.
To request forbearance, you contact your loan servicer and explain your situation. You may be asked to provide documentation of your hardship, but the standards are generally less strict than those for deferment. Once forbearance is granted, your required monthly payment is either reduced or stopped entirely. However, you have the option to continue making payments if you are able to do so, which can help reduce the amount of interest that accumulates. When forbearance ends, you resume your regular payment schedule, and the interest that accumulated during forbearance is added to your loan balance.
Key Differences: Interest Accumulation and Long-Term Impact
The most important difference between deferment and forbearance is how interest is handled during the pause period. This difference can have a significant financial impact over the life of your loan. With deferment on subsidized federal loans, the government covers the interest that accrues, so your loan balance does not increase. This is a major advantage if you can may have access to for deferment. However, on unsubsidized loans, interest still accumulates during deferment, and this unpaid interest is added to your principal balance when deferment ends—a process called capitalization.
With forbearance, interest always accumulates, regardless of your loan type. This means that every month you are in forbearance, the amount of money you owe grows. If you are in forbearance for two years, you could accumulate a significant amount of additional interest that will be capitalized into your loan balance. This increases the total amount you will repay over the life of the loan and extends the time it takes to pay off your debt.
To illustrate the impact, consider a borrower with $30,000 in federal student loans at a 5 percent interest rate. If they use deferment on subsidized loans for one year, their balance remains $30,000. If they use forbearance for one year instead, they would accumulate approximately $1,500 in interest, bringing their balance to $31,500. This difference grows larger the longer you use forbearance and the higher your interest rate. Understanding this distinction is crucial when deciding which option to pursue.
Choosing Between Deferment and Forbearance
Deciding between deferment and forbearance depends on your specific situation, your loan type, and what you can afford. If you may have access to for deferment and have subsidized federal loans, deferment is generally the better choice because your loan balance will not grow. Deferment should be your first option to explore if your circumstances meet the may be able to access requirements. However, if you do not may have access to for deferment or if your loans are unsubsidized, forbearance may be your only option.
You should also consider your long-term financial picture. If you expect your financial situation to improve within a few months, forbearance might be acceptable because the interest that accumulates will be manageable. However, if you anticipate financial hardship for an extended period, deferment is preferable because it prevents your balance from growing. Additionally, some borrowers choose to make small payments during forbearance if they are able to do so, which reduces the amount of interest that capitalizes into the loan balance.
Another consideration is the impact on your credit report. Deferment and forbearance do not negatively affect your credit score if you obtain them through proper channels and maintain communication with your loan servicer. However, missing payments without requesting deferment or forbearance will damage your credit. If you are struggling to make payments, it is important to contact your servicer proactively rather than straightforward missing payments. Your servicer can discuss your options and help you understand which choice makes the most sense for your circumstances.
Moving Forward: Planning Your Loan Management Strategy
Understanding deferment and forbearance is one part of managing your student loans effectively. These tools exist to provide temporary relief during difficult periods, but they are not permanent solutions. When your deferment or forbearance period ends, you will need to resume making payments, and your loan balance may be higher than when you started due to accumulated interest. Planning ahead for when these periods end is an important part of long-term loan management.
You may also want to explore other options that could work alongside or instead of deferment and forbearance. Income-driven repayment plans, for example, allow you to make monthly payments based on your income rather than a fixed amount. These plans can make your payments more manageable during periods of financial difficulty without requiring you to pause payments entirely. Additionally, some borrowers may be able to pursue loan forgiveness programs based on their profession or circumstances.
The most important step you can take is to stay in contact with your loan servicer and understand your options. Do not ignore your loans or let them go into default. If you are having difficulty making payments, reach out to your servicer as soon as possible. They can provide information about deferment, forbearance, repayment plan options, and other resources that may help you manage your debt. By taking an active role in understanding and managing your student loans, you can make informed decisions that align with your financial goals and circumstances.