As an individual, you may be thinking about the difference between deferment vs. forbearance on your student loans. If so, then this blog post is for you! Deferment and forbearance are both options available to borrowers who need help paying their student loans. You can learn more about each option by reading through this article – we’ll tell you how they work, what they mean for your credit score, and more.
What is deferment?
A deferment allows you to suspend payments without penalty while interest still accrues during that period. With a deferment, your federal student loans are placed in “deferment” status for the following reasons:
You will need to apply through an application process with exceptional circumstances attached depending on what type of loan you have taken out.
Student loan deferment
A federal student loan deferment is a temporary postponement of payment on certain types of education loans. If your federal student loan payments are deferred, you do not have to make any payments, and interest does not accrue (accumulated). Similar to forbearance, deferment options for private student loans vary from loan servicer to loan servicer. To apply for private student loan deferment, contact your lender to ask about opportunities and see if you qualify.
What is forbearance?
A forbearance is a temporary relief from making student loan payments. Forbearance allows you to temporarily stop making payments or reduce your monthly payment for a set period. Still, interest will continue adding up on the loans that are in forbearance status. With a deferment, federal student loans are placed in “deferment” status for the following reasons:
Your lender may have additional approved circumstances requiring a temporary change in repayment terms. You should contact them if you believe any of these apply to you, and they’ll be able to help determine what options might work best based on your situation. If approved by your lender, changes can take effect immediately without needing other forms submitted (unless noted) so long as it’s requested before your grace period ends.
Student loan forbearance
A type of loan repayment program allows a borrower to postpone or reduce monthly billings due to financial hardship temporarily. However, forbearance can keep these costs from piling up even higher than they already are, so it’s essential to understand the differences between deferment and forbearance as well as how each one works.
A deferment does not require that borrowers pay back their federal student loans. However, this is an option available at no cost to those who qualify under specific conditions.
What is the difference?
Deferment and forbearance are very different, both in terms of the application process and who qualifies for each.
Deferment has stringent requirements that borrowers must meet, while forbearance does not require strict qualifications or conditions to receive temporary relief from loan payments.
A deferment status will typically stop accruing interest on subsidized loans. Still, it depends on what type of federal student loans you have taken out precisely, which will determine whether they remain at a 0% rate during this time frame or if any accrued interest remains so long as no payment is being made towards them during this set timeframe.
Forbearance may allow a borrower some breathing room to temporarily reduce their monthly payment or stop making payments altogether for a set period. However, interest will continue to accrue on the loans placed into forbearance status during this time frame.
When it comes down to deferment vs. forbearance, many borrowers question which one they should apply for based on their situation and whether either of them might be able to help reduce their student loan debt going forward.
Pros and Cons of Deferment and Forbearance
Borrowers should think carefully before applying for either one to determine which will be best in their particular situation because they each have different eligibility requirements that must be met first.
Deferments offer more benefits than forbearance when it comes to interest fees while you’re trying to get back on your feet or during the time that you’re unemployed (or experiencing economic hardship).
It’s important to note here that deferments require borrowers to meet specific criteria set by loan holders, so if making payments on monthly obligations would put them under financial distress, then perhaps forbearance is a better option because it allows for temporary breaks and does not require approval.
While forbearance may allow you to stop making payments on your student loans monthly temporarily, interest will continue to accrue during this time. So if possible, try to pay the principal balance down as much as possible before applying to reduce what you owe even further after everything has been processed.
You can’t afford something that costs more than you make each month. So consider how likely it would be that borrowers could repay their debt obligations within a reasonable timeframe with such high outstanding fees added onto them when considering whether or not they should apply for either one of these options.
Borrowers should not take too long to decide whether or not they should apply for either one. They each have their eligibility requirements and restrictions, so it is essential to learn about these before applying.
What are the restrictions when you apply for deferments and forbearance loans?
Both options are available for borrowers who qualify, although some restrictions apply when considering each type of relief from student loan payments. These repayment assistance programs temporarily postpone or require monthly payments, allowing students and graduates to avoid late fees and negative marks on their credit reports.
Deferment periods for each type of federal aid or loan can last up to three years. Still, they differ slightly in the number of months available after leaving school/university/college:
- 16-week deferments are available for borrowers who have received a subsidized Stafford Loan as an undergraduate student enrolled at least half time. To qualify, you need to be working toward your first degree or certificate.
- A 12-month graduate fellowship deferment is now also eligible if you’re enrolled in a course that’s part of a postgraduate fellowship program that requires research activities leading towards a dissertation or thesis (up from six months).
- If you receive a subsidized Stafford Loan as a graduate student, you can defer the payments for six months per 12 month period of enrollment.
- In addition to those two options, there is also an unemployment deferment available. To qualify for this type of relief from your federal loans*, you must be unemployed or unable to find full-time employment and receive benefits from any Employment Networks under the Workforce Innovation and Opportunity Act (WIOA).
Common mistakes people make when applying for deferment or forbearance and how to avoid them.
Not keeping track of your grace period.
If you cannot make payments on the loan, you must keep track of when this will end. This is known as a “grace period.” Keep in mind that interest starts accruing over the entire amount due (not just the part left unpaid). You’ll get hit with late fees if you miss any payment during this time too! To figure out what day your grace period ends, go online to calculate from the start date through the finish date.
When you apply for deferment or forbearance, make sure to do it at least 30 days in advance. Otherwise, the interest that accrued during this time will be added to your new monthly payment (and future payments). In addition, if you’re not able to pay back what is owed by the end date of your grace period & have previously applied for a deferment or forbearance, the interest built up during your grace period will be added to what is owed.
Not making payments
If you’re receiving unemployment benefits from approved state agencies & are unable to find full-time employment but opted out of your federal loan* repayment plan before applying for an administrative forbearance, repayment of your federal loan* is still required. If you do not make these payments, the interest that accrued during this time will be added to your next monthly payment (and future payments).
Making late payments
It’s essential to keep track of when your loans become due and avoid missing any deadlines for making a payment. When applicable, you can get charged $15 for every month your loan is late. This accumulates quickly, so ignoring just one or two payments can lead to hundreds of dollars in fees!
Not having enough money.
When you apply for deferment or forbearance, make sure to do it at least 30 days in advance. Otherwise, the interest that accrued this time will be added to your new monthly payment (and future payments). In addition, if you’re not able to pay back what is owed by the end date of your grace period & have previously applied for a deferment or forbearance, the interest built up during your grace period will be added onto what is owed.
What to do if you’re denied a deferment or forbearance?
What to do if you’re denied a deferment or forbearance? First, it’s essential to know that this is not the end of your options. For both deferments and forbearances, federal student loan borrowers have appeal rights when they are turned down for these unique repayment plans. If you believe you qualify for something other than initially offered, it never hurts to ask!
Who qualifies for deferments, and who qualifies for forbearances?
A deferment is typically granted for most types of federal student loans when you are enrolled in school at least half-time or meet specific criteria based on your economic hardship (for Direct Loans only). But other circumstances can result in a deferment, such as returning to college after particular periods, unemployment; serving in the Peace Corps; and more.
Forbearances may be granted due to reasons like financial difficulty, or maybe because you’re experiencing problems with credit history leading up to loan repayment.
Deferments provide relief from making monthly payments, but interest continues adding up, which could cost students even more money once they resume their payment plans after graduating from their education program.
Forbearance can be a cheaper alternative for students who are not eligible for deferment but should only be used sparingly to avoid making things worse in the long run by accumulating even more interest on your loans while you’re still in school.
The key to remember is that deferment and forbearance are not the same things. They couldn’t be more different! While a deferment does stop payments from being due as long as you meet specific criteria, interest will continue accruing on your loan balance if it’s not paid off by the end of your grace period.
On the other hand, Forbearance can be a more affordable option for students who are unable to make payment plans while they continue their education. However, it should only be used sparingly because your loan balance will keep growing due to interest accumulating during this period! And remember, if you’re denied deferment or forbearance, you always have the option to file an appeal. EdFed offers Student Loan programs that will help you build your knowledge before making a decision.