Today we are going to dive into the difference between a student loan deferment vs. forbearance.
Financial hardships can befall even the most vigilant of savers and budgeters. Your credit can undergo serious damage during these times. Most types of loans do not have much sympathy for financial hardships, especially credit card companies.
If you went to college and have student loans, they may be a financial burden entirely on their own.
Statistics from a January 2022 article on Education Data Initiative website, shows the average student loan debt in 2021 was upwards of $40,904 after federal and private loans were combined.
The good news is that your student loan financiers offer helpful options to help you get through those difficult times.
Unlike other loans, student loans have built-in safety options to help you avoid defaulting on the loan and destroying your credit.
The two basic options are loan deferment and forbearance.
These are two ways to get a break from the hefty monthly payments that these loans carry.
But how do individuals access these fall-back measures? How much time will these services offer reprieve from financial burdens? And ultimately, what are the advantages of student loan deferment vs. forbearance?
Student Loan Deferment Definition
According to the Federal Student Aid website, when you defer on a student loan, it places a temporary pause on your payments. When you foresee or predict a temporary downfall in finances, it’s a good idea to consider a student loan deferment.
This option might be best during a maternity/paternity leave, postoperative recovery, or even a small gap in employment.
Student Loan Deferment Options
When considering student loan deferment, there are several specifics to remember. Although federal loans differ from private loans, there are general basics that apply to both types when deferring.
Most lenders have an allotted number of months that you can place your loans on deferment. For most of the federal student loans, you will have a maximum of 36 months to use for deferment.
The length is flexible. Therefore, if you merely have a month or so when switching jobs, you can apply for just one month of deferment.
Conversely, if you foresee that you’ll need more time, you can apply for three month increments or six month increments.
If you have more than one financier for your student loans, you will need to apply to each loan company for deferment.
In some cases, individuals will have both federal student loans and private (meaning through a commercial lender) loans.
Private financiers may not offer 36 months of deferment, reveals Debt.org, so it is extremely important to check with a loan specialist before pursuing a deferment.
Private financiers are not as flexible or forgiving as the federal government and will sometimes only offer 12 months of deferment.
In addition, you’ll work with a loan specialist to apply to a specific student loan deferment program.
These programs include cancer treatment deferments, economic hardship deferments, and in-school deferment to name just a few. Each has a specific time length and is geared towards a particular financial situation.
Check Out: Top 7 Student Loan Consolidation Companies – Lower Your Monthly Payment Today
Consider Interest During Deferment
Every student loan has its own contract particulars. It is important to know what type of loan or loans you carry because that will determine how interest will accrue during the life of the loan, including times of deferment.
Even if you are granted a deferment on your loans, the interest could still be your responsibility during the time of deferment.
Direct Subsidized Loans, Subsidized Federal Stafford Loans, Federal Perkins Loans, and subsidized amounts of the FFEL Consolidation Loans are all types of loans that give you a break from both payments on principal and payments on interest, says Federal Student Aid.
Direct Unsubsidized Loans, Unsubsidized Federal Stafford Loans, Direct PLUS Loans, unsubsidized amounts of Direct Consolidation Loans, and the unsubsidized portion of FFEL Consolidation Loans are all types that require student loan deferred payments.
If you hold a loan that requires payment of interest during deferment, it’s important to note that you can choose to not pay the interest. If you choose to forgo paying the interest during deferment periods, it will capitalize.
This means it will be added to your principal and charged interest each month. However, you will not be charged a penalty for not paying.
Student Loan Forbearance Definition
In extreme cases where you don’t have any deferment options or aren’t eligible, a forbearance could be an alternate route to consider.
Under forbearance, you will be allowed to postpone payment for up to a year.
Similar to deferment, you want to be conservative with the allowed time because it is a maximum over the life of the loan (20 years in some cases).
In some cases, you can request a student loan forbearance extension after the 12 months but it isn’t guaranteed that it will be granted.
Mandatory Vs. Discretionary Forbearance
By law, student loan financiers have to offer both mandatory and discretionary forbearance to loan holders.
There are requirements that you must meet before the forbearance is approved including income limits, continuing education status, and military service.
If you meet these requirements, your loan servicer is bound to grant the permission for forbearance called mandatory forbearance.
If you do not meet any of the requirements, it is up to the discretion of the servicer whether to grant it or not. Discretionary forbearance is also referred to as general forbearance.
Interest During Forbearance Period
Just like with deferment, forbearance periods on federal and private loans affect interest differently.
In the case of government loans, Direct Loans, and Federal Family Education Loans are all interest accruing during forbearance with unpaid interest capitalized.
The Federal Perkins Loans are interest accruing as well, however the unpaid interest is not capitalized during forbearance periods.
Private loan servicers usually capitalize the interest on student loans during forbearance but it’s always good to ask a loan specialist when applying for forbearance.
Check Out: Discover Student it Card – Why Your Teen Should Apply
Which is Better: Student Loan Deferment vs. Forbearance?
Every financial decision should be based on personal situations and circumstances, so deciding which is better, student loan deferment or forbearance, is a tough call to make.
Deferment offers many programs that can apply to many different financial circumstances. Forbearance is much more serious and really should only be considered when deferment is maxed out.
Because forbearance is always an interest accruing period, it would be a wiser choice to apply for a deferment to avoid that additional interest if you have a loan that has that option.
Whichever you choose, be sure to stay ahead of that default timeline.
After 270 days of non-payment, you’ll not qualify for either deferment or forbearance because the loan will be considered defaulted, points out Student Loan Hero.
Have you ever had to use a student loan deferment or forbearance? Let us know in the comments below!
6 thoughts on “Student Loan Deferment vs. Forbearance: Which is Better?”
My son recently had to request a deferment for his student loans. He was in a car accident and unable to work for a few months. Luckily he was able to get back on his feet and find a new job, closer to his Dad and I.
He was so relieved when he received the deferment. It enabled him to focus on getting well and finding a new job. I am not sure how long he received the deferment but this is great information for people with student loans. It’s always worth looking into and finding out your options.
So sorry to hear about your son’s car accident. My daughter was in a bad one two years ago, so I know how scary that is. Glad he was able to get that deferment so he could have time to heal! His well-being is the most important and not having to worry about the loan for awhile certainly reduces the stress.
Good explanations on both programs. This is a huge issue right now. In times of hardship, knowing that both of these are available to you has to give peace of mind to the ex-student. From your descriptions, I tend to favor the deferment for 2 reasons: first of all, it allows discretionary pauses. You never know when bad thing might happen, but if they are only temporary, then no need to put the paybacks on hold for a year. Also there is the interest. If it doesn’t accrue over the pause period, you can pick up right where you left off with no additional interest charges tacked on. I would be interested if you yourself have looked at one of these programs.
Hi Warren, To answer your question, yes, years and years and years ago (I’m 45 now so I haven’t had a student loan in a long long time) I did take advantage of the deferment option to get me through a difficult time. My ex-husband decided to leave the family and I had a 2 yr old and an 8 month old. At the same time I was finding out that my baby had severe special needs. The deferment was super helpful and gave me time to get my stuff together.
I wish I had read this article before I made my decision. I didn’t know the differences between deferment and forbearance. Those were big decisions to make at a young age so I wouldn’t be surprised that many didn’t make the best choice for their own financial situation.
I’m willing to bet that many also forget about the interest factor when it comes to making their decision. Subsidized and unsubsidized are terms that make young kids entering college run. It’s all too much to handle at that age.
I wonder, as the popularity of going to college right after high school slows down, what the number of students getting large student loans looks like?
Yes, I wonder how many large loans are being given out right now. I made sure my daughter was able to get her college degree without having a loan to repay (I had her take out a small one that she already had the cash on hand to pay to make some payments and help establish credit, but not a loan that she didn’t have money for). I council to avoid these loans whenever possible, simply because I know how hard that loan was on me when I was young and how hard it is on my cousin.