Forbearance vs. Deferment: Which Should You Choose?

Your financial situation will help you determine the best option

College student signs a student loan application during registration
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The last thing you want to do is fall into default if you have student loans. A default can impact your credit and have other negative effects on your long-term financial future. Two options allow you to hit the pause button on your federal student loan payments if you’re facing financial difficulty or have some other issue: forbearance and deferment.

Key Takeaways

  • Forbearance and deferment are methods of stalling your student loan payments, but they are different in practice.
  • Deferment is granted based on specific circumstances, and can be enacted for up to three years for those who qualify.
  • Forbearance is need-based and designed for short-term relief.
  • If you are having trouble making student loan payments, alternative repayment plans may be a first resort.

What's the Difference Between Forbearance and Deferment?

Forbearance is for temporary situations, and you're responsible for the interest that accrues. Deferment is for long-term situations, and you may be responsible for the interest that accrues. Deciding between forbearance and deferment for your student loans can be a tough decision. Here's the information you'll need to make the right choice for your situation.

  Forbearance Deferment
Length of time Up to 12 months at a time Depends on the type of deferment but can be up to three years
How to apply Submit a general forbearance form or call your servicer to receive forbearance approval over the phone Contact your servicer, and find out which form to submit
How interest accrues Interest continues to accrue during the forbearance term Interest doesn’t accrue on subsidized debt but continues to accrue on unsubsidized loans
Who qualifies Show you meet the financial hardship criteria set by your servicer Usually tied to a specific event, such as going back to school or losing your job

Important

The U.S. Department of Education announced on March 20, 2020, that anyone with a federally-held student loan would receive an administrative forbearance in response to the economic fallout of the COVID-19 pandemic. The forbearance period, initially slated to last at least 60 days, has been extended through at least August 31, 2022.

Length of Time

Forbearance is often best for those who know their situation is temporary and if they don’t qualify for deferment. Forbearance lets you ask your servicer to pause your payments for up to 12 months at a time.

Deferment can work better for those who have some subsidized student loans and who want to avoid interest accrual, or for those who aren’t sure how long their financial difficulties will last. Deferment can be enacted for up to three years.

How To Apply

You can't be in default if you want to qualify for either program. Contact your servicer to discuss your options as soon as you realize that you might not be able to make payments.

You'll need your servicer to help you whether you choose forbearance or deferment, and you must keep making your payments until you’re approved. The main exception is if you go back to school and you're enrolled at least part-time. Your servicer may automatically place you in deferment in this case.

How Interest Accrues

All the accrued interest will be summed up at the end of the period and added to your loan balance if you don’t make interest payments during your deferment or forbearance. Both of these programs can increase the total amount that you owe. You won't be responsible for interest that accrues on subsidized loans in deferment, however.

One exception is Federal Family Education Loans (FFEL). The U.S. Department of Education expanded its forbearance relief to borrowers of these loans, which are held by private entities, on March 31, 2021. This forbearance was retroactive to March 13, 2020, and was initially set to expire on Sept. 30, 2021. The September date was extended to August 31, 2022.

Any interest or penalties accruing during this time will be returned to the borrower. Any wages or tax refunds that were garnished will be returned as well, and the loans will be restored to good status for credit-reporting purposes.

Note

The majority of federal student loans have not been accruing interest since March 13, 2020. That pause in interest accrual will continue through August 31, 2022 as well.

Who Qualifies?

Qualifying circumstances for a forbearance include medical costs, financial problems, and employment issues. Your servicer might also be willing to grant you forbearance in other situations.

You might be required to submit documentation proving that you need the forbearance. There are also times when servicers are required to grant you a forbearance if you qualify for certain forgiveness programs, or if you’re in a medical or dental internship.

Forbearance is mostly handled at the servicer’s discretion, but student loan deferment is another story. A servicer is required to grant you deferment if you meet the criteria. Some of the qualifying events that can lead to deferment include:

  • Enrolled at least half-time in a qualified education program
  • Enrolled in an approved graduate fellowship program
  • Active duty military service during certain times of conflict or emergency
  • Unemployed and unable to find full-time employment
  • Serving in the Peace Corps
  • Experiencing economic hardship
  • Enrolled in an approved training or rehabilitation program aimed at the disabled

Each of these situations comes with its own deferment request form, so make sure you understand the reason you’re applying for deferment. Get help from your servicer to make sure you submit the correct form.

Which Is Right for You?

A deferment likely makes more sense than forbearance if you qualify for a deferment, especially if a portion of your federal loans is subsidized or you have Perkins loans. You could save money on interest by using deferment if you qualify.

Deferment can also last longer: up to three years. You have to reapply after 12 months with forbearance. There are only very rare instances where you can receive forbearance for longer than a year at a time. And your servicer can decide to grant you a shorter forbearance term, so you might be stuck reapplying more often.

Forbearance is generally best for those who are in a temporary bind and don’t qualify for deferment. You can put that money toward other expenses and bills while your student loan payments are paused, and you can resume your student loan payments when things improve.

What About Income-Driven Repayment?

It might actually make more sense to see whether you can get on an income-driven repayment plan rather than try to decide between forbearance and deferment for student loans. You might qualify for $0 payments, depending on your situation, and each payment continues to count as qualifying for Public Service Loan Forgiveness (PSLF). Deferment and forbearance can pause your ability to make qualifying payments.

And your balance on an income-driven plan might be forgiven after 20 or 25 years, even if you don't get PSLF. This might be a better option than forbearance or deferment if you’re struggling with regular income issues and need a lower payment.

The Bottom Line

Both a forbearance and a deferment can provide much needed relief. Deferment is typically best if you qualify, but forbearance also gives you some breathing room. Keep in mind that interest accrues with both options, but it's not added to subsidized loans in deferment.

Frequently Asked Questions (FAQs)

Will forbearance affect my credit?

Quite the opposite. If your loans are in forbearance or deferment, you are still within the boundaries of your loan contract. However if you fail to make payments on your student loans or enter default without attempting to remedy the situation, lenders will certainly report this to the credit bureaus.

What's the main difference between deferment and forbearance?

Both provide temporary pauses in payment, but forbearance is generally shorter and your loans will continue to accrue interest, whereas deferment is for longer-term situations, and interest will not accrue on subsidized loans.

What if I can't get a deferment or forbearance but can't afford my loan payments?

If you're struggling to make payments, reach out to your lender to ask about your options or to set up a different repayment plan. The availability of repayment options will depend on your lender, but federal student loans have many income-driven plans that can help lower monthly payments. If you have a private loan, you may want to look into refinancing.

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