When you have student loans, the last thing you want to do is fall into default if you can’t afford the payments. A default can impact your credit and have other negative effects on your long-term financial future. If you’re facing financial difficulty or have some other issue, two options allow you to hit the pause button on your federal student loan payments: forbearance and deferment.
Forbearance is for temporary situations, and you're responsible for the interest that accrues. Deferment is for longer-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, but here’s the information you need to make the right choice for your situation.
On March 20, 2020, the U.S. Department of Education announced 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, was extended through at least January 31, 2022.
What's the Difference Between Forbearance and 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|
Length of Time
In general, forbearance is often best for those who know their situation is temporary—and they don’t qualify for deferment. With forbearance, you can 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 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
If you want to qualify for either program, you can’t be in default. As soon as you realize that you might not be able to make payments, contact your servicer to discuss your options. Whether you choose forbearance or deferment, you need your servicer to help you, and you need to keep making your payments until you’re approved. The main exception is if you go back to school and are enrolled at least part-time. In many cases, your servicer will automatically place you in deferment.
How Interest Accrues
It’s important to understand that if you don’t make interest payments during your deferment or forbearance, all of the accrued interest will be summed up at the end of the period and added to your loan balance. Both of these programs can increase the total amount that you owe. You will not, however, be responsible for interest that accrues on subsidized loans in deferment.
One exception is Federal Family Education Loans (FFEL). On March 31, 2021, the U.S. Department of Education expanded its forbearance relief through September 30, 2021, to borrowers of these loans, which are held by private entities. The forbearance is retroactive to March 13, 2020. Any interest or penalties will be returned to the borrower. In addition, if any wages or tax refunds were garnished, these funds will also be returned, and the loans will be restored to good status for credit purposes.
The majority of federal student loans have not been accruing interest since March 13, 2020. That pause in interest accrual will continue through at least January 31, 2022.
Qualifying circumstances for a forbearance include:
- Medical costs
- Financial problems
- Employment issues
Your servicer might also be willing to grant you forbearance in other situations. In many cases, 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 you’re in a medical or dental internship.
While forbearance is mostly handled at the servicer’s discretion, student loan deferment is another story. If you meet the criteria, a servicer is required to grant you deferment. Here are some of the qualifying events that can lead to deferment:
- 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, and get help from your servicer to make sure you submit the correct form.
Which Is Right for You?
For the most part, if you qualify for a deferment, it likely makes more sense than forbearance, 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. With forbearance, you have to re-apply after 12 months. There are only very rare instances where you receive forbearance for longer than a year at a time. Additionally, your servicer can decide to grant you a shorter forbearance term, so you might be stuck re-applying more often.
Forbearance is generally best for those who are in a temporary bind and don’t qualify for deferment. With your student loan payments paused, you can put that money toward other expenses and bills, and once things improve, you can resume your student loan payments.
What About Income-Driven Repayment?
Rather than trying to decide between forbearance and deferment for student loans, it might actually make more sense to see whether you can get on an income-driven repayment plan.
Depending on your situation, you might qualify for $0 payments, and each payment continues to count as qualifying for Public Service Loan Forgiveness (PSLF). Deferment and forbearance pause your ability to make qualifying payments.
On top of that, even if you don’t get PSLF, your balance on an income-driven plan might be forgiven after 20 or 25 years. If you’re struggling with regular income issues and need a lower payment, this might be a better option than forbearance or deferment.
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.