Deferment and Forbearance
Both a deferment and forbearance are ways of temporarily suspending your student loan payments during times of financial difficulties. However, there are differences between a deferment and a forbearance that you should understand prior to receiving one of the other from your student loan lender.
A deferment will postpone all student loan payments and under certain conditions will also prevent interest from accruing on your loan while in the deferment period. This is extremely important as it allows the borrower to pause their loan while the balance does NOT continue to grow. The US Government would pay the interest on your loan during the deferment period if you have:
- Federal Perkins Loans
- Direct Subsidized Loans
- Subsidized Federal Stafford Loans
Any other loan types you would be responsible for paying back interest that accrues during a deferment period, including all unsubsidized federal student loans. You would not be responsible for paying the interest while you are in the deferment, but the interest will capitalize and be added onto your principal balance that would need to be paid back once your deferment period is finished.
Eligibility for a deferment would be determined based on what type of loans you have, and the reason for the request of a deferment. For example, if you are having an economic hardship you may be eligible for up to 36 months of deferment on your student loans. If you are enrolled in college at least half time or more, you could also be eligible for deferment while enrolled.
If you would like to check your eligibility for a deferment, you will want to contact your loan servicer and explain to them why you need the deferment. They should then grant it to you based on eligibility.
Alternative to Deferment for Economic Hardships
Although a deferment can be a very useful option for borrowers with an economic hardship, it can also be very beneficial for a borrower to apply for a direct loan consolidation and an income based repayment plan(IBR). This consolidation program is a federal program that allows the borrower to combine all their student loans into one new loan, and into a payment plan that is affordable for the borrower.
The very big difference between an economic hardship in a deferment versus an IBR is that the IBR offers student loan forgiveness at the end of the term, where a deferment simply pauses the student loan. If a borrower defers their loans for three years due to being unemployed, when the deferment ends they will still have the same number of years(term) remaining on paying their loan when the deferment is over. In the IBR, the borrower could qualify for a $0.00 monthly payment while unemployed for as many years as the economic hardship continues (not capped at three years). The months during this economic hardship and $0.00 payment would count as an actual payment towards the loan and would diminish the term of the loan. At the end 25 years any remaining balance on the loan would be forgiven in full.
A forbearance is similar to the deferment in that it pauses your student loan payments for a certain amount of time. One large difference is that the US Government does not pay for interest during the forbearance period, so all interest will capitalize and be added onto the balance of your loan during the forbearance period. There are two types of forbearance that federal servicers provide.
Federal servicers are required by law to provide a forbearance under certain circumstances:
- You are a member of the national guard but are not eligible for a military deferment
- You are currently teaching at a qualify school and want to apply for teacher loan forgiveness
- If your monthly student loan payment exceeds 20% of your total monthly gross income
- You are in a medical or dental residency program
- You qualify for a partial repayment under the US Department of Defense Repayment Program
If you do not qualify for the above mandatory forbearance, the lender may grant you a forbearance based on their discretion. You would need to contact your lender to explain why you feel that forbearance is really needed on your student loan. They are most likely to work with you and offer forbearance if a financial hardship exists or a serious illness that prevents you from working.
If you would like to check your eligibility for a forbearance, you will want to contact your loan servicer and explain to them why you need the forbearance.