If you have student loans, and you experience an event that causes difficulty making your payment, such as a job loss, there may be options to temporarily pause your payment. Your student loan servicer may give you the option of deferment or forbearance on your student loan. Both deferment and forbearance let you pause your student loan payment for a specific timeframe.
When it comes to private student loans, there usually isn’t much difference between deferment and forbearance. With federal loans, there are important distinctions between the two.
Understanding the difference, when you’re eligible for either deferment or forbearance, and when to take advantage of them is an important part of managing student loan debt.
What is Deferment?
Deferment lets you put a pause on paying your student loans temporarily. Typically deferment is based on specific things happening in your life, such as returning to school, experiencing an economic hardship, or losing your job.
With federal subsidized loans, the government handles interest payments for you while your loans are in deferment. This means that deferment won’t leave you with an even larger loan bill at the end of the deferment period as it will with loans that are unsubsidized.
Types of deferment
There are many different types of deferment for federal student loans. Typically, they’re tied to different life events.
- Cancer treatment – You can defer payments while you’re undergoing treatment for cancer plus an additional six months.
- Economic hardship – You can defer payments if you qualify for certain means-tested benefits, such as welfare, if you work full-time but your income is less than 150% of the federal poverty level, or if you’re serving in the Peace Corps. This deferment lasts a maximum of three years.
- Graduate fellowship – This lets you defer payments if you enroll in a qualifying program.
- In-school deferment – As long as you are enrolled at least half-time in classes in an eligible college or career school, you can defer your loan payments.
- Military deferments – Active duty military members can defer payments while they’re on active duty.
- Unemployment deferment – You can defer payments for up to three years if you’re actively looking for full-time work or receiving unemployment benefits.
Most types of deferment have special eligibility requirements. For example, you must be serving in the military or currently enrolled in school.
Most types of deferment aren’t automatic, so you have to apply for the deferment to receive it. You also have to make sure you aren’t in default on your loans, as that can make you ineligible for deferment.
What is Forbearance?
Forbearance is another option for pausing your student loan payments while you deal with financial hardship. During forbearance, interest continues to accrue on your loan. You have the option of paying just the interest as it accrues or making no payments and letting the interest capitalize on your loan at the end of the forbearance period.
Types of forbearance
There are a few different types of forbearance that borrowers can apply for.
- General forbearance – This type of forbearance is granted at the discretion of your loan servicer and can be used for general financial hardships, such as medical expenses, changes in employment, financial problems, or any other issues that are causing you to have trouble paying your student loans.
While general forbearances are up to your lender’s discretion, there are also mandatory forbearances. If you meet the requirements, your loan servicer must grant the forbearance if you request one.
- AmeriCorps – You can receive a forbearance if you are serving in an approved AmeriCorps position.
- Medical or Dental Internship/Residency – You may qualify for forbearance if you’re in a qualified internship or residency and meet other requirements.
- National Guard Duty – If you’re a member of the National Guard, your governor activates you for duty, and you don’t qualify for a military deferment, you can request a forbearance.
- Student loan burden – If your loan payments total more than 20% of your monthly gross income, you can get a forbearance of up to three years on certain types of loans.
- Teacher loan forgiveness – If you’re working in a teaching role that qualifies you for loan teacher loan forgiveness, you can request a forbearance.
Mandatory forbearances last no more than twelve months at a time. If you’re still eligible for the mandatory forbearance when the forbearance ends, you can request a second forbearance period.
Like deferments, many forbearances require that you meet certain eligibility requirements. However, general forbearances have no specific requirements, so long as you convince your lender to agree to your request.
As with deferments, you must not be in default on your student loans at the time you request the forbearance.
You must request a forbearance with your loan servicer. Depending on your loans and the type of forbearance you are seeking, you may also need to submit supporting documentation.
What’s the difference?
Deferment and forbearance are often confused. Both let you pause your student loan payments for a specific amount of time.
One primary difference is whether interest accrues. With all private loans and unsubsidized federal student loans, interest will accrue during both a forbearance and a deferment. However, with federal subsidized loans, the government will pay the interest on the loan during a deferment but not during forbearance. This makes deferment preferable if you have subsidized federal loans, because it won’t increase the balance of your student loans.
Another major difference is whether your lender has to grant you deferment or forbearance. Deferments are tied to specific qualifying events, like returning to school or going on active duty in the military. If you meet one of these requirements, your lender must grant the deferment.
With forbearance, while there are some mandatory circumstances, lenders have more discretion.
The other major difference between the two is the application process. General forbearances have a single application that you can fill out, and there’s a separate form that covers all mandatory forbearances. This streamlines the process of requesting one. You can also request a forbearance by phone if you’d rather do that than fill out the form.
Deferments, by contrast, require a different form depending on the type of deferment you’re requesting. Some deferments, like deferment for attending school half-time or more, are usually automatic and don’t require an application.
Who Pays Interest During Deferment and Forbearance?
During a deferment, the federal government pays the interest on a subsidized federal student loan, but not on unsubsidized loans. During a forbearance, the federal government does not pay the interest on either subsidized or unsubsidized federal student loans.
During a deferment or forbearance, the borrower remains responsible for the interest on private student loans.
Some private student loans offer a partial forbearance during which the borrower makes interest-only payments. This prevents the loan balance from increasing.
If the interest is not paid as it accrues, it will be capitalized when added to the loan balance. On federal student loans, the interest is added to the loan balance at the end of the deferment or forbearance period. On private student loans, the interest may be capitalized more frequently.
Once the interest capitalizes, it will increase the amount of interest that accrues each month. When your forbearance or deferment ends, you may have higher monthly payments than before based on the new, increased balance of your loan. That makes it important to understand the true cost of putting a loan in deferment or forbearance.
Use our Cost of Deferment Calculator to help you evaluate the impact of interest capitalization at the end of a deferment or forbearance on the monthly loan payment and the cost of the loan, assuming that the loan payments are re-amortized after the deferment or forbearance period.
How to Use Deferment and Forbearance
Since interest may continue to accrue during a deferment or forbearance, it’s usually better to continue making payments on the student loans. The capitalized interest causes the loan to grow during the deferment or forbearance, making it more difficult for the borrower to repay the debt after the deferment or forbearance than before.
For the same reason, deferments and forbearances should be used when the borrower’s financial difficulty is short-term. The added interest from a few months of deferment or forbearance won’t increase the size of the loan by much. But, a long-term period of non-payment, especially if the borrower stacks multiple deferments and forbearances, or uses consolidation to reset the clock on 3-year deferments and forbearances, can significantly increase the amount of debt.
Borrowers who are in a medical or dental internship or residency are no longer eligible for the economic hardship deferment, so their main options are forbearances and income-driven repayment plans. Not only can an income-driven repayment plan with non-zero monthly payments prevent the loans from growing too large, but an income-driven repayment plan may be a better option than a forbearance if the borrower intends to qualify for public service loan forgiveness.
Deferments and forbearances are best used as a last resort alternative to default.
Deferment and forbearance both give you the chance to pause your monthly payments temporarily, which can let you focus on your immediate financial needs, and give you time to get your budget in order.
Using these tools effectively — and making sure you use the right one at the right time — will help you manage your student loans.