What are the differences between deferring your student loans and forbearing them?
The federal government has put federal student loan repayment on hold until Aug. 31, 2022, due to the ongoing coronavirus pandemic. But they can’t extend it forever. Moreover, if you’ve got private student loan debt, your payments haven’t been on hold.
Whether you’re dreading the impending deadline on your federal loans or are living paycheck to paycheck and can’t pay your private loans, you may be wondering how to postpone your payments. That’s especially true if you’re facing a period of unemployment or reduced income and can’t find a way to lower your monthly student loan payment.
If you only need to pause your monthly payment temporarily, you have two primary options: deferment and forbearance. While people often use the terms interchangeably, there are some key differences. And knowing what these are could impact how costly your student loan becomes.
What Is Student Loan Deferment?
A deferment allows you to temporarily suspend making payments on your student loans for reasons specified by your lender. Exactly how it works differs based on whether your loans are federal or private student loans.
Federal Student Loans
Deferment is available on all federal student loans, which are loans from the United States Department of Education (ED). In addition to allowing you to suspend making payments, interest doesn’t accrue on any of your direct subsidized loans, the subsidized portion of direct consolidated loans, subsidized federal direct Stafford loans, the subsidized portion of FFEL (Federal Family Education Loan program) consolidation loans, and federal Perkins loans.
All your unsubsidized loans continue to accrue interest. And any unpaid interest that accumulated during the deferment may be capitalized (added to the principal balance) at the end of the deferment period. Loan servicers (the companies who manage your loans for the government) only capitalize unpaid interest on direct loans and FFEL loans, never on Perkins loans. You can pay the interest during deferment to prevent capitalization.
You can defer federal student loans for a variety of reasons. The length of allowable deferment varies, depending on the reason for the deferment.
Deferment options include:
- In-School Deferment. You can defer making payments for an unlimited amount of time as long as you’re enrolled at least half-time at an eligible college or career school. And if you’re a graduate or professional student who borrowed a PLUS loan, you qualify for an additional six months of deferment after you graduate or drop below half-time enrollment. In-school deferment is typically automatic. If it doesn’t happen automatically, complete an in-school deferment request form.
- Parent PLUS Borrower Deferment. If you’re a parent and took out loans for your child’s education, you can defer those loans while they’re attending school at least half-time. As with in-school deferment, there’s no limit on the length of deferment as long as the student remains enrolled.
- Graduate Fellowship Deferment. You can defer payments for the total amount of time you’re enrolled in a graduate fellowship program. To qualify, you must be enrolled in an approved fellowship program. There’s no limit on the length of deferment as long as you remain in the fellowship.
- Economic Hardship Deferment. You can only receive this deferment for up to three years if you’re experiencing financial hardship. To qualify, you must work full time but earn income below 150% of the poverty guidelines for a family of your size in your state of residence. Or you must be receiving a means-tested benefit like welfare.
- Unemployment Deferment. You can defer making payments up to three years if you’re unemployed, receiving unemployment benefits, or looking for full-time employment.
- Active-Duty Military Service Deferment. You can use military deferment as many times as applicable. You must be on active duty in connection with a war, military operation, or national emergency. The military deferment ends when you resume enrollment in school at least half-time after active duty (but it switches to in-school deferment). Or it ends 13 months after active duty and any applicable grace period.
- Cancer Treatment Deferment. You can defer making payments for the total amount of time you’re in treatment and up to six months after treatment.
- Rehabilitation Training Deferment. You can defer making payments for the total amount of time you’re enrolled in a rehabilitation training program for alcohol or drug abuse or for a program intended to provide mental health or vocational treatment.
Unlike private loans, federal loans let you use as many deferment conditions as you qualify for. For example, you could defer making payments for four years while in college, another three years for economic hardship, an additional two years to get a master’s degree, and another year for cancer treatment. And then you could go back to school to get a doctorate and defer again for another four to eight years.
Private Student Loans
Deferment with private lenders is substantially different from the ED’s offerings. While deferment does suspend payments, most private lenders don’t suspend interest.
As with federal student loans, the conditions for deferment could include school enrollment, participation in a medical residency, military deployment, or economic hardship. But there are often fewer conditions for deferment with private lenders, and the conditions vary by lender.
Additionally, private lenders typically have less generous caps on the amount of time you can defer payments over the life of your loan. For example, your loan might specify a cap of 12 months of total allowable deferment, including in-school deferment.
Generally, the deferments for private lenders are also aggregate — meaning if you defer your loan for 12 months while in school, you use up all your allotted deferment time. You can’t later defer for another three months if you experience economic hardship.
But private lenders’ terms vary. Some of the better private student loan companies have deferment conditions that aren’t aggregate. Always read the fine print before you accept any period of deferment so you know what you’re agreeing to.
What Is Student Loan Forbearance?
As with deferment, forbearance allows you to suspend making payments for a set period. But there are some slight differences between the two. One particular difference makes deferment the better option if you can qualify for it: the way the options handle interest.
Federal Student Loans
Both deferment and forbearance allow you to stop making payments on your federal student loans temporarily. But only deferment suspends the interest on your subsidized student loans.
Thus, even though you don’t have to make payments during a forbearance, interest continues to accrue on all your federal loans, both subsidized and unsubsidized. And the loan servicer will capitalize it on all direct loans and FFEL loans (not Perkins loans) at the end of the forbearance period. That means you end up owing a higher balance after the forbearance.
You can prevent that by making interest payments during the forbearance, although it’s not required.
There are two types of forbearance: general forbearance and mandatory forbearance. General forbearance is at the discretion of your loan servicer, but your servicer must grant mandatory forbearance.
If you don’t qualify for a deferment but need to suspend your monthly student loan payments temporarily, you can request a general forbearance under the following circumstances:
- You’re experiencing financial hardship
- You have excessive medical expenses
- You’ve experienced a change in employment
- You’re experiencing any other circumstance that makes it temporarily difficult to repay your loan, which your servicer accepts as a reason to grant the forbearance
Because a general forbearance is at the discretion of your loan servicer, it’s ultimately up to them whether to grant it. However, it also provides the servicer with a lot of leeway, meaning they can grant you a temporary suspension of payments for nearly any reason as long as it seems reasonable.
You can only receive a general forbearance for 12 months at a time. At the end of 12 months, if you’re still experiencing financial hardship, you can request another forbearance. However, you can’t forbear your loans under a general forbearance for more than three years in total.
Your servicer must grant mandatory forbearance under the following conditions:
- AmeriCorps. You’re serving in an AmeriCorps volunteer position for which you’ve received a national service award. Visit AmeriCorps for more information.
- Student Loan Debt Burden. You have such an excessive amount of student loan debt that the total amount you owe each month on all your federal student loans exceeds 20% of your monthly gross income. Apply using the student loan debt burden forbearance request form.
- Medical or Dental Residency. You’re serving in a medical or dental residency. Apply using the service-based forbearance request form.
- National Guard Duty. You’re a member of the National Guard and have been activated by the governor but don’t qualify for military service deferment. Apply using the service-based forbearance request form.
- Department of Defense Loan Repayment Assistance Program. You qualify for partial repayment of your student loans through the U.S. Department of Defense’s student loan repayment program. Apply using the service-based forbearance request form.
- Teacher Loan Forgiveness. If you’re working toward qualifying for teacher loan forgiveness, you can forbear your loans during that time. Apply using the teacher loan forgiveness forbearance form.
Like general forbearances, you can only receive mandatory forbearances for up to 12 months at a time. At the end of 12 months, you can request another forbearance as long as you continue to meet the eligibility requirements. Unlike general forbearance, there’s no cumulative limit on most mandatory forbearances. The exception is the student loan debt burden forbearance, which you can only receive up to a cumulative maximum of three years.
Private Student Loans
A private student loan forbearance operates similarly to a deferment. Since few private lenders suspend interest on student loans for deferments, the difference with forbearance is primarily in the name. But it’s worthwhile to check your lender’s fine print to see if there are any differences in terms.
Occasionally, lenders have different qualification conditions for deferments versus forbearances or different mandatory term lengths. For example, a lender might specify that your loan provides 12 months of deferment, but forbearance is available upon request. So if you use up all your allotted deferment, you may still be able to request forbearance if you experience financial hardship.
Should You Postpone Your Student Loan Payments?
If you’re experiencing temporary financial hardship, deferment or forbearance is a quick and convenient solution. But if your situation is long term, deferment and forbearance aren’t ideal solutions. In fact, sometimes, they’re not ideal even in temporary circumstances.
That’s because the longer you defer or forbear, the more interest accrues on certain loan types. Then, when the loan servicer capitalizes the interest, your balance is even higher and you start racking up interest on the higher balance, meaning you’re now paying interest on top of interest.
Additionally, with the exception of economic hardship deferment, any time your federal student loans spend in deferment or forbearance, they aren’t earning credit toward forgiveness.
So multiple years of deferments and forbearances could easily cause a manageable amount of student loan debt to spiral into an overwhelming debt burden.
Thus, you’re better off looking for an alternative that better suits your individual needs in most situations. That could include:
- Income-driven repayment plans
- Flexible repayment plans from private lenders (check with your lender for more info)
- Student loan refinancing
- Student loan forgiveness, including the public service loan forgiveness
- Cancellation or discharge (requires qualification)
For more information on these options, read our article on your options for paying back federal student loans.
Many lenders, from the ED to private institutions, give you a lot of discretion when it comes to postponing repaying your loans. But that doesn’t mean you always should. Deferring or forbearing your loans can be costly due to the accumulation of interest.
However, sometimes unexpected financial emergencies occur that make it difficult or impossible to make your monthly payments. Always contact your student loan servicer immediately if you’re having trouble paying your student loans. Never just stop making payments, as there’s almost always a solution to help you avoid defaulting on your student loans.
Default comes with serious consequences, including wage garnishment. The federal government can garnish your wages and capture your taxes or Social Security to repay your student loans, interest, and fees without having to sue you first.
Additionally, you generally won’t be able to defer or forbear your loans if you’ve defaulted on previous payments.
Be aware that you must continue to make payments on your student loans until your servicer notifies you it has granted the deferment or forbearance, which could take 30 days. If you stop paying, your loans could become delinquent. And you may go into default.
For federal student loans, you’re in default if you haven’t paid on your loans for more than nine months. But private student loans could go into default if you miss as few as one payment.
So to avoid negative consequences, reach out to your loan servicer as soon as you need to miss a payment.