There are times you may need to apply for deferment or forbearance of your student loans. A deferment or forbearance on student loan repayments allows you to postpone making your federal student loan payments or temporarily reduce the amount you pay.
Difference Between Deferment and Forbearance
When student loan payments are unaffordable, deferment and forbearance can both postpone them. The big difference is that forbearance always increases the amount you owe, while deferment can be interest-free for certain types of federal loans. Increasingly, many private lenders offer borrowers forbearance benefits too.
What is Deferment
Deferment is a period in which repayment of the principal or interest of your loan is temporarily delayed. During the deferment, you do not need to make payments.
- Depending on the type of federal loan you have the government may pay the interest on your subsidized loan during the deferment period.
- You may qualify for a deferment if you meet specific qualifications. To request a deferment, you must contact your loan servicer and request a deferment. If you are requesting an in-school deferment you must contact your financial aid office and the loan servicer.
What is Forbearance
Forbearance allows you to temporarily stop your payments because of financial hardships, illness, or other conditions.
- Forbearance is not automatic and you must apply directly with your loan servicer. In some cases, you may need to submit additional documentation to support your request.
- Interest will continue to be charged on all loan types, including subsidized loans. You can pay the interest during a forbearance or allow the interest to accrue (accumulate). If you don’t pay the interest on your loan during forbearance, it may be capitalized (added to your principal balance), and the amount you pay in the future will be higher.
Always contact your loan servicer immediately if you are having trouble making your student loan payment. If you don’t qualify for deferment or forbearance, you may be able to change your repayment plan. There may be a repayment plan that offers lower payments.
Federal Loans: Subsidized and Unsubsidized
When facing financial hardships or in-school deferment, the obligation to repay a federal education loan is suspended while the borrower is enrolled at least half-time or approved for financial hardship deferment. In this situation, the payments of principal and interest are deferred (delayed) until the end of the grace period after graduation, when the borrower enters repayment on the loan.
With subsidized loans, the federal government pays the interest as it accrues. With unsubsidized loans, the interest is capitalized (added to the loan balance) if unpaid by the borrower as it accrues. This is in contrast with a forbearance, where the interest is the responsibility of the borrower on both subsidized and unsubsidized loans.
Forbearance and Deferment Options for Private Student Loans
Private student loans may or may not have a forbearance or deferment option. The rules vary among lenders. You have to apply to your private lender for forbearance or deferment, and you must continue to make payments until you’ve been notified your forbearance or deferment has been granted. Most lenders offer a deferment if you enroll back in school or working in an internship or residency. Contact your private student loan lender as early as possible if you want to explore this option.
What are Your Options
If you’ve missed payments but your loans haven’t defaulted yet, both deferment and forbearance can be applied retroactively to let you catch up.
Are you considering refinancing your student loans? Here’s a guide to help you through the student loan refinancing. And check out the financial marketplace for the best student loan refinance option.