Deferment vs. Forbearance: Which is the Better Option?

In today’s economy, it’s not unusual for borrowers to experience a few speed bumps on the road to repayment. But with more and more student loans going into default – which grew to 1.5 trillion in 2019 – it’s a problem that isn’t going away any time soon.

The good news for borrowers is that there are some ways to get some relief from the burden of monthly payments. And here’s where student loan deferment and student loan forbearance come in.

Through deferment and forbearance, you can temporarily stop making payments on your student loans during a financial hardship or for other qualifying reasons. However, there are a few important differences between the two that are worth mentioning, especially when you’re trying to decide which one is right for you.

Here’s a look at how deferment and forbearance work and how they compare in benefits and disadvantages.

Deferment

Deferment can temporarily delay your student loan payments for as long as you stay qualified for the program. However, deferment is treated differently on subsidized loans and unsubsidized loans.

On subsidized loans, not only will your payments be postponed, you won’t be on the hook for interest that accrues during the period of loan deferment. What’s more, this benefit also applies to the subsidized portion of federal consolidation loans while they’re in deferment.

Unsubsidized loans, on the other hand, will continue to accrue interest during deferment. So, while you’ll still get the benefit of having your loans put on pause, interest on your deferred loans will continue to grow. With that in mind, you can either pay your accruing interest each month, or wait for it to get capitalized – or added to your loan balance – once your payments resume.

Qualifying for Deferment

According to the Federal Student Aid website, you’ll need to meet one or more of the following requirements to be eligible for deferment:

• You are enrolled in an eligible post-secondary school at least half-time
• You are the parent of someone enrolled in an eligible post-secondary school at least half-time (Direct PLUS & FFEL PLUS Loans only)
• You are enrolled in an approved graduate fellowship program
• You are receiving cancer treatment or you completed treatment in the last six months
• You are disabled and enrolled in an approved rehabilitation training program
• You are unemployed or underemployed
• You are experiencing an economic hardship
• You are serving in the Peace Corps
• You are an active duty military service member or have been on active duty within the last 13 months
• You have a Perkins Loan and are working towards cancellation

Forbearance

Like deferment, forbearance lets you put your payments on hold, however there are a few key differences. For one, forbearance can only be used for up to 12 months at a time, and can only be used for a maximum of 36 months.

Another difference is that during forbearance, no matter what types of loans you have, interest will continue to build on your loans. And just like unsubsidized loans that have been deferred, this interest will be added to your principal unless you pay it during your forbearance.

In some situations, forbearance may also be mandatory. Here’s how the requirements for General Forbearance and Mandatory Forbearance differ.

Qualifying for General Forbearance

You can qualify for a General Forbearance if you’ve experienced:

• A financial hardship
• Unexpected or large medical expenses
• Job loss or a change in employment status
• Other qualifying reasons decided by your servicer

Qualifying for Mandatory Forbearance

You can qualify for Mandatory Forbearance if:

• You have Direct or FFEL Program Loans and serve in a medical or dental internship or residency program
• Your total federal student debt on Direct, FFEL Program and Perkins Loans exceeds 20 percent of your gross monthly income
• You have Direct or FFEL Program Loans, serve in AmeriCorps and have received a national service award
• You have Direct or FFEL Program Loans and work in a teaching position that qualifies you for Teacher Loan Forgiveness
• You have Direct and FFEL Program Loans and qualify for partial repayment of your loans through the U.S. Department of Defense Student Loan Repayment Program
• You have Direct and FFEL Program Loans and are an activated member of the National Guard not eligible for military deferment

Deferment or Forbearance: Which is Better?

If you’re in financial trouble and your monthly payments are in jeopardy, both options are great for putting your payments on hold until you can get back on your feet. But remember, deferment has one big advantage: no capitalization of interest on subsidized loans.

If you have subsidized federal loans, your best bet is to apply for deferment first to see if you can get approved. If you’re unable to get approved, however, forbearance offers the same benefits over a 12-month timeframe. And if this isn’t enough time to get your finances back on track, you can apply for the program again and potentially get up to three years before restarting your payments.

Applying for Deferment or Forbearance

Whether you’re applying for deferment or forbearance, the process starts when you fill out an application. And no matter which one you choose, you can fill out the student loan deferment form and student loan forbearance form on the Student Financial Aid website.

As part of the application process, you might need to provide documentation that proves your eligibility. You’ll also want to keep making payments until your application has been approved. Otherwise you could risk your loans going into default, and if they’re not sorted out quickly, collections and wage garnishment.

Ready to start the application process or explore other repayment options that can reduce your monthly payments and may even qualify you for loan forgiveness? Get in touch with our student loan specialists by filling out our online form or calling (800) 771-6358 now for help!