What is better: Student loan deferment or forbearance?
Deferment is a better option than being forborne if you are eligible. Both are not the best long-term solutions.
If you need solutions for your student debt:
- Help is available: Contact organizations and resources for student loans.
- Payoffs: Learn the difference between deferment and student loan forbearance.
- Learn how to get out of default on student debt.
- Learn how to declare bankruptcy and get rid of student debts in bankruptcy
Both forbearance and deferment can postpone student loan payments if you cannot afford them. There is a significant difference: Forbearance will always increase your owes, while deferment may be interest-free for some federal loans.
The right decision about whether to defer or forbearance will depend on your situation.
- Deferment: This is a good option if you have subsidized federal student loans or Perkins loans and are not employed or in financial difficulty.
- A forbearance is a good option if you aren’t eligible for deferment or your financial problem is temporary.
Both options are suitable for avoiding student loan default, but neither is the best long-term solution. Consider enrolling in an income-driven payment plan instead of paying off repayment if you don’t anticipate improving your financial situation.
What is the difference between forbearance and deferment?
Here are some critical comparisons between deferment and forgiveness for federal student loans.
Length: Length can vary depending on the type of deferment; some last for three years, while others are available for as long as you qualify.
Qualification – Requires a qualifying event, such as being unemployed or enrolled at least half the time in school.
Process of application – Different forms for deferments require different forms. Your student loan servicer should receive the correct format and all documentation.
Interest accrual – Perkins and federal student loans that are subsidized do not have an interest.
Availability – If you meet the eligibility criteria and have sufficient deferment time, your servicer will grant you a Deferment.
Credit impact – The deferment of student loans does not affect your credit.
Length – No more than 12 months at a given time. Federal loans have no maximum.
Qualification – It is not usually necessary to qualify for a particular event.
Application process – A single form is required for “general forbearance,” but servicers may grant forbearance by phone.
Interest accrual – All loans are subject to interest accrual.
Availability – It is usually up to your servicer whether or not you are granted forbearance. However, in certain cases, forbearance may be mandatory.
Credit Impact – Student loan forbearance does not impact your credit.
Log in to studentaid.gov to find out which type of federal student loan you have. To identify loans that won’t earn interest while deferred, look for “Perkins” and “subsidized” loans.
Forbearance and deferment can be used retroactively to catch up if you have missed payments but have not yet defaulted on your loans.
Which is better, deferment or forbearance?
- Student loan deferment can be a better choice than forbearance if you need to stop paying your student loans. You will need to be eligible for deferment. The following are the reasons you might qualify for a deferment:
- At least half-time attendance at school
- Being unemployed.
- Federal or state assistance, such as the Supplemental Nutrition Assistance Program or Temporary Aid for Needy Families.
- A monthly income less than 150% below the poverty guidelines in your state.
- Active military duty, or the Peace Corps.
- Cancer treatment.
If you have federal student loans, Perkins loans, or subsidized federal student loans, deferring your student loan is a good option. The deferred loans do not accrue interest, so the amount you owe at the end of the deferment will be the same as when it began. This is a real break from your loans.
Forbearance might be a good option if you aren’t eligible for a deferment but expect to have financial difficulties that will only last a few days.
Take this example: If you were involved in an accident, you would need to pay a substantial medical bill. Although you don’t have the money to pay for this and other unexpected expenses, you will soon. You can’t defer this situation, but you can temporarily put your loans into forbearance.
Forbearance allows you to use the money from your student loans towards other bills and then resume your repayment. Despite the higher interest costs, Forbearance is likely cheaper than other options like a personal or payday loan.
Private student loans: Deferment or forbearance
Private lenders offer deferment programs for military personnel and students enrolled in schools. Forbearance is typically provided for at least 12 months.
Deferment and forbearance are the same for private student loans, despite their names. Interest accrues, and you are responsible for paying it.
It’s a great way to prevent interest from ballooning if your lender offers you the option of making interest payments while you are still in school.
Contact them if your lender doesn’t allow you to defer or forbearance because your student loans are too expensive. You may be able to make interest-only payments or your interest rate temporarily, depending on what your lender offers.
Consider income-driven repayment instead.
Request for income-driven repayment instead if you debate deferment and forbearance due to the long-term inability to afford federal student loans.
Income-driven plans are tied to your earnings and can pay as little as $0 for those unemployed or underemployed. While paying less can cause interest to increase, income-driven repayment offers the additional benefit of being forgiven after 20-25 years.
Repayment options are available for federal and private loans that are in default.
Federal student loan default means income-driven repayments, deferments, and forbearance no longer work. These loans can be returned to good standing through loan rehabilitation or consolidation. Private loans are not eligible for this.
Private student loan default can limit your recovery options. You may need to consult a student loan lawyer if you cannot repay your debt completely.
You can also get help from a lawyer to determine if your statute of limitations has expired on student loans. This would reduce the possibility of you being sued for past-due debt.