Student Loan Forbearance Vs. Deferment: Which Is Right For You?

If you’ve lost your job or had a medical emergency and are struggling with your student loans, you’re not alone. According to the Federal Reserve, about 20% of student loan borrowers were behind on their payments in recent years. If you can’t afford your minimum student loan payments, entering into deferment or forbearance can give you some relief since your loan servicer will temporarily postpone your payments, although you may continue to accumulate interest.

As of early 2020—before the CARES Act suspended federal student loan payments—7.4 million borrowers had over $290.9 billion in outstanding student loans in deferment or forbearance. But that suspension is scheduled to end at the start of 2021.

When thinking about entering into forbearance vs. deferment, here’s what you should know.

How Federal Loan Deferment and Forbearance Work

Depending on your situation, you may qualify for a federal deferment or forbearance and pause your student loan payments. If eligible, you won’t become delinquent or enter into student loan default. However, the length of time your loan payments are postponed and how interest accrues depends on whether you qualify for a deferment or forbearance.

What Is Student Loan Forbearance?

With federal loan forbearance, you can stop making payments or make reduced payments for a fixed period. However, interest will continue to accrue on your loans. If you have direct loans, interest is capitalized, or added to your loan principal.

There are two types of federal loan forbearance:

1. Mandatory Forbearance

With mandatory forbearance, your student loan servicer is required to accept your forbearance request if your situation meets one of the following requirements:

• You are serving in an AmeriCorps position for which you received a national service award.
• You’re eligible for partial repayment of your student loans through the U.S. Department of Defense Student Loan Repayment Program.
• You are completing a medical or dental internship or residency program.
• You are a member of the National Guard and have been activated by a governor.
• You are teaching in a role that is eligible for Teacher Loan Forgiveness.
• Your monthly federal loan payments are 20% or more of your total monthly gross income.

If you qualify for a mandatory forbearance, your loan servicer will allow you to postpone your payments for up to 12 months at a time. If you continue to meet the eligibility requirements for a mandatory forbearance, you can receive additional forbearance periods. Mandatory forbearances only apply to direct and Family Federal Education Loans (FFEL).

2. General Forbearance

A general forbearance is up to your loan servicer’s discretion and is available for direct, FFEL and Perkins loans. You can get a general forbearance in some circumstances, including:

• You’re experiencing financial difficulties, such as a job loss.
• You have major medical expenses.
• You’ve had a change in employment, such as a reduction in pay.

If the loan servicer grants your request for forbearance, you can postpone your payments for up to 12 months. While a general forbearance can be renewed, there is a cumulative limit of three years.

What Is Student Loan Deferment?

Like forbearance, student loan deferments allow you to postpone your payments temporarily. Deferments are not automatic, and your request must be agreed to by your loan servicer.

You can qualify for student loan deferments based on:

• Cancer treatments. If you’re diagnosed with cancer, you can defer your payments while in treatment and for six months after your treatment ends.
• Economic hardship. If you receive benefits like welfare, earn less than 150% of the federal poverty level while working full-time or are serving in the Peace Corps, you can defer your payments for up to three years.
• Graduate fellowship. If you are enrolled in a graduate fellowship program, you may qualify for deferment.
  School status. You qualify for an in-school deferment if you’re enrolled at least half-time at an eligible university.
• Unemployment. If you receive unemployment benefits, you can receive a deferment for up to three years.
• Rehabilitation training. If you’re in a program for drug abuse, mental health or alcohol abuse, you can defer your loans while you’re enrolled.

Federal loan deferment is available for direct, FFEL or Perkins loan borrowers.

Federal Forbearance vs Deferment: Key Differences

Federal forbearance and deferment are very similar, but the biggest difference between them is how interest accrues.

With forbearance, interest accrues on all student loans, and you’re responsible for paying interest charges. You can decide to pay interest as it accrues during your payment postponement period, or you can allow it to accrue and be capitalized to your principal balance.

If you’re eligible for a federal deferment, you may not have to pay interest. If you have one of the following types of loans, the U.S. Department of Education will cover your interest payments while in deferment:

• Direct subsidized loans
• Subsidized portion of direct consolidation loans
• Subsidized portion of FFEL consolidation loans

	Federal forbearance	Federal deferment
Payment postponement	Payments suspended or reduced	Payments suspended
Interest accrual	Interest accrues on all loans	Interest accrues only on unsubsidized loans
Eligibility	Mandatory acceptance if you meet certain criteria	Up to your loan servicer’s discretion

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How to Decide Whether Deferment or Forbearance Is Right for You

When deciding which is better for you—deferment or forbearance—keep the following questions in mind:

• What kind of loans do you have? If you have subsidized loans, deferment is a better option since interest won’t accrue.
• Do you meet the eligibility criteria? Deferments have very fixed eligibility requirements. General forbearance has more flexibility. If you can make a compelling case for why you can’t afford your payments, your loan servicer may grant your request.
• How long do you need to postpone your payments? With deferments, you can postpone your payments for up to 12 months at a time, but it’s capped at three years over the life of the loan. With a mandatory forbearance, there isn’t a limit in how often a forbearance can be renewed.

How to Apply for a Deferment or Forbearance

With federal loan deferment and forbearance, you have to contact your loan servicer to submit a request. In most cases, you’ll also be asked to complete specific forms and submit documentation supporting your application. For example, if you’re requesting forbearance due to a medical emergency, you’ll need to submit copies of your medical bills.

If you’re not sure who your loan servicer is, call the Federal Student Aid Information Center at 800-433-3243.

How Forbearance and Deferment Works for Private Student Loans

Private student loans work quite differently than federal loans. While some private lenders offer forbearance programs for those experiencing financial hardship, not all of them do.

With private loan forbearance, interest always accrues on your loan and is capitalized to your principal balance. Private student loan forbearance typically is much shorter in duration than federal forbearance or deferment. You can usually postpone your payments for one to three months at a time, and most lenders cap the amount of time you can suspend payments over the life of your loan.

For example, private lender ELFI allows you to halt your payments for up to 12 months during your loan term. However, forbearance is up to the discretion of the lender.

If you have private loans and can’t afford your payments, contact your lender to learn about your repayment options.

Alternatives to Forbearance or Deferment

Forbearance and deferment aren’t for everyone, especially since interest can continue to accrue on your loans. If you need help with your payments, consider these options instead:

• Income-driven repayment (IDR) plans. Under IDR, the loan servicer extends your repayment term. Your payment is set at a percentage of your discretionary income and is partially based on your family size. Only federal direct loans are eligible for IDR plans.
• Extended repayment. Both direct and FFEL loans are eligible for extended repayment. With this option, the loan servicer extends your loan term to 25 years. Your payments are either fixed or graduated, meaning they may increase every two years.
• Graduated repayment. Available to direct and FFEL loan borrowers, graduated repayment plans have a repayment term of 10 years. However, your payments start low and increase every two years, even if your income doesn’t change.
• Student loan refinancing. If you have private loans or are ineligible for other federal repayment plans, another option is to refinance your student loans. You may qualify for a lower interest rate and an extended repayment term, reducing your monthly payments.