Student Loans

What Is The Difference Between Deferment And Forbearance On Student Loans

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 10 minute read

Due to the continuing coronavirus epidemic, the federal government has suspended federal student loan repayment until August 31, 2022. However, this can’t be prolonged indefinitely. Further, payments on private student loans have not been put on hold.

You may be asking how to delay payments on your federal or private student loans if you are worried about missing the deadline or if you are struggling to make ends meet and can’t afford the payments. If you’re anticipating a time of unemployment or reduced income and are unable to cut your monthly student loan payment, this is especially true.

One can choose between deferral and forbearance if they need just briefly stop making their regular monthly payment. People tend to use the phrases interchangeably, although there are important distinctions between them. You should be aware of these factors since they may affect the total amount of your student loan.

What Exactly Is Student Loan Deferment?

If your lender grants you a deferral, you can put off paying back your student loans for a while. The process is different for federal vs private student loans.

Federal Student Loans

All federal student loans (those issued by the U.S. Department of Education) qualify for the deferment option (ED). In addition to letting you put off payments, the government will not charge you interest on your subsidized federal direct Stafford loans, FFEL (Federal Family Education Loan program) consolidation loans, or federal Perkins loans while you’re in school.

As before, interest will be added to any unsubsidized loans you have. At the end of the deferral term, any interest that has accrued but not been paid may be capitalized (added to the principal debt). Unpaid interest is capitalized exclusively on direct loans and FFEL loans by loan servicers (businesses that administer your loans for the government), but never on Perkins loans. Paying interest while in deferral will keep it from being capitalized.

There are several valid reasons to put off paying back your federal student loans. The length of a deferral is according to the circumstances surrounding the request. Options for postponement include:

  • Staying in School Deferral. As long as you are enrolled at least half-time at an approved college or career school, you can delay paying payments indefinitely without incurring any penalties. Students in graduate or professional school who took out a PLUS loan are eligible for an extra six months of deferral after they graduate or drop below half-time attendance. In most cases, students who qualify for a deferral while still in school receive an automatic extension. Fill out a deferral form at school if it doesn’t happen automatically.
  • Deferral for Students and Parents together. Parents who have taken out student loans for their children can put off making payments while their child is enrolled in school at least half-time. There is no time restriction on a deferral granted to a student who is still enrolled in school.
  • Postponing Graduate Fellowship Payments. For the duration of your graduate scholarship, payments will be postponed. One must be enrolled in a recognized fellowship program in order to be considered. As long as you are a fellow, your deferral can be as long as you choose.
  • Reduction of Penalty Due to Extreme Financial Difficulty. If you are having financial difficulties, you may be eligible for a postponement for up to three years. You must be a full-time worker whose earnings put you at or below 150% of the federal poverty level for your family size and state in which you live. Also, you need to be on welfare or another means-tested program.
  • Work Delay Due to Unemployment. If you are jobless, collecting unemployment benefits, or actively seeking full-time employment, you may request a three-year payment deferral.
  • Deferral from military service while on active duty. When serving in the military, you are eligible for deferment indefinitely. A state of war, military action, or national emergency requires your active participation. Once you enroll in school for less than full time, the military deferral will terminate (but it switches to in-school deferment). Or it expires 13 months after the conclusion of active duty plus any grace period that may be granted.
  • Cancellation of Cancer Treatment. For the duration of your treatment and up to six months afterward, you can put off making payments.
  • Hold off on Rehab Courses. In the event that you are currently enrolled in a drug or alcohol rehabilitation program, as well as a mental health or vocational treatment program, you are eligible for a payment deferment for the duration of your stay in the program.

As opposed to private loans, federal loans allow you to take advantage of as many deferral options as you meet. To give you an idea, you may delay payments for four years while in school, another three years due to financial difficulties, another two years for a master’s degree, and another year for cancer treatment. You could postpone for four to eight years while completing a doctoral program.

Loans for Private Students

Private lender deferment is very different from what is available via the ED. Even when payments are put on hold during a deferral, interest is usually not stopped by private lenders.
Deferment might be granted under similar circumstances to those for federal student loans, such as continued education, medical residency, military service, or financial hardship. While the requirements for postponement may be more lax with government agencies, commercial lenders frequently have fewer options.

Furthermore, the maximum amount of time you may delay payments with private lenders is often shorter. Your loan terms may limit the total amount of time that you can delay payments, including while enrollment in an educational program, to a maximum number of months.

If you take out a private loan and put it on hold for 12 months while you’re in school, that’s 12 months out of your total deferral time. However, if you find yourself in financial difficulty after the initial three-month deferral, you will not be eligible for a second deferral.

However, the conditions provided by private lenders might differ. Deferment terms from some of the best private student loan providers are not cumulative. Before consenting to a deferral, you should always read the terms and conditions carefully.

What Is Forbearance on Student Loans?

In the same way as deferral delays payments, forbearance temporarily halts them. However, there are a few subtle distinctions between the two. When comparing the two alternatives, if you meet the requirements for deferment, it is preferable to choose it because of the way interest is handled by the latter.

Federal Student Loans

Whether you qualify for deferral or forbearance, you can temporarily postpone paying back your federal student loans. Interest on subsidized student loans is only put on hold during deferral.

Interest on all your federal loans, subsidized and unsubsidized, will continue to accumulate even if you don’t have to make payments during a forbearance. At the end of the forbearance period, the loan servicer will capitalize it on all direct loans and FFEL loans (not Perkins loans). That implies your post-forbearance debt will be greater.

Making interest payments during the forbearance period might help you avoid this, however it is not needed. Forbearance can either be voluntary or obligatory, and both are available. 

Your loan servicer can choose whether or not to offer general forbearance, but they are required to do so in the case of obligatory forbearance. A general forbearance allows you to temporarily stop making payments on your student loans if you don’t qualify for a deferral.

  • You are suffering financial difficulty.
  • You have exorbitant medical expenditures
  • You’ve suffered an employment transition.
  • Your servicer accepts any other event that makes it temporarily difficult for you to repay your loan and qualifies you for a forbearance.

General forbearances are discretionary, so it’s up to your loan servicer to decide whether or not to issue one. On the other hand, it gives the servicer a lot of discretion, which means they may temporarily suspend your payments for almost any cause, so long as it sounds acceptable.

A general forbearance may only be granted once per 12 months. If your financial situation has not improved after a year, you may apply for a new forbearance. However, you cannot request a general forbearance on your debts for more than three years. Under the following circumstances, your servicer is required to give mandatory forbearance:

  • AmeriCorps. You’ve gotten a national service award and are currently volunteering with AmeriCorps. To learn more, check out AmeriCorps.
  • The Shackle of Student Loan Debt. The sum of your monthly payments for all of your federal student loans is more than 20% of your monthly gross income, which indicates that you have a serious problem with student loan debt. Send in your request using the student loan debt forbearance application.
  • Residency Program in the Medical or Dental Professions. You’re doing an internship in medicine or dentistry. Put in a request for a service-based forbearance by filling out the appropriate form.
  • Defense Force Service You’ve been called up to active duty in the National Guard, but you don’t meet the criteria for a military deferment. Use the form for requesting a service-based forbearance to apply for this.
  • This is the Loan Forgiveness Program for the Department of Defense. You may be eligible for a reduction in the total amount of student loans you have to pay back through the GI Bill® or the Student Loan Repayment Program of the Department of Defense of the United States. To obtain a service-based forbearance, please fill out this form.
  • Repayment of Student Loans for Teachers. You can request a forbearance on your debts while you work toward meeting the requirements for teacher loan forgiveness. Use the application for deferment of teacher loans to apply.

Mandatory forbearances, like ordinary forbearances, are limited to a maximum period of 12 months. For as long as you continue to fulfill the criteria, you will be able to apply for a second forbearance after the initial 12 months have passed.

However, most mandated forbearances do not have a cumulative limit, unlike general forbearance. With student loan debt forbearance, however, you can only obtain relief for a maximum of three years.

Private Student Loans

Forbearance on a private student loan is analogous to a deferral in practice. The main distinction between deferral and forbearance is only in the nomenclature, since few private lenders really forgo interest during deferments. Nonetheless, it is in your best interest to read the tiniest print possible when dealing with a financial institution.

Lenders may have varying requirements for deferments and forbearances, including minimum required term lengths. For instance, your lender may state that forbearance is accessible upon request and that deferral lasts for 12 months. Therefore, if you run out of deferral time but are experiencing financial difficulty, you may still be able to apply for forbearance.

Should Your Student Loan Payments Be Delayed?

Deferment or forbearance is an easy and quick way out of temporary financial difficulties. Yet, postponement and forbearance aren’t great options if your problem will persist for a lengthy time. Even in short-term settings, they aren’t always the best option.

This is due to the fact that the interest on some loans increases the longer they are delayed or foregone. The loan servicer will add the interest to your principal balance, increasing your debt. Once this occurs, you will begin to accrue interest on the increased principal balance, thus increasing your interest payments.

Your federal student loans won’t accrue any interest during deferment or forbearance, except in cases of extreme economic difficulty. Therefore, a tolerable amount of student loan debt might quickly balloon into an unmanageable financial load if deferments and forbearances were granted for several years.

Because of this, it is often preferable to hunt for an alternative that better meets your specific requirements. Examples of this may be:

  • Repayment arrangements based on income
  • Private lenders’ flexible repayment arrangements (check with your lender for more info)
  • Student loan consolidation
  • Debt forgiveness for students, including public service loan cancellation
  • Discharge or cancellation (requires qualification)
  • Bankruptcy

Bottom Line

The ED and other public and commercial lenders allow borrowers considerable leeway in delaying loan payments. Nonetheless, that’s not to say you always must. The cost of loan deferment or forbearance is the interest that will accrue during the delay.

There are instances when it is difficult or impossible to make your monthly payments due to unforeseen financial crises. If you are experiencing problems making payments on your student loans, you must contact your servicer immediately. Stopping payments abruptly is a certain way to end yourself in default on your student loans, so you should never do that.

Wage garnishment is one of the many severe repercussions of default. Without a court order, the federal government can take money directly from your paycheck, taxes, or Social Security to cover your student loan, interest, and fee obligations.

Also, if you’ve already fallen behind on your loan payments, you probably won’t be granted any kind of deferment or forbearance.

You should keep making payments on your student loans until you hear back from your loan servicer that it has approved a deferral or forbearance, which might take up to 30 days. Your loans may become late if you cease making payments. And there’s a chance of default.

You will be considered to be in default on your federal student loans if you have not made any payments on them for more than nine months. However, missing even one payment on a private student loan can lead to default.

If you need to miss a payment and want to minimize the damage, contact your loan servicer as soon as possible.

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