The Difference Between Student Loan Deferment and Loan Forbearance
TL;DR: Student loan deferment and forbearance are options that allow borrowers to pause or reduce payments. Deferment is often best for those with specific qualifying hardships, as interest on subsidized loans doesn’t accrue, potentially saving money long-term. Forbearance is easier to qualify for but comes with interest accrual on all loans, increasing total costs.
For many borrowers, student loans are a necessary part of reaching educational and career goals. But life after college can bring financial challenges that make repayment difficult. Two options that might help in these situations are deferment and forbearance. While both offer temporary relief from loan payments, they differ in terms of interest accrual, eligibility requirements, and potential long-term financial impacts. Knowing when to use each option can make a significant difference in your financial well-being.
What Is Student Loan Deferment?
Student loan deferment is a temporary postponement of loan payments. It’s generally intended for borrowers who are enrolled in school, experiencing financial hardship, serving in the military, or participating in other qualifying programs. Here are the key aspects of deferment:
- Interest Accrual: During deferment, interest on subsidized federal loans does not accrue, which can make it a more cost-effective option if you qualify. However, interest does accrue on unsubsidized federal loans and private loans, which will increase the total amount owed if not paid during the deferment period.
- Eligibility Requirements: Deferment eligibility is more specific. Borrowers need to meet certain conditions, such as being enrolled at least half-time in school or undergoing financial hardship as defined by the Department of Education.
- Duration: Deferment periods are typically longer than forbearance, sometimes extending up to three years, depending on the borrower’s circumstances.
What Is Student Loan Forbearance?
Loan forbearance also allows borrowers to pause or reduce their payments, but it works differently from deferment. Here are the main points to consider:
- Interest Accrual: Interest on all loan types, including subsidized federal loans, continues to accrue during forbearance. This can significantly increase the total amount owed if payments are not made toward the interest.
- Eligibility Requirements: Forbearance is generally easier to qualify for compared to deferment. Most federal student loan borrowers are eligible for general forbearance, which can be requested for financial hardship, illness, or other reasons. Additionally, certain conditions, like a high monthly debt burden, may qualify a borrower for mandatory forbearance.
- Duration: Forbearance is often granted in shorter intervals, typically up to 12 months at a time, and may be renewed if the financial need persists.
Key Differences Between Deferment and Forbearance
| Aspect | Deferment | Forbearance |
|---|---|---|
| Interest Accrual | No accrual on subsidized loans; accrues on unsubsidized loans | Interest accrues on all loans |
| Eligibility | Requires meeting specific criteria | Easier to qualify; fewer restrictions |
| Duration | Often up to 3 years | Usually 12 months, with possible renewals |
| Best For | Borrowers who need long-term relief and qualify for specific reasons | Borrowers facing short-term financial hardship |
Pros and Cons of Deferment
Pros:
- No interest accrual on subsidized federal loans
- Can offer longer periods of relief
Cons:
- Limited eligibility, may not be accessible to all borrowers
- Interest on unsubsidized loans increases the total loan balance if not paid
Pros and Cons of Forbearance
Pros:
- Easier to qualify for, providing more flexibility for borrowers
- Can be renewed if financial hardship continues
Cons:
- Interest accrues on all loan types, increasing the total loan balance
- Typically offers only short-term relief
Choosing the Right Option for Your Situation
Both deferment and forbearance can provide valuable relief, but they each come with financial implications. Deferment might be a better option if you’re still in school, on active military duty, or experiencing a specific financial hardship that qualifies. Forbearance, on the other hand, is more accessible for temporary financial challenges but will generally cost more due to interest accrual.
Understanding the difference between deferment and forbearance can empower borrowers to make the best decision for their financial future. If you’re unsure which option is right for you, reach out to your loan servicer or financial advisor to explore what might best meet your needs and goals. Making an informed choice today can help you manage your debt effectively and minimize the long-term costs of your student loans.
Disclaimer: The information provided in this post is for general informational purposes only and should not be considered financial advice. Student loan situations can vary significantly based on individual circumstances, and decisions around deferment or forbearance can have lasting financial impacts. Before making any changes to your loan repayment plan, consult a qualified financial advisor or your loan servicer to understand the best options for your unique situation.