When you graduate from college with student loan debt, you typically have a 6-month grace period before you have to start paying off your loans. But there’s no guarantee that after your grace period ends, you’ll be in a good financial position to start making payments. In these situations, you may have some recourse.
Two options to consider are deferment and forbearance. Both give you temporary relief from your burdensome monthly payments, and they might seem like a way to avoid delinquency or default.
But there’s an important caveat: Not making payments during your deferment and forbearance periods results in the capitalization of the interest you owe, meaning your loan principal will subsequently increase. After that, not only will your monthly payments have ballooned, but you’ll owe even more in interest than before.
Here’s what to know about student loan deferment vs forbearance as well as other alternatives to consider if you’re struggling with your student loan payments.
What Is Student Loan Deferment?
Student loan deferment allows you to temporarily postpone or stop making student loan payments. Before signing on the dotted line, however, ensure you understand what deferment of a student loan entails and the lender’s terms. In some cases, the interest may be covered during deferment, while in others, you will be responsible for paying the accrued interest.
| Government pays accrued interest | Borrower is responsible for accrued interest |
| Direct subsidized | Direct unsubsidized |
| Subsidized Stafford | Unsubsidized Stafford |
| Subsidized direct consolidation | Graduate PLUS |
| Subsidized FFEL consolidation | Unsubsidized direct consolidation |
| Perkins loans | Unsubsidized FFEL consolidation |
Also, parents are responsible for paying interest on federal PLUS loans in deferment.
It’s important to familiarize yourself with the length of your deferment. Some deferments, for example, the Economic Hardship Deferment, can last up to three years.
What Qualifies You For Deferment On Student Loans?
To get approved for student loan deferment, you must have experienced a qualifying event. These include changes to your student or financial status, which may make repayment difficult, including:
- Enrollment in a qualifying college, career or graduate program
- Participation in a rehabilitation program
- Receiving unemployment benefits
- Actively serving in the military
- Experiencing a qualifying economic hardship
- Undergoing cancer treatment
- For parent PLUS loan deferment, a child’s enrollment or re-enrollment in an eligible college or career program
What Is Student Loan Forbearance?
If you don’t qualify for a deferment, you may have to request a forbearance on your student loans. When in forbearance, you can either make reduced payments or no payments at all for a limited period of time. In almost all forbearance cases, you’ll be responsible for paying accrued interest on your student loans.
As with deferments, you must continue to make your monthly payments until the request for forbearance is approved by your loan servicer. Going into forbearance will not erase any past missed payments, so it’s best to request it before you miss payments to avoid a negative impact on your credit score.
What Qualifies You For Forbearance On Student Loans?
The two types of forbearances are general and mandatory, and each has different qualifying requirements. Note that approvals for general forbearance are at your lender’s discretion.
General Forbearance
While your loan servicer is not required to grant you a general forbearance, you can request one if you are unable to make your student loan payments for reasons outside of your control. You might qualify for a general forbearance if you’ve experienced major medical expenses, job loss, or significant financial difficulties.
Mandatory Forbearance
If you meet certain eligibility criteria for mandatory forbearance, your loan servicer may be required to grant you forbearance. You can request a mandatory forbearance if:
- You’re serving with Americorps, in a medical or dental internship or residency, or are an activated member of the National Guard
- You’re eligible for partial loan repayment through the U.S. Department of Defense
- You qualify for teacher loan forgiveness
- Your loan payment exceeds 20% of your total income
Deferment vs. Forbearance
While student loan deferment and forbearance sound similar, they are different in a few key ways:
| Deferment | Forbearance | |
|---|---|---|
| Length | Deferment may last for several years, depending on the type | Forbearances generally have a maximum of 12 months |
| Interest | Loans generally continue to accrue interest, but not always | Loans always accrue interest during forbearance |
| Qualifying Event | Required | Not required |
| Lender Requirements | If you meet the requirements, your lender is often required to approve a deferment request | Lenders are not normally required to approve general forbearance requests, but they may be required to approve some mandatory forbearance requests |
| Application | You must apply with your lender for the type of deferment you seek | You can submit a general forbearance application or call your lender with a request |
Despite their differences, it’s important to note that neither student loan deferment or forbearance will impact your credit score. You can use the above chart to determine which may be a better fit for your needs.
Alternatives to Student Loan Deferment & Forbearance
If you’d like to decrease your monthly student loan payments, but neither deferment or forbearance seem like the best approaches, you can also explore a few alternatives:
Income-Driven Repayment
If you have federal student loans, you might be eligible for an income-driven repayment plan. These plans only require you to pay a percentage of your discretionary income each month, but can increase the total length of your repayment term and the amount of interest you’ll pay over time.
Student Loan Consolidation
If you’re struggling to keep track of many different student loan payments, then student loan consolidation could be a good choice.
When you consolidate your federal student loans, you’ll roll all your loans into one and pay the weighted average of all your interest rates, rounded up to the nearest one-eighth percent. While this may simplify your repayment schedule, it generally won’t save you money on interest.
Student Loan Refinancing
Student loan refinancing is a best-of-both-worlds approach that could help lower your monthly student loan payments and potentially reduce your interest rate.
When you refinance your student loans with a private lender, your new loan is used to repay your loans from your former lenders. The new lender will offer you an entirely new interest rate based primarily on your credit score and debt-to-income ratio. Keep in mind that refinancing federal student loans will result in the loss of certain benefits, such as income-driven repayment options or possible loan forgiveness.
Refinancing with a trustworthy lender like ELFI will also ensure you’ll receive top-notch customer service throughout the refinancing process.
Deferment or Forbearance: Which Is Right For You?
If you need a reprieve from student loan payments, consider whether deferment or forbearance may be right for you. But be careful to avoid an option that could skyrocket your interest costs, as this could be an expensive repayment mistake.
If deferment and forbearance don’t seem like the best choice, several alternatives could simplify your repayment experience, including income-driven repayment plans, consolidation, or refinancing.
Opting for student loan refinancing might reduce your interest rate and your monthly student loan payments. Here are some examples that may help you determine when to refinance your student loans.
To learn more about refinancing your student loans with ELFI, contact us today to speak with a member of our team.
