Student Loan Deferment vs. Forbearance

Susan Kelly

Dec 28, 2022

When you cannot make your student loan payments due to financial forbearance, you can either defer or forbear them. The most important distinction between the two is that forbearance will always increase the total amount you are responsible for paying. Still, deferment may allow you to avoid paying interest on certain federal loans. When deciding between deferment and forbearance, the option that is most appropriate for you will rely on the following factors:

  • Deferment: If you have subsidized Perkins loans or federal student loans and you are now jobless or experiencing substantial financial difficulty, this option may be preferable to you.
  • Forbearance: In most cases, it is preferable if you do not qualify for a deferment and your current financial difficulty is temporary.

Even while both choices have the potential to keep you out of default on your student loans, neither one is a smart long-term answer. Instead of suspending your loan repayments while you wait for your financial circumstances to improve, you may consider enrolling in a repayment plan determined by your income.

What Is Student Loan Forbearance?

Forbearance is a temporary reduction or loan of payments on a federal student loan and operates similarly to a deferment. Forbearance is a kind of loan modification that enables borrowers to miss loan payments without incurring the consequences of delinquency. This is an essential safeguard for those who are experiencing temporary financial difficulties.

However, abusing the forbearance policy by entering it repeatedly or for extended periods runs counter to the policy's intended function: to give relief in the short term. If you do not pay the interest that accrues on forbearance loans, including subsidized loans, the interest will continue to increase even after the forbearance term has ended. When the period of forbearance ends, any interest accumulated is added to the loan's principal balance, and subsequent interest is computed based on the new, increased loan amount.

What Is Student Loan Deferment?

A stoppage or postponement of payments on a student loan is known as a deferment. You can apply to have your unsubsidized federal student or subsidized loan payments temporarily postponed. During the deferment period, the government will pay the interest that accrues on subsidized loans.

Even if you are not required to make payments on unsubsidized loans during the deferment period, you will still be responsible for paying interest on those loans. You can get this benefit if you meet the requirements for a deferment, such as attending school at least half the time. You are allowed to make interest payments throughout the deferment period, provided that you can do so.

What Is Better: Deferment Or Forbearance?

Deferring your student loan payments is preferable to forbearance if you need a pause in your loan repayment. But you'll need to qualify for a deferment. You are free to do so based on the following:

  • Maintaining at least a half-time attendance record in school
  • Having no job to go to.
  • Receiving support from the state or the federal government, such as via the Supplemental Nutrition Assistance Program (SNAP) or the Temporary Assistance for Needy Families (TANF).
  • Having a monthly income that is less than 150 percent of the poverty threshold established by your state.
  • Serving active service in the military or volunteering with the Peace Corps.
  • Now participating in cancer therapy.

If you have subsidized federal student loans or Perkins loans, student loan deferment is also an option for you to consider. Since you will not be charged interest on these loans while in a deferment period, the total amount you will owe after the deferment period is through will be the same as when it first began. It is a genuine reprieve from your financial obligations. Forbearance is an option to consider if you do not meet the requirements for a deferment but believe that the difficulties you are experiencing with your finances will only be temporary.

Deferment vs. Forbearance for Private Student Loans

Most private lenders provide deferment options if you are currently serving in the armed forces or attending an educational institution. Those that provide forbearance normally do so for at least one year. For private student loans, deferment and forbearance both accomplish the same thing, even though their titles are different: Interest will never stop accruing, and you will never stop being accountable for paying it. If your lender allows you to make interest payments while you are attending school, doing so is an excellent strategy to prevent interest from accruing at an alarming rate.

Call the lender and explain your position if you cannot make payments on your private student loans and the lender does not provide a deferment or forbearance option. Your lender could provide you with a different form of short-term relief, such as allowing you to make payments that cover just the interest on the loan or temporarily lowering your interest rate.