If you’re facing challenges repaying your student loans for a limited period of time, you may be able to postpone your payments. The two most common options to pause your required payments are called deferment and forbearance. While both options can help you avoid defaulting on your student loans, they are meant to be temporary solutions. Pausing your payments can help you weather short-term challenges, but you’re usually going to pay more in the long run as a result.
The main differences between deferment and forbearance are:
- Eligibility criteria
- How long you can postpone your payments
- For certain federal loans, whether interest accrues while your payments are postponed
What is Student Loan Deferment?
Student loan deferment is a temporary period when you don’t need to make student loan payments. Deferment is available for federal loans and many private student loans, but you must meet specific criteria. The most common reasons you would qualify for loan deferment are if you’re enrolled in school at least half-time, or during military service, and the deferment will then usually last as long as you stay in school or for the duration of your active military service.
If you have federal student loans, you’ll want to check out Federal Student Aid since there are many other life events that can qualify for federal student loan deferment such as Peace Corps Volunteer deferment, Graduate Fellowship deferment, and more.
For private student loans, speak with your servicer(s) since every lender sets their own eligibility criteria for deferment. As an example, College Ave offers deferment for students enrolled in school and members of the Armed Forces and National Guard who are called to active duty for more than 30 days.
Some federal loans, such as Subsidized Direct and Perkins loans, do not charge interest during deferment, so your loan balance isn’t increasing while your payments are paused. That’s not the case with most federal and private loans though. See below for more information about the cost of deferring your loans.
What is Student Loan Forbearance?
Forbearance is another option for temporarily postponing loan payments and is typically available on both federal and private loans. The eligibility criteria for forbearance is generally broader than deferment – so you may be more likely to qualify – but the amount of time the loan can stay in forbearance is often more limited than deferment.
Forbearance usually covers the following scenarios:
- Temporary unemployment
- Temporary medical disability
- Temporary financial hardship
Types of Forbearance for Federal Loans
There are two types of forbearance for federal student loans: general and mandatory. General forbearance, also sometimes known as discretionary, can be approved or denied by the servicer. Mandatory forbearance cannot be denied by the servicer if you meet the criteria.
General Forbearance for Federal Loans
You can request a general forbearance if you can’t pay your federal student loans because of temporary financial, medical, or employment reasons. General forbearances are available for Federal Direct Loans, FFEL Program loans, and Perkins Loans and can last for up to 12 months at a time. The typical total limit on general forbearance is three years.
Mandatory Forbearance for Federal Loans
Mandatory forbearance for federal loans means your servicer must accept your application if you fit the criteria and is granted for up to 12 months at a time. You can request an extension if you still qualify after 12 months. Below are a few examples of the basic eligibility scenarios for mandatory forbearance. For a full list and complete eligibility criteria, visit Federal Student Aid.
- Serving in eligible AmeriCorps positions
- Medical or dental internship or residency program
- National Guard duty not otherwise covered by military deferment
Forbearance for Private Loans
Each private lender will decide if and when they offer forbearance. As an example, College Ave may offer up to 12 months of hardship forbearance over the life of the loan, usually in three- or six-month increments depending on the situation.
The Cost of Deferment and Forbearance
While your loans are in deferment or forbearance, you’re not required to make payments. Most federal student loans and private student loans continue accruing interest during deferment and forbearance though, so the total amount you owe is increasing while you’re not making payments.
In addition, when your deferment or forbearance comes to an end, any accrued interest from the deferment or forbearance period is capitalized. Capitalization occurs when the accrued interest is added to the principal balance. After capitalization, future interest charges are calculated based on the new higher balance – you might hear people refer to this as paying interest on interest. This increases the total cost of your loan, and it can increase your monthly payments as well.
Some students opt to pay just the interest during deferment or forbearance to avoid capitalized interest and the increased cost. If putting your loan in deferment or forbearance makes sense for your financial situation, it’s a good idea to pay as much of the accrued interest as possible before the end of the deferment or forbearance period. That will help you get the temporary monthly payment flexibility you need while keeping your total costs down.
Read More: How Does Student Loan Interest Work?
How to Apply for Student Loan Deferment or Forbearance
To apply for deferment or forbearance, contact your student loan servicers. If you have several federal and/or private student loans, you may have several different servicers as well, so you will need to reach out to each one individually. The servicers may ask you to submit a form, and in some cases, you may also need to show proof that you meet the eligibility criteria.