Definition of Deferment

Deferment is a temporary pause on loan payments, often without accruing interest on certain types of federal loans, such as Direct Subsidized Loans and Perkins Loans. It’s designed to assist borrowers during specific situations, such as returning to school, unemployment, or active military service.

Definition of Forbearance

Forbearance allows borrowers to temporarily reduce or pause their loan payments, but interest typically accrues on all loan types during this period. It is often used for general financial hardships or emergencies when deferment isn’t an option.

Interest Accrual

One of the key differences between deferment and forbearance is how interest accrues:

• Deferment: Subsidized federal loans and Perkins Loans do not accrue interest during deferment. However, unsubsidized loans and PLUS Loans continue to accrue interest.
• Forbearance: Interest accrues on all loan types, regardless of whether they’re federal or private loans.

Eligibility Requirements

Deferment requires meeting specific qualifications, such as being enrolled in school at least half-time, experiencing unemployment, or serving in the military. Forbearance has broader eligibility criteria and is often granted at the lender’s discretion for financial hardship or medical emergencies.

Duration and Limits

Deferment periods vary based on the qualifying situation, with some lasting several years. Forbearance is typically granted in 12-month increments, with a cumulative limit for federal loans.

In-School Deferment

Borrowers enrolled at least half-time in school are eligible for automatic in-school deferment. This deferment may extend if the borrower enters a graduate fellowship or rehabilitation program.

Unemployment Deferment

This deferment is available for borrowers actively seeking employment. Documentation, such as proof of job search efforts, may be required to qualify.

Economic Hardship Deferment

Borrowers experiencing financial difficulty may qualify for an economic hardship deferment. Eligibility often includes participation in federal assistance programs, such as TANF or SNAP.

Military Service and Post-Active Duty Deferment

Active-duty service members and those transitioning after military service are eligible for deferment, providing them with financial relief during and after their service.

General (Discretionary) Forbearance

Loan servicers may grant general forbearance for reasons such as financial hardship or illness. Approval is at the servicer’s discretion, and documentation may be required.

Mandatory Forbearance

Mandatory forbearance must be approved by loan servicers under specific conditions, such as:

• AmeriCorps service.
• Medical or dental residency programs.
• Activation of National Guard duty.
• Monthly payments exceeding 20% of the borrower’s gross income.

Administrative Forbearance

This type of forbearance is automatically granted during emergencies, such as natural disasters or the COVID-19 pandemic, providing temporary relief without requiring borrower action.

Limited Availability

Private lenders are not required to offer deferment or forbearance options, and policies vary widely. Borrowers should review their loan agreement or contact their lender for specific options.

Eligibility and Terms

Private loan deferment and forbearance options often require documentation of financial hardship or instability. Interest accrual policies vary by lender, and additional fees may apply.

Alternatives to Deferment and Forbearance

Private lenders may offer alternative solutions, such as temporary interest-only payments, loan modifications, or refinancing options. These alternatives can provide relief while minimizing the long-term cost of the loan.

Federal Loan Application Process

To apply for deferment or forbearance on federal loans, borrowers should:

• Contact their loan servicer to request the appropriate form.
• Submit supporting documentation, such as proof of enrollment or financial hardship.
• Continue making payments until approval is confirmed to avoid delinquency.

Private Loan Application Process

Borrowers with private loans should review their lender’s policies and contact customer service to request deferment or forbearance. Be prepared to provide documentation and ask about potential fees or restrictions.

Tips for a Smooth Application

Keep detailed records of communications with your loan servicer and submit applications early to avoid missed payments during processing.

Advantages

• Provides immediate relief from loan payments.
• Helps borrowers avoid delinquency and default.
• Allows time to stabilize finances during temporary hardship.

Disadvantages

• Interest accrual increases total repayment costs.
• May delay progress toward loan forgiveness for federal borrowers.
• Frequent reliance can lead to extended repayment periods and higher overall costs.

Deferment and forbearance can be valuable tools for managing student loans during financial hardship, but they’re not without costs. By understanding the eligibility requirements, benefits, and limitations of these programs, borrowers can make informed decisions about when and how to use them. Remember, exploring alternative strategies like income-driven repayment plans or refinancing may provide more sustainable solutions for long-term loan management.

With the right approach and proactive planning, you can navigate challenging times and stay on track toward financial stability and loan repayment success.