Both a deferment and forbearance are ways of temporarily suspending your student loan payments during times of financial difficulties.
However, there are differences between a deferment and a forbearance that you should understand prior to receiving one of the other from your student loan lender.
A deferment will postpone all student loan payments and under certain conditions will also prevent interest from accruing on your loan while in the deferment period.
This is extremely important as it allows the borrower to pause their loan while the balance does NOT continue to grow.
The US Government would pay the interest on your loan during the deferment period if you have:
Any other loan types you would be responsible for paying back interest that accrues during a deferment period, including all unsubsidized federal student loans.
You would not be responsible for paying the interest while you are in the deferment, but the interest will capitalize and be added onto your principal balance that would need to be paid back once your deferment period is finished.
Eligibility for a deferment would be determined based on what type of loans you have, and the reason for the request of a deferment. For example, if you are having an economic hardship you may be eligible for up to 36 months of deferment on your student loans.
If you are enrolled in college at least half time or more, you could also be eligible for deferment while enrolled.
If you would like to check your eligibility for a deferment, you will want to contact your current lender and explain to them why you need the deferment.
They should then grant it to you based on eligibility.
Delinquency and Deferment
If you fall into delinquency, it is best to amend the crisis as soon as you can. Although it can harm your credit score to pay off too quickly, seeking a new job or a second source of income in order to catch up on your payments will cause even more severe damage on your credit rating. Once you resolve a delinquency by establishing an Income Based Repayment, Income Contingent Repayment, or another similar repayment option, your credit rating will quickly restore itself to the level it was at before you became delinquent, resolving the issue.
If you took out a student loan with a private lender, you’ll find that you have fewer repayment options than with a federal student loan. Even so, most banks will work with you to help not just you and your credit score, but to ensure that “bad” loans are not associated with them. The best option is to notify your lender before you miss a payment and set up a new repayment plan as soon as you can to avoid delinquency.
If you have already fallen into delinquency, you still have options, but you will need to establish a new repayment plan quickly and follow up with the lender and the credit reporting agencies to make sure any bad information about it has been updated. Once it is clear that you have gotten a new repayment plan, your credit score will look much better.
A student loan in deferment or forbearance will, fortunately, not cause any damage at all to your credit score. Payments are not required when a loan is deferred, so there is no way that you can be “late” in making them. If you have experienced a financial crisis due to unemployment or an extended illness or injury, consider deferment as an option to avoid getting a bad credit rating.
Alternative to Deferment for Economic Hardships
A forbearance is similar to the deferment in that it pauses your student loan payments for a certain amount of time. One large difference is that the US Government does not pay for interest during the forbearance period, so all interest will capitalize and be added onto the balance of your loan during the forbearance period. There are two types of forbearance that federal servicers provide.
Federal servicers are required by law to provide a forbearance under certain circumstances:
- You are a member of the national guard but are not eligible for a military deferment
- You are currently teaching at a qualify school and want to apply for teacher loan forgiveness
- If your monthly student loan payment exceeds 20% of your total monthly gross income
- You are in a medical or dental residency program
- You qualify for a partial repayment under the US Department of Defense Repayment Program
If you do not qualify for the above mandatory forbearance, the lender may grant you a forbearance based on their discretion. You would need to contact your lender to explain why you feel that forbearance is really needed on your student loan. They are most likely to work with you and offer forbearance if a financial hardship exists or a serious illness that prevents you from working.
If you would like to check your eligibility for a forbearance, you will want to contact your loan servicer and explain to them why you need the forbearance.