Have you faced a financial hardship lately that’s preventing you from making payments on your student loan?
If you’re struggling to stay current on your monthly payment or you’ve fallen several months behind, forbearance and deferment are two terms you need to know more about.
What’s the difference between forbearance and deferment?
Forbearance and deferment are sometimes used interchangeably, but the two terms (and what they represent) are drastically different.
The most notable difference is that with a deferment, you may not be responsible for paying the interest that accrues on certain types of loans during the deferment period.
This is the exact opposite of forbearance, where the interest accrues while your loan is put on hold and you are responsible for paying the interest.
So, what exactly are these two loan “hold” programs?
Federal student loan deferment
Deferent allows you to temporarily postpone payments on a loan under certain circumstances. During a deferment, interest generally doesn’t accrue on Direct Subsidized Loans, the subsidized portion of Direct Consolation Loans, Subsidized Federal Stafford Loans, the subsidized portion of Federal Family Education Loans (FFEL) Consolidation Loans, and Federal Perkins Loans.
If you’re enrolled in an eligible college or career school at least half-time, in most cases, your loan will be placed into a deferment automatically, and your loan servicer will notify you that the deferment has been granted.
You may also be eligible for deferment based on other circumstances as defined on the Federal Student Aid website. This includes things such as:
- Being unemployed or unable to find full-time employment (for up to three years)
- Being enrolled in an approved graduate fellowship program
- Experiencing economic hardship,
- Serving in the Peace Corps (for up to three years), or
- Being in active duty military service in connection with a war, military operation, or national emergency.
If you don’t meet the qualifications for a deferment, you might be eligible for a forbearance.
Federal student loan forbearance
Like deferment, forbearance temporarily relieves your obligation to make payments on a student loan. However, a forbearance has some very important differences from a deferment.
Lenders may grant you a forbearance if you’re facing a financial hardship, such as a serious medical issue that leaves you unable to work.
During forbearance, your regular loan payments are temporarily reduced or put on pause. However, it’s important to note that even though your principal payments are postponed while the loan is in forbearance, the interest on the principal continues to accrue.
So what’s the problem with that?
Well, this build-up of interest—otherwise known as capitalization—occurs when you miss interest payments, or in this case, have your payment placed on hold. While the loan itself is on hold, the unpaid interest gets added monthly to the principal of the loan.
So, the next month, you’re charged interest on a higher principal amount, thus increasing the total amount owed.
The good news is, you can (and should) choose to make interest-only payments while your loan is in forbearance. This will help keep the principal at the same amount until you’re ready to start making payments again.
How do you request a forbearance?
If you’re interested in a forbearance on your federal student loan, you will need to submit a request to your loan service provider.
You may also be asked to provide documentation to show that you meet the eligibility requirements.
Learn more about how to manage your student loan debt.
The information in this article pertains to federal student loan forbearance. Student loans from a state or a private lender will have different forbearance options. Learn more about private student loan forbearance.