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Updated on Thursday, June 18, 2015
There are many differences between forbearance and deferment. I’m going to cut to the chase right now and say that deferment will always be the better option. It’s because interest doesn’t accrue during deferment as it does with forbearance.
This article will cover all facets of the question, “What’s the difference between forbearance and deferment of my student loans?” Your question is justified. It’s a confusing topic. The basic definitions are:
- Forbearance– a refraining from the enforcement of something (as a debt, right, or obligation) that is due
- Deferment– the act of delaying or postponing
Confusing, right? This post will cover which loans qualify, key differences between forbearance and deferment, when to take action, the application process, and how to restart regular repayment.
You’re probably reading this article because you’re in an unfortunate situation. You may feel helpless. But it’s important to give yourself credit. Instead of hiding from your loans, you’re facing them by reading this article. You’re attempting to better your situation. Things will get better. By the end of this article, you’ll know exactly what to do with your loans.
Loans which Qualify
Forbearance and deferment are available for all federal loans (Stafford, Perkins – you name it). They rarely apply to private loans. Since private loan forbearance and deferment is uncommon, contact the lender that originated your private loan(s). If you’re unsure who that may be, you may need to pull a credit report to find who originated your loans.
Key Differences between Forbearance and Deferment
Check out this free chart provided by the U.S. Department of Education Federal Student Aid Office:
Forbearance Will Be Granted if Any of the Following Pertain to You (Mandatory Forbearance):
- You are enrolled in a medical or dental internship or residency.
- You are serving in a national service position such as AmeriCorps, are part of the Department of Defense repayment program, are in the National Guard, or are eligible for teacher loan forgiveness programs.
- Your monthly loan payment is 20% or more of your gross monthly income.
- You are teaching in a program that qualifies for loan forgiveness.
- You qualify for partial repayment under the U.S. Department of Defense Student Loan Repayment Program.
- You are called into active military duty.
Forbearance May Be Granted If (Discretionary Forbearance):
- You are enrolled less than half time (each school has their own definition of ‘half time’).
- Poor health.
- Unemployment (beyond the maximum deferment time limit).
- A reduction in work hours.
- A life-changing circumstance.
You May Qualify for Deferment If You Are:
- Enrolled at least half time at an eligible postsecondary school.
- In a full-time course of study in a graduate fellowship program.
- In an approved full-time rehabilitation program for individuals with disabilities.
- Unemployed or unable to find full-time employment (for a maximum of three years).
- Experiencing an economic hardship (including Peace Corps service) as defined by federal regulations (for a maximum of three years).
- Serving on active duty during a war or other military operation or national emergency and, if you were serving on or after Oct. 1, 2007, for an additional 180-day period following the demobilization date for your qualifying service.
- Performing qualifying National Guard duty during a war or other military operation or national emergency and, if you were serving on or after Oct. 1, 2007, for an additional 180-day period following the demobilization date for your qualifying service.
- A member of the National Guard or other reserve component of the U.S. armed forces (current or retired) and you are called or ordered to active duty while you are enrolled (or within six months of having been enrolled) at least half time at an eligible school.
Note: This list comes from: http://www.direct.ed.gov/postpone.html. Some additional information was added by author.
When to Take Action
Right now! Do not let your loans go into default. Default occurs when you are more than 270 days behind on your payments. If you are in default, you are not eligible for either forbearance or deferment. If it’s too late, get out of default as soon as you can. You can get out of default in a few different ways:
- Cancel the Loan
- Consolidate Loans
- Get a ‘Reasonable and Affordable’ Payment Plan
The Application Process for Deferment or Forbearance
The rule to always follow when struggling to pay any debt is to keep in contact with the servicer. Be sure to keep the lines of communication open. You’ll need to work with your loan servicer(s) to apply for deferment or forbearance. Again, visit http://www.nslds.ed.gov/ to see who services your federal loans.
For deferments, payments are deferred in six-month intervals for up to three years. Forbearance can be granted for up to 12-months. Please, reassess your financial situation prior to the end of each period.
Note: Get ready to cheer! Putting loans into deferment or forbearance does not hurt your credit score! It is noted on your credit reports but has no impact on your credit. However, if you are late or miss a payment, expect repercussions.
How to Restart Normal Repayment
Before your deferment or forbearance term expires, contact the servicer of the loan. You will need to explain your current situation. Both you and the lender will create a repayment plan which will work for your new situation. Note that if your situation changes before your deferment or forbearance period expires, you can resume payments at any time.
Here’s your game plan: If you’re having trouble paying your student loans, contact your loan servicer(s). Keep paying towards the current agreement. Do not let your loans go into default. If they do go into default, you must get current before applying for either deferment or forbearance.
If your loans are current, begin the application process for deferment. Within 10-14 days, you will be notified as to whether or not you have been approved. If denied, go the forbearance route. You should be all set.
The United States now holds $1.2 trillion in student loan debt. Lenders want their money. They are willing to work with you in order to make that happen – even if payments are delayed. Talk with them. They will listen.
Whether you go with deferment or forbearance, what’s important is you’re improving your situation.