If you fall behind making your student loan payments, your lender may suggest that you apply for deferment or forbearance. Both allow you to temporarily stop your student loan payments for a set period of time. However, there are some important differences between the two that you should be aware of.
Below you can learn about how student loan deferment and forbearance work, and the important differences between the two options.
While you must qualify for deferment based on the requirements of a particular program, forbearance has no such qualifications -- it's either mandatory or discretionary depending on the type of student loan you have.
To obtain a deferment, there are specific deferment programs which you must qualify for. Fortunately there are so many deferment programs, almost every borrower will qualify for at least one of them. Disability, economic hardship, mothers of young children, 501(c)(3) volunteers, attendance in graduate school, teachers in shortage conditions, and military and post-active duty, all are situations where deferment can be granted.
You may qualify for deferment on more than one basis. But ask your lender for the basis it relied on in providing your deferment because different grounds for deferment have different deferment periods. For example, economic hardship has a three year maximum period, whereas unemployment (which to the average consumer would sound the same as economic hardship, but is not for the purposes of deferment), can only go back six months. If you have economic hardship but are on active military duty, you are better off with a military deferment, which is unlimited.
Forbearance is more straightforward. With a direct loan, the forbearance is mandatory upon your request. If you have an indirect loan, forbearance is discretionary, that is, your lender may or may not provide it to you. However, in practice, most all federal loan lenders will provide you with a forbearance.
Applying for forbearance can be done over the phone, without a paperwork application. Because of this application ease, it is often the first suggestion made by lenders when you fall behind in payments.
For deferment you must apply on paper, and provide documentation to obtain the deferment.
Because forbearance is relatively easy and quick to apply for, many borrowers opt for it before deferment. However, with forbearance, the interest on the missed payments will accrue, and will be added to the balance of your loan.
With deferment however, if you have a subsidized loan, the government will pay the accrued interest. This means that if you have a subsidized loan, you would be better off applying for deferment rather than forbearance.
Whether your student loan is in default makes a big difference s to which program you can apply for. Federal student loans are considered to be in default once you are 270 days late on a payment. One of the few benefits of a forbearance is that you can get forbear a student loan that is in default. However, you cannot get a deferment of a student loan that is in default.
If the 270 day deadline is upcoming, deferment is always the better choice because you can "back date" deferment to when the condition that justifies the deferment began.
Example. Say you receive a six month deferment on the 269th day of nonpayment and the deferment was based on your unemployment, which began 90 days ago. You can back date your deferment to the date of your unemployment. In this scenario, you'll then get another three months of deferment (for the total of six months). When the deferment period ends, you will be only 179 days behind (because the 90 days of back dated deferment knocked 90 "late" days off your loan).
Example 2. Say that on day 269 of nonpayment you receive a six month deferment for a condition that began six months ago. The deferment would effectively bump your late days back to 89 (six months is about 180 days, and 269 – 180 = 89).
The practical benefit of this is that until you hit the 270 day default deadline, you can keep your loan out of default. With your loan out of default, you can apply for a federal income based repayment program in order to reduce your monthly payment, or you could consolidate your student loans. (For both income based repayment and consolidation your loan cannot be in default.) By doing a last minute deferral, you can buy time to apply for these programs.
There are no established deferment or forbearance programs for private student loans. Your lender may or may not offer either one, but is not required to do so. If your lender does allow you to temporarily stop payments, it is very likely that interest will accrue while your payments are paused.