Deferment & Forbearance
We know that there can sometimes be immediate concerns, such as what to do if you can't make your student loan payments. We want to provide you with information that may help in these situations.
You have likely heard of both Deferment and Forbearance. Keep in mind that they both mean the same thing: postponing your monthly payments. With forbearance, interest still accrues. With deferment, interest accrues on all unsubsidized loans, but doesn’t accrue on most subsidized loans but is dependent on when you took out your loan, so you will need to speak with your loan servicer to be sure of the exact options that you may have. Ultimately, the main distinction isn’t really “deferment vs. forbearance,” but rather, “subsidized vs. unsubsidized loans" as well as when you obtained your loans.
These terms mostly apply to federal loans, but as mentioned in the Refinancing section, some private loans also offer options that are similar to deferment.
The advantage of deferment and forbearance is:
- Pause monthly loan payments. You have the ability to press the pause button on your loan account for a period of up to 6 or 12 months so that you won’t need to make payments. If you find that your income has drastically changed, or you decide to return to school, these options can be helpful.
- Interest accrual. Forbearance on loans (and deferment on unsubsidized loans) will get you a higher total repayment amount. Why? The repayment period will be extended, and during that extended time--even though you aren’t making monthly payments--it will still be accruing interest. For example, a forbearance of 6 months could add about $1,000 (based on the following example) to your total repayment amount (because of the interest on those 6 months). You have two options for paying it:(A) You can pay that interest each month. Interest payments are much cheaper than monthly payments, since you aren’t paying back any of the principal; for example, a loan with a monthly payment of $500 could have an interest payment of $150/month (depending on how far along you are into the loan’s lifetime).(B) You can hold off on paying it, at which point it will be capitalized (added to the total loan amount). If you let the interest capitalize, it will increase your total repayment amount even more, since that added interest will now start compounding. For example, a forbearance of 6 months that would add $1,000 to your total repayment amount could add $1,300 to your total repayment amount instead (another $300) if it were capitalized.
- Not a long-term solution. Forbearance and deferment aren’t ideal for the long-term. Ideally, you pay off your loans steadily over time. Sometimes, these options trick people into thinking they’ve found a way around their loans--but the loans will still be there, this time with even more interest than before.
For deferment, there are a few possibilities:
- Unemployment - If you are unemployed, you must either be receiving government unemployment benefits or you are actively seeking a job (at least 6 attempts in the last 6 months) and are registered with a local employment agency. This deferment lasts up to 6 months at a time, and you can do it for a total of 3 years over the lifetime of the loan.
- Economic Hardship - If you are in certain government assistance programs (or in the peace corps), you are eligible. Alternatively, if you are working full-time, you must be below 150% of the poverty line for your family size (an income of about $18,000/year, or $24,000/year if you're married plus $6,000 for each child you have). This deferment lasts up to 12 months at a time, and you can do it for a total of 3 years over the lifetime of the loan.
- Others - There are other types of deferment if you are in school, the military, or in certain fellowships.
- General - If you are having financial difficulties, including medical bills or employment issues, you can make a request. The loan servicer may or may not grant it (but if you need it, might as well try!). This can be used for up to 1 year total over the lifetime of the loan.
- Mandatory - If you are in certain programs affiliated with the military, AmeriCorps, or internship in a medical field, your loan servicer is required to grant you forbearance.
Possible Next Steps
If you're in one of these situations, getting deferment or forbearance doesn’t happen automatically. You need to contact your loan service provider, and fill out an application form. Reach out as soon as you need. As we mentioned, deferment and forbearance are short-term solutions so if you're struggling continually to make your payments, there are other options such as income-driven repayment.
For many people, deferment or forbearance may not be the right decision because of how it increases your total repayment amount.
The basic questions to ask yourself are:
- Is this a temporary problem? If not, look into other options such as income-driven repayment.
- Are your loans subsidized? If not, your deferment will accrue interest. First look into other possibilities. If you do decide to defer, then (if possible) pay the interest as it accrues rather than letting it capitalize.
- Deferment and forbearance mean pausing your monthly payments, typically while you are between jobs or experiencing other financial hardship. Deferment on most subsidized loans won’t accrue interest, but deferment on unsubsidized loans, as well as forbearance, will accrue interest. As a result, your total repayment amount will increase. For the interest that accrues, you can either pay it off monthly or let it capitalize (add it to the total loan amount). Capitalizing will increase your total repayment amount even higher.
- You're eligible for Unemployment Deference if you're receiving government unemployment benefits, or you are actively seeking a job and are registered with a local employment agency. You're eligible for Economic Hardship Deference if you're in a government assistance program, or you're working full-time and are earning below about $18,000/year.
- Deferment or forbearance is not a permanent solution. It's meant to get you through hard times when you really can’t make your monthly payments. If difficulty paying is a recurring issue, it's better to look into other options, such as income-driven repayment.