A Guide to Deferment vs. Forbearance: Which Loan Repayment Option is Right for You?
Getting a handle on your student loans can feel overwhelming, but understanding your repayment options is the first step toward financial freedom. Life is unpredictable—you might face a job loss, an unexpected illness, or decide to go back to school. During these times, making your monthly loan payments can be a real struggle.
Luckily, there are options available to give you a temporary break from payments. Two of the most common are deferment and forbearance. While they might seem similar, they have some important differences that can significantly impact your financial future. Let's break down deferment vs. forbearance so you can make the right choice for your situation.
What is Deferment?
Deferment is a temporary postponement of your loan payments. The key benefit of deferment is that for certain types of loans, the government may pay the interest that accrues during the deferment period. This is a huge plus because it means your loan balance won't increase while you're not making payments.
Who is it for?
Deferment is typically available for a variety of specific situations, such as:
Going back to school: If you're enrolled at least half-time at an eligible school, you can often defer your loans.
Economic hardship: If you're experiencing a period of unemployment or financial difficulty, you may be eligible.
Military service: Active-duty military service often qualifies you for a deferment.
Cancer treatment: Borrowers undergoing cancer treatment may be eligible for a deferment.
Key things to remember about deferment:
Interest subsidy: The biggest advantage is that for subsidized federal loans (like subsidized Stafford loans), the government pays the interest that accrues during deferment. This prevents your principal loan balance from growing.
Eligibility: Deferment is not automatic; you must meet specific eligibility criteria and apply for it through your loan servicer.
Duration: The length of a deferment varies depending on the reason, but it's always for a set period of time.
What is Forbearance?
Forbearance is another way to temporarily stop or reduce your loan payments. However, forbearance is a bit different because interest always accrues on all types of loans, including subsidized loans, during this period. This means that while you’re not making payments, your loan balance will continue to grow, and you'll have more to pay back in the long run.
Who is it for?
Forbearance is often easier to get than deferment because the eligibility criteria are generally less strict. It’s often granted if you’re facing a short-term financial challenge and don't qualify for deferment.
Key things to remember about forbearance:
Interest accrues: This is the most crucial difference. Interest will continue to build up on your loan, and it will be added to your principal balance once the forbearance period ends. This process is called "capitalization."
Discretionary vs. Mandatory: There are two types of forbearance. Discretionary forbearance is granted at the discretion of your loan servicer. Mandatory forbearance is required by law for specific situations, such as serving in a medical or dental internship or residency.
Duration: Forbearance is typically granted for up to 12 months at a time, but you may be able to renew it if you continue to meet the requirements.
Deferment vs. Forbearance: The Key Differences at a Glance
| Feature | Deferment | Forbearance |
| Interest | The government may pay the interest on subsidized loans. | Interest always accrues on all loans. |
| Eligibility | Specific, strict criteria (e.g., in-school, military service). | Broader, often based on financial hardship. |
| Impact on Loan | Loan balance may not grow. | Loan balance will likely grow due to interest capitalization. |
| When to Use | When you qualify and want to avoid interest capitalization. | When you don't qualify for deferment but need a temporary break. |
Which Option is Right for You?
When faced with financial hardship, deferment should almost always be your first choice if you qualify. The fact that the government may pay your interest on subsidized loans is a massive financial benefit.
Choose deferment if:
You meet the specific eligibility requirements (e.g., returning to school, military service).
You have subsidized federal loans and want to prevent interest from accumulating.
Choose forbearance if:
You don’t meet the eligibility requirements for a deferment.
You need a temporary break from payments due to a short-term financial crisis.
You understand and are prepared for the fact that your loan balance will increase.
Before you make a decision, always contact your loan servicer. They can help you understand all of your options, determine which ones you qualify for, and guide you through the application process. Remember, a little bit of research now can save you a lot of money and stress in the future.